Ontario Milk Transport Association v Dairy Farmers of Ontario, 2007 ONAFRAAT 20

Agriculture, Food and Rural Affairs Appeal Tribunal

Appeal: Ontario Milk Transport Association v Dairy Farmers of Ontario Neutral Citation: 2007 ONAFRAAT 20 Statute: Ministry of Agriculture, Food and Rural Affairs Act Hearing: June 21, 2007 Date of Decision: July 16, 2007 File No.: 2007-20

IN THE MATTER OF the Milk Act and Section 16 of the Ministry of Agriculture, Food and Rural Affairs Act.

AND IN THE MATTER OF: An Appeal to the Agriculture, Food and Rural Affairs Appeal Tribunal by Ontario Milk Transport Association (OMTA), Shelburne, Ontario from a decision of the Dairy Farmers of Ontario (DFO) dated April 27, 2007 by which it: 1) denied the OMTA the 3.5% labour rate increase it requested; and 2) decided to reduce the on-farm function standard in the compensation formula by one minute.

Before: Kirk Walstedt, Vice Chair, Bill Schaefer; Member, John Rudics

Appearances:

• Andrew Osyany, counsel to the Ontario Milk Transport Association, appellant
• Bev Wark, witness, on behalf of the appellant
• Jim Knudsen, witness on behalf of the appellant
• Bob Masching, witness on behalf of the appellant
• Geoffrey Spur, counsel to the Dairy Farmers of Ontario, respondent
• Dave Hitchon, witness on behalf of the respondent
• Dave Nolan, witness on behalf of the respondent

DECISION OF THE TRIBUNAL

This appeal was heard in Guelph, Ontario on June 21, 2007. The Ontario Milk Transport Association (OMTA) appealed to the Agriculture, Food and Rural Affairs Appeal Tribunal (Tribunal) from the decision of the Dairy Farmers of Ontario (DFO) not to increase the labour rate by 3.5 percent, and from the decision to decrease the on-farm function standard, by one minute.

Statutory Context

Subsection 16 (2) of the Ministry of Agriculture, Food and Rural Affairs Act states:

Appeal to Tribunal

Idem

(2) Subject to subsections (4) and (5), if a person is aggrieved by an order, direction, policy, decision or regulation made under the Farm Products Marketing Act by a local board or under the Milk Act by a marketing board, that person may appeal to the Tribunal by filing with the Tribunal and sending to the local board or marketing board written notice of the appeal. R.S.O. 1990, c. M.16, s. 16 (2); 2006, c. 19, Sched. A, s. 16 (3).

The Issues

1. Should the DFO’s unilateral reduction of the on-farm function component of the payment formula by one minute (from eight minutes to seven minutes), be reinstated to eight minutes?

2. Should the labour rate component of the payment formula be increased by 3.5 percent?

The Evidence

Bev Wark

Mr. Bev Wark gave evidence before the Tribunal. Mr. Wark told the Tribunal he is the owner of Wark Milk Transport. Mr. Wark told the Tribunal that:

• Wark Milk Transport (WMT) employs 15 Bulk Tank Milk Graders (BTMG) who are paid hourly.
• Seven milk transport trucks are on the road daily; straight tandem and tractor trailer trucks haul milk 365 days per year.
• WMT usually gives its BTMG’s an annual raise, however, due to the unsettled issues between OMTA and DFO its BTMGs are still being paid at the rates effective January 1, 2006.
• WMT’s head office is located in Port Elgin. There is a branch office in Alma.
• Each BTMG works an average of 12 hours per day, however, the BTMGs who drive the tractor trailer trucks tend to work longer hours than the BTMGs driving straight tandem trucks.
• DFO remunerates WMT based on a formula for picking up milk and delivering it to processing plants.
• Each milk transport company is assigned an area where milk is picked up from producers. The DFO directs the delivery of milk to processing plants.
• With regard to the WMT chart (Exhibit 2), the total hours worked are compared to the formula function hours paid to WMT by DFO.
• For 2006, WMT BTMGs worked more hours than were paid to the company by DFO under the function hour formula.
• Beginning January 1, 2007, the agitation time for milk was reduced from five minutes to two minutes.
• There has been no reduction in hours worked by BTMG in 2007 from the hours worked in 2006. All BTMGs were notified of the change in agitation time.
• Under the payment formula overtime is paid to WMT, however, the BTMGs are paid more for overtime hours worked, than is allotted to WMT under the formula.
• WMT has invested in the purchase of tractor trailers for transporting milk. Tractor trailers can transport larger loads than the smaller tandem axle straight trucks.
• The purchase of new equipment was made in consideration of the five year agreement that he believed was in place with DFO for remuneration to milk transporters.

Mr. Wark responded to questions, he told the Tribunal that:

• WMT has lost one of its full-time BTMG to another company where he is paid more, however, he cannot say with certainty why the employee left WMT.
• The longest serving employee has been with WMT for 28 years; the second longest serving employee has been with WMT for about 22 years. WMT employs 15 BTMGs; some are part time.
• He is aware that effective January 1, 2007, DFO raised the labour component under the payment formula by 2.5 percent.
• The 2.5 percent increase is neutralized by a decrease to another component of the payment formula.
• The OMTA requests that the Tribunal grant its appeal retroactive to January 1, 2007.
• There are 15 duties associated with on-farm milk testing and pick up by BTMG.
• The volume of milk in the bulk tank is read using a dip stick. The volume is recorded on the hand held computer carried by each BTMG, and in some cases it is written down. The bulk tank agitator is started by flipping a switch or turning a dial. The time taken to record volume and begin agitation may exceed one minute depending on the size of the tank.
• There are three duties that a BTMG may perform while the bulk tank is agitating, however, the reduced time for agitation has no bearing on the time needed to complete all necessary duties.
• Pumping of milk onto the truck is a separately paid component under the formula. The time needed to connect the hoses to the tank are not counted as part of the pumping component.
• There are 13 other duties that must be performed by the BTMG on-farm. The 13 duties must be completed in eight minutes under the formula. The time from when the BTMG enters the truck to drive to the next pick-up is not counted.
• Despite the reduction in agitation time, there is no reduction in the hours worked by BTMGs, however, he has not made a study of his employees on-farm time.
• In cirumstances where the agitator is running when the BTMG arrives s/he may reorder the steps of his/her job duties.
• Although he is a licensed BTMG, he has not picked up milk since the agitation time has been reduced.

Jim Knudsen

Mr. Jim Knudsen told the Tribunal that he is the General Manager of Oxford Milkway Transport Co-Op. Mr. Knudsen testified that:

• Oxford Milkway Transport Co-Op (OMTC) operates 18 milk transport trucks with 32 fulltime and 12 part time staff. OMTC picks up milk from 380 farms, approximately 10 percent of the total milk transported in the province.
• OMTC is one of the largest milk transport companies in Ontario. It is owned by DFO producers, with depots at Woodstock, Mitchell and Millbank.
• There is competition for labour from other industries in Woodstock and Mitchell.
• BTMGs at the Woodstock and Mitchell depots are paid by the day, whereas, the Millbank BTMGs are paid at an hourly rate.
• BTMGs paid by the day have daily time limits of 15 hours. The length of their routes is also a consideration. Millbank BTMGs are paid hourly regardless of the type of equipment operated. BTMGs receive raises July 1, annually.
• In 2006 OMTC paid more in wages to BTMGs than it received in compensation from DFO. Although three weeks holiday pay is an component included in the payment formula, some of their BTMGs have four weeks holidays: there is no provision for any more than three weeks holidays in the payment formula.
• There has been no change to the hours worked per day, for OMTC employees who are paid daily.
• With regard to the chart (Exhibit 3) there is no change to the number of average daily hours worked, from October 2006, through March 2007.
• All BTMGs have been informed of the reduced agitation time.
• There is no provision for overtime remuneration in the payment formula.
• At the end of 2006, OMTC purchased two large trailers, and two tractors for hauling milk. The equipment was purchased based on the understanding that a five year commitment to the current payment formula was in place by both DFO and OMTA.
• He anticipates changes to the pre-trip truck inspection which will need more time to complete. There is no planned adjustment to the payment formula to account for this increase in time.

Mr. Knudsen responded to questions. He explained that:

• There are not yet any new pre-trip inspection requirements. The pre-trip inspection is based on a number of equipment check duties rather than a timeframe in which to complete the checks.
• The chart of daily average hours (Exhibit 3) is based on the time worked by the BTMGs at Milbank depot. Drivers tend to work longer hours in the winter months of January, February and March.
• The actual time spent carrying out on-farm duties may vary from farm to farm.
• Pre-trip inspections take more time to complete with larger vehicles.
• He has not personally analyzed the functions and timing of the BTMG while carrying out their on-farm duties. He can only speculate that he may be able to carry out the required on-farm duties within three minutes.

Bob Masching

Mr. Bob Mashching told the Tribunal that he is a Partner in the accounting firm Stern Cohen. Mr. Masching stated that he had been a Chartered Accountant for 27 years with extensive experience in business consulting. He stated that:

• He provides OMTA with accounting consultation.
• The BTMG payment formula was developed based on negotiations by the OMTA transport committee and its counterpart from DFO.
• The negotiations began in 2001 concluding late in 2004. An agreement was implemented in March, 2005.
• Issues were discussed and negotiated as they arose, for example, the reduction in trips due to the use of larger equipment was the impetus for the fixed cost component of the formula, which compensates for: truck and tank depreciation, financing on fixed assets, and maintaining a spare truck. The life of tractors is set at 8 years; the life of tankers is set at 12 years.
• There are 60 milk transport companies in Ontario. OMTA made every effort to recognize the variations in their operating schemes during negotiations for the payment formula agreement.
• In 2004 DFO decided to re-calculate the labour component of the payment formula to pay transporters based on each task performed by the BTMGs. DFO realized savings from this approach.
• DFO also saved money due to the reduction in pick-ups from producers leaving the industry. Approximately 300 producers leave the industry each year, resulting in savings to DFO of nearly 380 pick-ups per year.
• DFO reduced the labour allowance paid to transporters by providing an incentive for transporters to use larger equipment which reduced the number of loads.
• The payment formula was based on principles that were to be in place for five years. One key principle being, the minutes paid per task done by the BTMGs (function minutes). The milk transport companies receive 70 percent of their remuneration from the application of function minutes in the payment formula.
• Statistics Canada wage data for transport workers (Exhibit 1, Tab 3) indicates that transport workers’ wages increase month by month year over year.
• The DFO owner operator rate increase chart (Exhibit 1 Tab 3, page 6) indicates a stable rate of increase from 2005 projected through 2007.
• In comparison to the Statistics Canada data, DFO owner operator rates of pay (Exhibit 1 Tab 3, page 7) are lower. A wage gap of $2.22 per hour existed in 2006 with a projected gap of $2.60 in 2007.
• The Conference Board of Canada data indicates (Exhibit 1, Tab 3, page 9) that competition for labour in the transportation utilities sector will drive wages up by 4.2 percent.

Mr. Masching responded to questions. He explained to the Tribunal that:

• He attended all negotiation meetings between OMTA and the DFO.
• It was his understanding that the work functions (as seen in Table II, Exhibit 1, Tab 6, page 5) negotiated by the parties were to remain in place for five years.
• Both parties agreed that changes to the payment formula could only be made on consensus from discussion.
• Milk transport companies are not obligated to pay their BTMGs at the same rate per function as they are remunerated by DFO.
• The per litre cost of transporting milk is 2.6 cents per litre, or, $2.60 per hectoliter.
• During the 27 year period that he has worked for OMTA, the number of hours worked by BTMGs has continued to increase.
• The milk transporter decides whether the BTMGs are paid hourly or daily, they may also determine the amount of vacation each year.
• If DFO were to reduce the on-farm pick-up time from eight minutes to seven minutes, the resulting loss to milk transporters would be approximately $611,000.00. The estimated loss is based on 2006 labour rates.
• The standard vehicle model, (Exhibit 1, Tab 6, page 5) would need to be adusted to reduce the standard hours, per standard truck, if losses from DFO reducing the on-farm time by one minute, are to be avoided.
• Adjustments to any given component of the payment formula have corresponding impacts on another component of the payment formula.
• Unilateral changes to the payment formula strike at the integrity of the agreement whereby the payment formula was negotiated.
• The DFO made no mention of any intention to alter a component of the payment formula at any time during the negotiations.
• The on-farm function time of eight minutes was established through negotiation. The eight minute time was established and in place, when the agitation time was five minutes. No survey of on-farm duties has been undertaken.
• The BTMG may be attending to other duties while the two minute agitation takes place.
• The DFO agreed to the four contract principles as outlined in Exhibit 1, Tab 4, page 2.
• The payment formula is known as a “cost plus formula”. Costs are to remain fixed.
• The DFO unilaterally produced the Transportation Payment document (Exhibit 1, Tab 6) however, there was some OMTA consultation.
• The December 15, 2004 Minutes of the Meeting with the DFO, OMTA Transportation Committee indicate that the principles of the payment formula will remain in place for a period of five years, however, there is no definition of the principles contained in the Minutes (Exhbit 1, Tab 4, page 21).
• The function minutes under the payment formula are considered a basic principle.
• The DFO has not measured any on-farm functions besides the time needed to pump milk onto the trucks.

Dave Hichon

Mr. Dave Hichon gave evidence before the Tribunal. He stated that:

• He has been the DFO Transportation Manager since September 2005.
• His duties include analyzing operations to improve efficiency, and to liase with the OMTA, milk processors and milk producers.
• The DFO has implemented a 2.5 percent increase to the labour component of the payment formula, effective January 1, 2007.
• The DFO, OMTA Transportation Committee meets every four to six weeks.
• Analysis of performance in the year previous is used as a basis for changes to transporter remuneration.
• The DFO’s rationale for providing a 2.5 percent increase to the labour component of the payment formula was based on analysis of Statistics Canada data for truck driver’s rates of pay and Ontario data for drivers and related occupations. DFO considers the factor that BTMG wages are higher than the provincial average for similar occupations in rural Ontario. Most BTMG jobs are in rural Ontario.
• The BTMG wages increased by 16.54 percent over the period 2001 to 2006, whereas, wages for omparable occupations in Ontario increased by only 13.02 percent.
• Based on data obtained from Statistics Canada, he charted comparisons in wages for BTMGs and related occupations in Ontario (Exhibit 4, Tab 9). He surmised that, on average, BTMGs made 82 percent of the wage for their occupation group.
• The DFO took into consideration the Ontario Consumer Price Index (CPI)when it offered an increase to the labour component of 2.5 percent.
• The average increase to the CPI is usually higher in the first three months of a year, than it is during the remaining nine months.

Mr. Hitchon responded to questions. He told the Tribunal that:

• He prepared the DFO wage comparison based on Statistics Canada wage survey data from 1999 ( Exhibit 4, Tab 10) and on data collected from the Town of Caledon wage survey (Exhibit 4, Tab 9, page 2). The Statistics Canada data was compared with actual wages earned by BTMGs in 2006 (Exhibit 4, Tab 8) and, as projected for 2007.
• The charted data (Exhibit 4, Tab 9) does not include any weighted averaging, and should be considered in relation to remuneration paid by DFO, rather than actual wages earned.
• The qualification of rates of pay for similar occupations in rural areas is based on his experience.
• The payment formula and Transportation Payment agreement (Exhibit 1, Tab 6) negotiations were completed before his tenure with DFO.

Dave Nolan

Mr. Dave Nolan gave evidence before the Tribunal. He testified that:

• He is currently the DFO Director of Marketing and Logistics. Prior to that, he was the DFO Transportation Manager for 29 years.
• He was present at all the negotiation meetings. The DFO, OMTA Transportation Committees met every four to six weeks to discuss issues as they arose.
• The “cost plus” method of remuneration involves identifying transporter costs, as averaged across the industry, and preparing an equitable formula for reimbursing costs, including a profit factor.
• The “cost plus” method has been in use for 25 years.
• The DFO Board reviews all negotiated agreements with the transporters, before approval and implementation.
• While it is a party to the negotiations, the DFO Transportation Committee has no decision making authority.
• The four items listed (Exhibit 1, Tab 4, page 2) were accepted by DFO as rules that were to be followed by those engaged in the negotiations. The rules were not part of the payment fomula.
• To his understanding the principles within the payment formula are, items such as the fixed costs derived from the operation of the hypothetical standard truck and labour based on function.
• There was never an understanding on the part of the DFO that the formula could never be changed.
• In conjunction with the University of Guelph and OMAFRA, DFO conducted studies that led to the reduction in agitation time from five minutes to two minutes.
• The agitation time is prescribed by regulation, however, the on-farm function time of eight minutes was reached on consensus of the parties.
• The average volume of milk picked up at each farm is 2,500 litres; each truck holds approximately 30,000 litres, so that each truck picks up milk from 11 farms per day. A decrease in the on-farm function time would result in savings of 12 minutes per day.
• DFO Marketing Officers have ridden with BTMGs in order to evaluate their jobs. Two Marketing Officers reported a decrease in waiting time at each farm.
• DFO recognizes that remuneration for on-farm time impacts fixed cost recovery under the payment formula. DFO had offered to apply the reduction of one minute to the labour component of the formula only, not the fixed cost component (Exhibit 4, Tab 4, letter dated April 26, 2007).
• Exhibit 5, summarized the efficiencies to be made by both parties should the labour rate increase of 2.5 percent, and the function time reduction be upheld.
• It is expected that the reduced remuneration would be spread over Ontario’s 60 milk transport companies.
• The DFO published the Transportation Payment document (Exhibit 2, Tab 6) in December 2006.

Mr. Nolan responded to questions. He told the Tribunal that:

• The payment formula had been negotiated and implemented before the DFO published the Transportation Payment document (Exhibit 4, Tab 2).
• DFO would like to make a survey of the time needed to complete the on-farm functions.
• If the milk transporters were to realize savings as depicted in Exhibit 5, it would be possible for them to do so by removing one truck from the road on alternate days.
• There was no understanding on the part of the DFO that the Transportation Payment agreement was to be in place for five years.
• It was understood that, if the parties disagreed, the issue could be taken to the Tribunal.
• The rate for owner operators was established in 2000 by averaging the hourly rate paid to all milk transporters. In subsequent years, the owner operator rate was increased as a result of negotiations.
• The DFO Marketing Officers who rode with BTMGs did so over a period of four to six weeks. He is not certain of the number of instances where on-farm time was reduced.
• Under the DFOs preferred time and labour component adjustments, there would be opportunity for those transporters who pay an hourly wage to save money if less time was spent on-farm.
• Increases to the components of the payment formula are based on a review of the rates from a few years previous.
• DFO preferred to implement a system of payment per function minute, but refrained from doing so at the request of the OMTA.
• The pre-trip inspection is a regulatory requirement, however, the time needed to complete the inspection is not regulated.
• There is no data available to support the claim that a reduction of on-farm time by one minute, would result in more economization than a reduction by two, or three minutes.
• Ontario is the only province to regulate a change to the agitation time.

Mr. Masching gave reply evidence to the testimony of the DFO witnesses. He stated that:

• DFO relied on labour rate data from 1999; there is more current data available.
• The comparison tables labour data produced by DFO (Exhibit 4, Tab 9) is based on the wages earned by BTMGs and truck drivers. BTMGs are not truck drivers.
• Any comparison of average hourly wage based on the owner operator rate is outdated; the figure was established in 2000.

In summation Mr. Osyany told the Tribunal that the labour component increase of 4.1 percent, requested by the OMTA was based on current data. He argued that the wage gap for BTMGs and similar occupations should decrease over time, not increase. He pointed out that the use of weighted averages for wages is the most accurate method of determining averages; DFO did not use weighted averages. He stated that the OMTA requests an increase to the labour component of the payment formula in the amount of 4.1 percent for 2007.

Mr. Osyany explained that the Tribunal must determine whether the parties had a five year agreement in place. He reminded the Tribunal that the OMTA had expended considerable effort in negotiating the payment formula. He referred to the evidence of Mr. Wark and Mr. Knudsen that the purchase of large equipment was based on the understanding that there was a five year agreement in place. He stated that milk transport companies are entitled to rely on some of the cost recovery provisions in the payment formula such as vehicle depreciation.

Mr. Osyany told the Tribunal that the components of the payment formula were negotiated with consideration for the impact of each component, one upon another. He said that to adjust the components at the inclination of DFO was equal to destroying the whole formula. He reminded the Tribunal that the purported reduction of on-farm time due to the reduced agitation time was unproven, and unsupported by any study. He said that the evidence of two OMTA witnesses was that there was no reduction to on-farm time. Mr. Osyany told the Tribunal that a new agreement should be negotiated if it was the determination of the Tribunal that there was no five year agreement in place.

Mr. Spur gave his closing remarks to the Tribunal. He submitted that in reaching agreement on remuneration issues, the parties had relied on data from previous years. He stated that the OMTA has based its request for an increase in the labour rate component based only on data from the first quarter of 2007. Mr. Spurr submitted that the DFO had implemented an increase in excess of the figure indicated in the CPI. He maintained that the DFO’s increase was also comparable to the Statistics Canada indicators for the industry. Mr. Spurr argued that the OMTA is incorrect in referring to the negotiating principles as having any effect on the payment formula. He stated that the principles referred to the by OMTA are solely applicable to the conduct of the parties during the negotiations.

Mr. Spurr reminded the Tribunal that the only duty of BTMGs that is mandatory, under regulation, is the agitation of milk, however, the regulation does not specify a requirement for agitation time. He argued that the 15 functions performed by BTMGs as stated in the OMTA brief, must be performed regardless of whether the agitation time is five minutes or two minutes. He reminded the Tribunal that the eight minute on-farm time does not include the time needed to pump the milk onto the truck, therefore, some reduction in on-farm time may be realized.

Mr. Spurr submitted that the Transportation Payment agreement was a theoretical framework on which to base remuneration to milk transport companies. He said that it could be reasonably deduced that the reduced agitation time would cut down the time needed on-farm. He submitted that this was DFO’s rationale for wanting to reduce the on-farm time by one minute. Mr. Spurr told the Tribunal that the Transportation Agreement contains no prohibition to either party changing the time needed to carry out a function. He stated that there is no truth to the OMTA’s assertion that the payment formula would not be workable if the Tribunal does not rule in favour of the OMTA

Decision and Reasons

The Tribunal heard evidence that negotiations commencing in 2001, and ending in 2004, resulted in an agreement between OMTA and DFO. Evidence was presented to support the respective claims of the parties as to the duration of the terms of the agreement and the definition of its constituent components. It is the finding of the Tribunal that there was an agreement in place, formalized and printed by the DFO. It is the document known as Transportation Payment (Exhibit 4, Tab 2). The Tribunal finds that the agreement was intended to be in place for at least five years by virtue of the inclusion in the payment formula of depreciation schedules for tractors and trailers, and the cost to milk transport companies for the repayment of loans for equipment purchases, over a five year term. It is clear from the evidence of Messieurs Wark and Knudsen, that large equipment purchases are made in consideration of the provisions of the payment formula.

The DFO made a submission (Exhibit 4 Tab 13, Item 1) that was undisputed by the OMTA, that indicated the OMTA was prepared to accept the 2.5 percent increase to the labour allowance, effective January 1, 2007. The Tribunal concludes that this acceptance of an offer is consistent with terms of the agreement between the parties for making adjustments to the components within the payment formula

The Tribunal is satisfied that both parties negotiated the agreement and came to a consensus based on principles that applied to the conduct of the negotiation committees. As well, these same principles apply to the resulting agreement, in that, the elements that constitute the components of the payment formula, should not be adjusted by any single party unilaterally.

DFO Marketing Officers had accompanied BTMGs on their routes to assess their duties, however, neither party has undertaken a study of the time required by the BTMGs to complete their duties which may have provided a more substantive basis for adjusting the on-farm time component. There is no compelling data on which to base the reduction of time for on-farm functions by one minute.

The Tribunal finds that, in reaching agreement with respect to the components of the payment formula, the negotiation committees took into consideration data from within its industry, from previous years. Mr. Masching’s evidence with respect to the Statistics Canada labour survey data, indicated a range of wages for related occupations. There is no specificity that the wages reported are earned by BTMGs. The Tribunal considers that the labour component increase implemented by DFO is fair and equitable and specific to the industry. It is based on industry data from previous years.

Order

After careful consideration of the evidence filed and the submissions made the Tribunal orders:

1. The 2.5 percent increase to the labour component of the payment formula shall stand.

2. The on-farm function component of the payment formula shall be eight minutes retroactive to January 1, 2007.

Dated at Maidstone, Ontario, this 16th day of July, 2007