2532/K

IN THE MATTER OF AN AD HOC ARBITRATION

BETWEEN

CANADIAN NATIONAL RAILWAY COMPANY

(“the Company” / “CN” / “the Employer”)

- AND -

UNIFOR LOCAL 100

(“the Union”)

CONCERNING THE SHOPCRAFT GRIEVANCE of PR0120

SHP-748

Pursuant to the parties’ Video Conference Arbitration Handling Guidelines of June

15, 2021

Christopher Albertyn - Sole Arbitrator

APPEARANCES

For the Union:

Joel Kennedy (Presenting), National Rail Director

Cory Will, President, Unifor Local 100

Jason Lancaster, Prairie Region Vice President, Unifor Local 100

For the Company:

Richard Charney, Senior Partner, Norton Rose Fulbright

Samual Keen, Associate, Norton Rose Fulbright

Mark Grubbs Sr, Vice-President Mechanical, CN

Melanie Martens, Director LR & HR Compliance, CN

Ron Campbell, Labour Relations Manager, CN

Hearing held by videoconference on July 29, 2024.

Award issued on October 15, 2024.

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AWARD

1. This award concerns shopcraft grievance PR 120 of May 21, 2020.

2. The parties’ Joint Statement of Issue reads as follows.

JOINT STATEMENT OF ISSUE

Dispute

Contracting out work presently and normally performed by Unifor

bargaining unit members working at the Traction Motor Shop, Air

Brake Shop, and Wheel Shop at Canadian National Railway’s

Transcona Shops.

Joint Statement of Issue

On May 11, 2020, the Company notified the Union of its decision to

temporarily close the Traction Motor Shop, Air Brake Shop and

Wheel Shop, due to “the cataclysmic effect of the pandemic on our

business and on our customers, and as a result train starts were

curtailed, locomotives and cars were stored, and consumption of

wheel and other parts decreased proportionally”. These shops have not

been reopened.

On May 21, 2020, the Union filed a Step II grievance alleging the

Company had contracted out work, and that it had done so without

providing any notice (the “Grievance”).

On October 29, 2020, the Company responded, declining the Union’s

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grievance.

3. The dispute concerns the application of Rule 51, Contracting Out.

RULE 51

Contracting Out

51.1 Work presently and normally performed by employees who are subject

to the provisions of this collective agreement will not be contracted out

except:

(a) when technical or managerial skills are not available within the

railway; or

(b) where sufficient employees, qualified to perform the work, are not

available from the active or laid-off employees; or

(c) when essential equipment or facilities are not available and cannot

be made available at the time and place required (a) from Railway

owned property, or (b) which may be bona fide leased from other

sources at a reasonable cost without the operator; or

(d) where the nature or volume of work is such that it does not justify

the capital or operating expenditure involved; or

(e) the required time of completion of the work cannot be met with the

skills, personnel, or equipment available on the property; or

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(f) where the nature or volume of the work is such that undesirable

fluctuations in employment would automatically result.

The conditions set forth above will not apply in emergencies, to items

normally obtained from manufacturers or suppliers nor to the

performance of warranty work.

51.2 The Company will advise Union representatives in writing, as far in

advance as practicable, but no less than thirty days except in cases of

emergency, of its plans to contract out work which would have a

material and adverse effect on the employees.

In all instances of contracting out, the Company will hold discussions

with the representative of the Union in advance of the date contracting

out is contemplated, except in cases where time constraints and

circumstances prevent it.

To this end, at mutually convenient times on a quarterly basis, the

National President of Local 100, the Local 100 Vice Presidents and the

Unifor National Representative (or designates) and the appropriate

company officers (Chief Mechanical Officers or designates) will meet

to discuss the Corporation's plans with respect to contracting out of

work for the coming months.

51.3 The Company will provide the Union with a description of the work to

be contracted out; the anticipated duration; the reasons for contracting

out, and, if possible, the approximate date each contract is to

commence, and any other details as may be pertinent to the Company’s

decision to contract out. During such discussions, the Company will

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give due opportunity and consideration to the Union’s comments on the

Company’s plans to contract out and review in good faith such

comments or alternatives put forth by the Union. If the Union can

demonstrate that the work can be performed internally in a timely

fashion as efficiently, as economically, and with the same quality as by

contract, the work will be brought back in or will not be contracted out,

as the case may be. Where a business case cannot be made to have the

work performed by Unifor members under existing collective

agreement terms and conditions, the parties may, by mutual agreement,

modify such terms and conditions in an effort to have the work

performed by Unifor members.

51.4 Should a Regional Vice-President, or equivalent, request information

respecting contracting out which has not been covered by a notice of

intent or discussed in a quarterly meeting, it will be supplied promptly.

If the Regional Vice-president requests an additional meeting to discuss

such cases of contracting out, it will be arranged at a mutually

acceptable time and place.

51.5 Where the Union contends that the Company has contracted out work

contrary to the provisions of this Rule, the Union may progress a

grievance by using the grievance procedure which would apply if this

were a grievance at step 2 under the Collective Agreement. The union

officer shall submit the facts on which the Union relies to support its

contention. Such grievances will be submitted directly to the

appropriate company officer (Chief Mechanical Officer or department

Director), with a copy to Labour Relations, and will be discussed in

joint conference or as part of the next scheduled quarterly meeting. Any

such grievance must be submitted within 30 days from the alleged non-

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compliance, failing which the matter shall be deemed to be closed.

Facts

4. In about May 2020, at the early peak in the COVID-19 pandemic, the

Company decided to close the Transcona Shops (“the shops”) in Winnipeg (the

Wheel Shop, the Air Brake Shop and the Traction Motor Shop). This decision was

made because the railway had much reduced mileage and had built a surplus stock

of wheels and other parts that it could use. The Union accepts that this initial

decision to shut down the shops was legitimate.

5. The Union’s concern is with the Company’s decision to keep the shops

closed once the surplus stock of wheels and other parts had been used up, and the

Company’s refusal to resume production at the Transcona Shops. Instead, it

transferred the work to third-party contractors. That is what the Union objects to.

6. CN has not reopened the shops, and it has no plans to do so. Instead, CN

expanded its use of third-party contractors. The grievance concerns these decisions,

and it concerns the way in which the Company failed to engage with the Union to

effect the contracting-out and to maintain the shuttering of the shops.

7. The history of this matter starts in 2010. That is the start date of the details

the Company has provided of the scope of its contracting-out of the work of the

Transcona shops. From 1998 until 2001 there were derailments from improperly

modified wheel boring, principally from the Wheel Shop. The wheelsets were loose

and could cause car derailments. CN identified that the defects were being caused

by the Wheel Shop equipment that had become outdated and needed replacement.

So, in 2010, the Company undertook a review of the potential cost of renovating

and upgrading the Wheel Shop. The quote it received (“the Simmons Proposal”)

estimated it would cost between $19 and $25 million to replace the existing

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equipment. This potential cost was prohibitive, and CN decided not to proceed with

the contemplated improvements in the equipment.

8. CN did not engage the Union at all on the above considerations. As a result,

the Union was unaware of the contemplated refurbishment, of the potential costs of

doing so, and of the decision not to proceed with the necessary improvements. This

meant that the Union did not have any opportunity to provide input on how the

situation could be addressed. CN let the equipment in the Wheel Shop run down

because the cost of improving it was prohibitive.

9. The contracting-out of the work of the Transcona Shops started in 2003.

From 2010 the percentage of the contracted-out work of the three shops (Wheel

Shop, Air Brake Shop, Traction Motor Shop) was as follows, with subsequent

changes:

Wheel Shop contracted-out work:

2010: 23%

2019: (just before the pandemic and the notice of closure): 79%

2023: 93%

Traction Motor Shop contracted-out work:

2010: 30%

2019: 70%

2020: 100%

Air Brake Shop:

Valves 22-23-506 contracted-out work:

2010: 72%

2019: 60%

2020: 100%

Valves 22-24-508 contracted-out work:

2010: 49%

2019: 58%

2020: 100%.

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10. From the above, the result of the closure of the shops in 2020 was that a

very small portion of the Wheel Shop was retained, but 93% was contracted-out,

and all the work of the Traction Motor Shop and of the Air Brake Shop was

contracted-out.

11. The Union claims that it was unaware of the above contracting out until the

information was disclosed in this matter and says that it never had an opportunity

to address the issue. However, there were two previous grievances concerning

contracting out. The first in 2014, which was withdrawn; and in 2018 which was

resolved without prejudice. I have no further information on these grievances nor

on the resolution of the second.

12. Prior to the closure of the shops in May 2020, the Company conducted a

financial analysis of the cost differences between doing the work in the Wheel Shop

as compared to having the work done by third-party contractors. The analysis

revealed that CN could have saved over $3.8 million in 2019 if all the work were

done by contractors. Similarly, it would have saved $336,550 by moving the work

at the air break shop to third-party service providers. In total, the 2019 financial

analysis estimated it would have saved over $4.5m in 2019 had it given the work

of the Transcona Shops to third-party contractors.

13. The impact of the shuttering of the shops in 2020 was that the following

positions were eliminated:

- 3 jobs in the Air Brake Shop

- 11 jobs in the Traction Motor Shop

- 30 jobs in the Wheel Shop.

14. The Union learned of the closing of the shops on May 11, 2020. The

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employees affected by the closure were told the next day, May 12, 2020, that their

jobs were to be eliminated on May 15, 2020 (three days later).

15. 63 employees were affected by the closure. 40 were absorbed into other jobs

in the Transcona Shops; 23 were laid-off, but, by February 2021, all who wished to

return were recalled to work. The affected employees were mostly absorbed into

locomotive maintenance.

16. There was no discussion with the Union by the Company prior to the shop

closures in May 2020. There was also no information supplied to the Union in the

period following, despite repeated requests by the Union to be told of CN’s

intentions, particularly as to when it would re-open the shops, and as to the extent

of the contracting-out it was doing.

17. The Union filed this grievance on May 21, 2020, when it received no initial

information from the Company.

18. The first substantive response to the Union was on October 29, 2020,

denying the grievance. CN’s reply explained that the shutdown had been necessary

in May 2020 because of the surplus stock built up through the pandemic. CN denied

that it had contracted-out more work than prior to the downturn in traffic. No

information was given as to the Company’s future intention.

19. On the same date, October 29, 2020, the Union referred the grievance to

arbitration.

20. The figures provided by the Company for this case, indicating the

significant increase in the percentage of work contracted-out in 2020, do not accord

with the statement made on October 29, 2020 that the Company had not, by the

time of that reply, contracted out a much higher percentage of the overall work of

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the shops than it had prior to the pandemic. The information it gave to the Union

was therefore false.

21. The date of hearing of the arbitration was scheduled before me on October

18, 2022. Shortly before that date, in September 2022, CN requested a meeting with

the Union. By then the contracting out was complete.

22. The parties met on September 9, 2022 and they discussed the grievance.

They concluded a Memorandum of Settlement. In it the Company agreed to assess

the viability of reopening the shops “based on the cost of upgrading existing

equipment and processes to appropriate safety standards with a view of exploring

options for modernizing the shop”. The parties agreed to work collaboratively on

safety recommendations. The Company agreed to provide the Union with regular

bi-monthly updates on the progress of the assessments of the Wheel Shop. In return,

the Union agreed to hold the grievance in abeyance for six months. I was advised

that the hearing scheduled for October 18, 2022 was cancelled.

23. The parties further agreed that, at the conclusion of the six-month

assessment period, they would meet to discuss the Company’s plans regarding the

possible re-opening of the Wheel Shop. The Union could proceed with the

arbitration if the outcome of the assessment was unsatisfactory.

24. Pursuant to the obligation the Company undertook in the Memorandum of

Settlement, CN commissioned NSH USA, Simmons’ successor, to prepare two

proposals for a new Wheel Shop at Transcona: one that would be fully automatic,

the other semi-automatic.

25. NSH’s proposals for the two alternatives was received by the Company on

August 15, 2023. For the automatic Wheel Shop, the cost of refurbishment would

be over $42.7 million. CN anticipated it would incur a further $14.6m in civil

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engineering expenses to build a new Wheel Shop at Transcona. In total, CN

estimated that building a fully automatic Wheel Shop would cost approximately

$65 million. Such a shop would require only 36 employees.

26. For the semi-automatic Wheel Shop, the estimated total cost would be $54.5

million, with relatively few employees.

27. The Company concluded that that the cost of modernizing and reopening

the Wheel Shop was not financially viable. It advised the Union of this, and the

Union revived the arbitration.

Analysis

28. CN denies it violated the collective agreement by closing the Transcona

Shops. Alternatively, if there was contracting out, the Company submits it complied

with its obligations under Rule 51. Further alternatively, CN claims, if there was a

breach it was merely technical in nature and no remedy is appropriate.

29. CN’s argument is that it did not contract-out the work because the work was

given to the third-party contractors in an emergency, for sound operational reasons,

and in good faith.

30. There is no factual foundation for this argument. As can be seen from the

figures provided above, work “presently and normally performed by employees

who are subject to the provisions of this collective agreement” has steadily been

contracted-out by the Company, starting in 2003 and increasing proportionately

from 2010. Nonetheless, a substantial portion of the overall work continued to be

done at the Transcona shops until the COVID-19 pandemic shutdown in 2020.

31. Following the initial emergency shutdown in 2020, there was a substantial

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increase in contracted-out the work “presently and normally performed by

employees” (see AH-453). Such contracting out is, prima facie, a breach of the

Company’s obligation not to contract-out the bargaining unit work.

32. CN argues that, to the extent work was contracted-out, that was permissible

under Rule 51(d), which allows for contracting out when the capital and operating

expenditures necessary to keep work within the bargaining unit cannot be justified

in light of the nature and volume of the work involved.

33. What is not quite apparent from the facts is whether the Company needed

to contract-out the bargaining unit work. The Company alleges that the Wheel Shop

at Transcona had reached the end of its lifespan. However there is insufficient

evidence that the Wheel Shop was in such a state of disrepair that it could no longer

do the wheel work required of it. It certainly seems that a refurbished shop would

perform better, but there was no indication to the Union during the period leading

to the pandemic that the Wheel Shop’s lifespan was ending. It is therefore unclear

that it was a necessity to close down the Wheel Shop and the other Transcona Shops

after the surplus product had been used up in the early part of the pandemic in 2020.

34. It was certainly better for business because the work could be done at a

cheaper price by external contractors. But there is little to suggest that the Company

could not have reopened the Transcona shops and continued operating as it did in

2019, with the same proportion of the work done at the shops and by third-party

contractors. At some point it would become clear that the Wheel Shop would have

to be substantively refurbished, but it is not evident from the information provided

thus far that that was a necessity when the decision was made to keep it closed.

35. The Union claims that the first time the issue of the alleged end-of-life of

the Wheel Shop was raised by the Company was in CN’s submissions for this

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arbitration. That issue was not discussed with the Union prior to the Company’s

decision to shutter the Wheel Shop. However, it was presumably discussed in the

conversation between the parties on September 9, 2022, when the Memorandum of

Settlement was concluded. That is because the Memorandum of Settlement had the

parties agreeing to assess the possibility of reopening the Transcona shops “based

on the cost of upgrading existing equipment and processes to appropriate safety

standards with a view of exploring options for modernizing the shop”. The Union

now takes the position that the Wheel Shop can continue to be fully functional and

that the contracted-out work can return to it.

36. The Union argues that the Company has destroyed the core work of the

bargaining unit – the refurbishing of the wheels – by contracting it out and not

having it done at Transcona. The Union argues this constitutes a permanent loss of

bargaining unit work, without justification.

37. When making the decision to contract-out work, the Company had certain

obligations under Rule 51.

38. Firstly, under Rule 51.2, it must “advise Union representatives in writing,

as far in advance as practicable, but no less than thirty days except in cases of

emergency, of its plans to contract out work which would have a material and

adverse effect on the employees”.

39. The Union accepts that the circumstances causing the sudden closure of the

shops in May 2020 was an emergency. It has no complaint against the Company

for acting as it did then. The Company had to adjust to the sudden drop in demand

occasioned by the pandemic, in circumstances when it had an immediate surplus of

replacement wheels and parts.

40. What the Union does complain of, with justification, is the decision not to

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re-open the shops once the surplus product had been used up. It was then that the

Company decided to expand its contracting out of work previously done by

bargaining unit employees.

41. That decision required the Company to comply with Rule 51.2. The

emergency had passed then. The full obligation existed, and it was not complied

with. There was no notice in writing, never mind a notice, “as far in advance as

practicable”. The decision was made and acted on without any involvement of the

Union. That was plainly a breach of Rule 51.2.

42. Rule 51.2 continues: “In all instances of contracting out, the Company will

hold discussions with the representative of the Union in advance of the date

contracting out is contemplated, except in cases where time constraints and

circumstances prevent it.”

43. There were no time constraints for the decision to expand the contracting

out during 2020. The Company was obliged to hold discussions with Union

representatives before implementing the decision to expand the contracting out.

That did not happen. That was a further breach of Rule 51.2.

44. Rule 51.3 was similarly breached. That Rule requires the Company to give

a description of the work to be contracted-out, with details of the anticipated

duration, with reasons for doing so, with the approximate date when the contracting

out would occur, and other pertinent details. None of that was provided.

45. The purposes of Rule 51.2 and Rule 51.3 are to give the Union an

opportunity to make representations and to explore alternatives to contracting out

with the Company. That opportunity was denied. The purpose of Rule 51 was

therefore thwarted by the Company’s failure to engage at all with the Union on the

decision to permanently contract-out the work.

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46. The purpose is stated in Rule 51.3: to give the Union the opportunity to

“demonstrate that the work can be performed internally in a timely fashion as

efficiently, as economically, and with the same quality as by contract”. If the Union

can do that, then the work “will be brought back in or will not be contracted-out”.

By failing to engage the Union, that opportunity was eliminated. There was,

therefore, a violation of Rule 51.3.

47. Rule 51.4 gives the Regional Vice-President of the Union the entitlement to

request information on the contracting out. That information must be supplied

promptly. The Union made numerous attempts to obtain information on what was

happening, on when the work would recommence, on what contracting out was

being done, on what the Company’s intentions were. All of those requests were met

with silence until the Company finally engaged with the Union within a month of

the arbitration hearing date, approximately a year later, in September 2022. That

was a considerable period of time during which the Company neglected the Union

and ignored its rights under Rule 51.4. That Rule was also plainly breached. The

situation was as described by Arbitrator Hornung, at para. 42 of AH-701, “the

failure of the Company to a provide the required information adversely affected

[the Union’s] ability to represent its members and compromised its ability to assess

its position relative to the contracting out of the work at issue”.

48. In presenting the economic justification for the contracting out, the

Employer claims that Rule 51.1(d) applies: it may contract-out work “where the

nature or volume of work is such that it does not justify the capital or operating

expenditure involved”. There has clearly been a significant saving in the operating

expenditure involved by contracting out the work of the shops. There is also a

significant saving by not having to incur the capital costs of transforming the Wheel

Shop. The Company claims that the lifespan of the machine shop and other shops

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was coming to an end and the expensive refurbishment had to be faced. In

argument, CN suggested that to re-open the shops, after they were closed in 2020,

would have required the expenditure of $55-$65 million. The Union disputes this

assessment, claiming there was no need to keep the shops shut once the excess stock

had been used.

49. There has not yet been any serious engagement between the parties

regarding the Company’s justification for the contracting out. That needs to occur

in a genuine discussion of alternatives by the parties, as is contemplated in Rule

51.2. This is particularly the case when an employer has contracted out the core

work of the bargaining unit, apparently on a permanent basis, so eroding the

Union’s bargaining unit (see SHP-575).

50. The seriousness of the various breaches of Rule 51 is such that a mere

declaration is not sufficient remedy for the Union (see SHP-575 and SHP-715). To

merely make a declaration with nothing further would effectively ignore, and

thereby undermine, the agreement of the parties in Rule 51. Further consequences

should flow from the brazen disregard of the Union’s rights.

51. The Union refers to the award of Arbitrator M. Picher in SHP-409. There

the arbitrator found that there was no justification for the contracting out of the

bargaining unit and he ordered the Company to cease the contracting out of the

bargaining unit work and to return that work to the bargaining unit. Further, there

was an order that all affected employees be compensated for all wages and benefits

lost, and the Union be compensated for any related union dues lost.

52. Arbitrator Picher’s decision in CROA-1596 is similar. There the employer

had no justification for the contracting out of the work other than saving on

operational expenses. The award makes clear that contracting out is not permitted

merely because to do so would be more profitable. Relying on CROA-713, the

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arbitrator said that contracting out is justified on economic grounds only in

circumstances “where some new or occasional venture is contemplated which

require, if the employer’s own forces were used, some capital or operating

expenditure beyond those of the existing operations and which would not be

justified for the venture contemplated”.

53. CN’s explanation for the contracting out is because of the financial savings.

SHP-409, CROA-713 and CROA-1596 would suggest that this explanation may be

insufficient to justify contracting out of bargaining unit work. CN’s further

justification is that the cost of refurbishing the machine shop would be prohibitively

expensive, as has been explained. That explanation, if genuinely the reason for not

re-opening the Transcona shops, could justify the contracting out, in light of

Arbitrator M. Picher’s finding in CROA-2869. There he found that the large capital

or operating expenditure required to reopen a facility justified keeping it closed. A

similar finding was made in SHP-117.

54. The Company considered the cost of refurbishing the machine shop in 2010.

It was prohibitively expensive then. The Company’s most recent investigation –

with the cooperation of the Union – has revealed that the expense would be even

more prohibitive now.

55. As I have said, what is not apparent is what the remaining life of the shops

would be had they not been shuttered by the Company in 2020, and what other

alternatives could be considered. More information is needed before a clear

conclusion can be drawn on that issue. If it is clear that the closed shops can

continue to operate effectively without the very substantive expenditure in

refurbishing them, then their re-opening is a possible order to be made. If that is not

the case, and the need for the refurbishment is such that “it does not justify the

capital or operating expenditure involved”, then the remedies will need to be

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different, to address the Employer’s flagrant breaches of Rule 51.

56. In all of the above circumstances, as was done in SHP-741, this award will

make a finding of a breach of Rule 51 – which are substantive, and not merely

technical – and it will direct the parties to meet to consider the appropriate remedies.

As part of the conversation to resolve the issue of remedy, the parties must have a

genuine discussion regarding the need and implications of the contracting out of

bargaining unit work. The parties must jointly explore any alternatives to

contracting out, including remedies for lost work.

57. If the parties are unsuccessful, I remain seized to deal with the remedies.

Award

58. I declare that the Company has violated Rule 51 in each of the ways

described above.

59. I refer the additional remedies back to the parties.

60. To enable the Union to make an informed submission on remedy, and to

engage properly in the attempted resolution of the remedy, the Company is directed

to disclose all relevant information not already provided:

a. of the scope and nature of the contracted-out work;

b. pertinent to the Company’s claim that the state of the Transcona shops

is such that the Company can no longer resume the bargaining unit

work performed there until the shutdown in 2020, without incurring the

substantial refurbishing costs described above;

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c. of any Company proposals to address the question of the appropriate

remedy.

61. The Company must hold itself reasonably available for the purpose of such

engagement with the Union.

62. If the parties are unable to resolve the remedy, a further hearing will be held

to determine what remedies are appropriate.

DATED at TORONTO on October 15, 2024.

_____________________

Christopher J. Albertyn

Arbitrator