CITATION: AIR CANADA v. CUPE 2010 ONSC 456
DIVISIONAL COURT FILE NO.: 160/09
DATE: 20100122
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
WHALEN, DAMBROT AND SWINTON JJ.
B E T W E E N :
AIR CANADA
Brad Elberg, for the Applicant
Applicant
- and -
CANADIAN UNION OF PUBLIC EMPLOYEES, AIR CANADA COMPONENT
Craig Flood and Ron Lebi, for the Respondent
Respondent
Heard at Toronto: November 3, 2009
WHALEN J:
I. OVERVIEW
[1] Air Canada seeks judicial review of an order quashing the March 11, 2009 Award of Arbitrator Robert J. Herman.
[2] The parties had agreed to a Voluntary Separation Program (“VSP”). In 2008, Air Canada denied a number of eligible VSP applications. The Canadian Union of Public Employees (“CUPE”) grieved, resulting in the Award. Air Canada took the position that the arbitrator had written terms into the collective agreement, thereby exceeding his jurisdiction. From CUPE’s perspective, the arbitrator had fulfilled his proper mandate of interpreting the collective agreement and the provisions in question.
II. THE BACKGROUND
(a) Financial Crisis
[3] In 2003, Air Canada faced a financial crisis that threatened its very existence. On April 1, 2003, the company went into bankruptcy protection under the Companies’ Creditors Arrangements Act (“CCAA”) with court direction to reduce union and non-union labour costs by $770 million. CUPE’s members were expected to bear $65 million of this amount. Air Canada successfully renegotiated its labour agreements, including with CUPE. The new collective agreement between Air Canada and CUPE was effective from June 1, 2003 until June 30, 2009.
[4] One of the provisions of the collective agreement was what Air Canada described as a “very strong” management rights clause:
3.01 Subject to the provisions of this Agreement, the control and direction of the employees, including the right to hire, to suspend or discharge for just and sufficient cause, to advance or step back in classification, to reassign, to transfer, to promote, to demote, to lay off because of lack of work or for other legitimate reasons, is vested solely in the Company.
3.02 Any of the rights, powers or authority the Company had prior to the signing of this Agreement are retained by the Company, except those specifically abridged, delegated, granted or modified by this Agreement.
The agreement also provided that the arbitrator could not alter or amend the collective agreement:
15.03 The arbitrator shall have no jurisdiction to alter, modify, amend or make any decision inconsistent with the terms of this Agreement.
(b) The 2004 Memorandum of Understanding
[5] Air Canada then required further operating capital, which it found through a court-approved “Standby Purchase Agreement” with a large international bank. This Agreement required the company and its unions to renegotiate further annual labour savings of $200 million. In order to reduce Air Canada’s annual labour costs by about $51.6 million of this amount, the parties modified the 2003 collective agreement by a Memorandum of Understanding dated May 18, 2004 (“the 2004 MOU”). Air Canada ultimately obtained the necessary capital, its recovery plan was approved and it emerged from CCAA protection on September 30, 2004.
[6] The 2004 MOU introduced a “Voluntary Separation Program” (“VSP”) whereby monetary incentives would be offered to CUPE members at upper wage levels as an encouragement to early retirement or resignation. The benefit to Air Canada was the anticipated $51.6 million annual reduction in labour costs over the life of the MOU. Longer serving CUPE members at higher wage levels would benefit by financially viable early retirement, and the rest of the CUPE work force would enjoy greater job security and even expanded employment opportunities at lower pay scales.
[7] Paragraph 2 of the 2004 MOU provided:
The Company will offer at least 250 VSP’s per calendar year for 5 years commencing in 2004. The terms will be in accordance with Schedule 2 attached....
[8] Schedule 2 of the 2004 MOU stated:
The Company and CUPE have agreed to a Voluntary Separation program (VSP). The VSP provides for a monthly payment for those eligible CUPE employees as an incentive to either resign or retire from Air Canada. A governing principle of this program is that the maximum number of VSP’s will be granted. (emphasis added)
VSP’s were to be granted in two phases each year, the first by May 1 and the second by September 1.
(c) Denial of Eligible VSP’s
[9] In the fall of 2006, the parties discovered differences in their understanding of Air Canada’s obligations under the 2004 MOU. To resolve the question, CUPE filed a policy grievance in December 2006.
[10] In the first phase of 2007 (i.e. on June 1, 2007), Air Canada granted 134 VSP’s. It received a further 155 eligible applications for the second phase, of which it granted 134 VSP’s on October 1, 2007 and denied 21. It thus granted a total of 250 VSP’s in 2007. CUPE filed another grievance, which the parties agreed would be dealt with as part of the earlier policy grievance and would also encompass any subsequent denials. The grievances were heard together by Arbitrator Herman.
[11] By 2008, Air Canada was again financially threatened. Jet fuel prices had increased by 135 per cent over September 2004 levels; the company faced a demanding schedule of increased pension deficit payments; it had to deal with high aircraft lease and purchase debt levels; and airport and navigation charges had increased significantly. Once again Air Canada had to find ways to cut costs, which it did in a variety of ways, including by reducing capacity, the frequency or existence of international routes, and staffing at all levels; disposing of aircraft by various means or taking them out of service; negotiating concessions with suppliers; preserving cash; and increasing average revenue per customer.
[12] In the first phase of 2008, Air Canada granted 100 VSP’s. It received a further 240 eligible applications for phase 2, of which it granted 150 and denied 90, so that it had again granted a total of 250 VSP’s for the year. On February 21, 2008 CUPE filed a grievance in respect of the 90 denied eligible applications. This grievance was also heard by Arbitrator Herman, and it is his Award arising from this grievance that is the basis of the present application.
[13] The hearings for the 2006 and 2007 grievances were conducted in September and October 2008. Arbitrator Herman issued his Award on October 14, 2008 directing the company to offer the 21 denied VSP’s and giving reasons on the policy issue.
[14] Hearings in respect of the 90 denied VSP’s were held over 6 days in November 2008, January, February and March 2009. On March 11, 2009, Arbitrator Herman released the Award under review here and again ordered the company to offer the denied VSP’s.
(d) The October 14, 2008 Award
[15] Air Canada did not seek judicial review of the first Award. However, that Award is crucial to an understanding of the decision under review here. In the second Award, Arbitrator Herman developed and applied principles and findings made in the first. Air Canada had taken the position that it did not have to grant more than 250 VSP’s in any year. CUPE asserted that the company was obliged to grant all eligible applications received during a year. The arbitrator rejected both positions. The contrasting arguments and the arbitrator’s conclusions are most clearly stated in the October 14, 2008 Award itself:
Air Canada submits that because Section 2 of the 2004 MOU uses words that state that it need offer “at least 250 VSP’s” in each year, if more than 250 qualified employees apply for VSP’s in a given year, it has an unfettered discretion whether to grant more than 250. In considering how many to grant during the 2007 Phase 2 process, Air Canada concluded that operational concerns dictated that no more should be granted. As its primary position, the Union submits that the governing principle set out in Schedule 2 dictates that the maximum number that must be granted will presumptively correspond to the number of eligible applications, and that the number of eligible applications will effectively determine the maximum number that should be granted.
Neither is correct. Section 2 uses words that do not require Air Canada to grant more than 250 VSP’s in a year. Once 250 have been granted, Air Canada has discretion whether to grant additional VSP’s. But in exercising its discretion in this regard, Air Canada cannot ignore other relevant provisions of the 2004 MOU.
Section 2, the very section of the 2004 MOU that sets out the 250 minimum, also explicitly states that “The terms will be in accordance with Schedule 2 attached.” Through the incorporation of this phrase in Section 2, the parties have agreed that the terms of the VSP program set out in Section 2 are to be implemented in a manner consistent with the provisions of Section 2. Schedule 2 provides that a “governing” principle of the VSP is that the “maximum number of VSP’s will be granted”. The parties have hereby agreed that in giving effect to the VSP program, a governing principle shall be that the number of VSP’s granted is to be maximized. A “governing principle” is not merely a statement of general purpose or intent, it is meant to be a principle that “governs”. The use of the phrase “governing principle” implies that the parties intended that the principle set out thereafter be at least one of the principles by which the program is administered or applied.
It follows from this language that the exercise of Air Canada’s discretion to consider any VSP applicants greater than 250 in a given year must be exercised in a manner that is consistent with and seeks to apply the governing principle. To read the relevant language in Section 2 and Schedule 2 as maintaining an unfettered discretion for Air Canada to determine whether and on what basis to grant any VSP’s over 250, the position asserted by Air Canada, would effectively render the phrase that sets out the governing principle largely meaningless. Given the linkage of Section 2 to Schedule 2 and the words used by the parties in describing the “governing principle”, it is highly unlikely that they intended the relevant phrase in Schedule 2 to have no concrete meaning or impact.
In exercising its discretion to consider whether to grant the 21 eligible VSP applications over 250, Air Canada was required to apply the governing principle to its assessment. That principle says that “the maximum number of VSP’s will be granted”. It does not say that all VSP’s will be granted, as it easily could have had that been the intention of the parties. In light of the requirement in Section 2 that “at least 250 VSP’s” be offered, application of the governing principle to the exercise of Air Canada’s discretion does not require that Air Canada presumptively must grant all eligible applications. While the number of applications will certainly be a relevant factor, it is not determinative. To interpret the language to this effect, as is asserted by the Union, is inconsistent with the use of the phrase “at least 250” in Section 2.
In deciding whether to grant more than 250 VSP’s in a given year, Air Canada must not only consider its operational needs but also whether there are reasonable ways in which it can still grant the additional VSP’s. In the 2007 Phase 2 process, it was not required to grant the 21 applications regardless of the circumstances, but it was required to consider reasonable options it could exercise or steps it could reasonably take that would maximize the VSP’s granted, that would result in the granting of the 21 applications denied. Relevant factors would have included the number of applicants above 250, the operational needs of the airline for the period in question, steps that could be taken to both meet its operational needs and grant the additional applications, the saved costs of granting the additional VSP’s weighed against the additional costs of utilizing other means of meeting operational costs, and so on.
Air Canada did not engage in this exercise. It is clear from the evidence that Air Canada has all along taken the position that it has no obligation to consider how to maximize the number of VSP’s beyond 250, and that it can in the unfettered exercise of its discretion decline further applications beyond this number. While it has not treated the 250 number as a maximum, above that number it has acted as if it can simply decline any further applications so long as it has a valid operational reason for doing so.
[16] Arbitrator Herman found that Air Canada had not acted in bad faith, but rather had held an incorrect belief about how it was entitled to exercise its discretion, upon which it had acted consistently in its mistaken belief. He concluded that Air Canada had only considered upcoming operational needs in determining whether to grant the 21 additional VSP applications, and that it had failed to give any effect to the “governing principle” stated in the 2004 MOU, or to consider any reasonable ways to be able to grant the additional applications. Based on the evidence before him, he found that Air Canada would have realized savings had it granted the 21 applications, even after accounting for the cost of recruiting and training new employees. He therefore concluded that Air Canada had breached the 2004 MOU. He directed the company to consider future VSP applications in a manner consistent with his findings and reasons in this first Award. As already indicated, he also directed the company to offer the denied VSP’s to the 21 affected employees, and to compensate them for any resulting losses.
III. The Award of March 11, 2009
[17] At the second grievance for the 90 denied applications, Air Canada presented evidence that it was prepared to offer more than 250 VSP’s in a year if to do so was consistent with its operational and commercial requirements. Its Director of Labour Relations testified that the additional 90 eligible 2008 applications had been denied because Air Canada had determined that granting them would add significant cost rather than savings. The company also presented evidence from Mercer, an actuarial and human resources consulting firm that had also advised it on the CCAA restructuring. Based on assumptions Mercer thought more reasonable than those used by CUPE, it concluded that granting the 90 denied applications would increase Air Canada’s labour costs by $3.8 million over the next 5 years and $6.8 million over the next 10, thus aggravating the company’s financial crisis.
[18] CUPE’s evidence was that the company had given no reasons for the denials either before or at the time they had been made. The company’s position emerged only when it filed its brief for the grievance in October 2008. The union did not accept that Air Canada had actually made a determination of added cost. It pointed out that the company’s Director of Labour Relations had admitted in testimony that he had only become aware of Air Canada’s position about 2 weeks after the denials were made, that he had not been involved in the process of determining the cost, and that he was unable to indicate how it had been calculated or what factors had been used. The company’s Director of Crew Scheduling testified that he had provided demographic data to the finance department, but he had not been involved in the costing process and could not say what information had been used to assess the cost, how the calculations had been made or what factors had been used.
[19] The Mercer witness admitted that the firm had only become involved in the matter after the denials had been made and in order to verify the company’s conclusion that granting the additional VSP’s would add to its costs. The witness testified that she had not been specifically involved in the cost assessment process or resulting decision making. Although she had testified that there would be additional pension costs if the VSP’s were granted, she acknowledged in cross-examination that there would in fact be pension savings from VSP’s granted to relatively young eligible applicants. The Mercer witness was also unable to indicate what the net result of her analysis would have been when it was applied to the applicants who had actually been denied. Nor could she verify that such an analysis had been performed prior to September 1, 2008 when the denials were made – or at any time for that matter.
[20] At paragraph 22 of the March 11, 2009 Award, the arbitrator acknowledged that Air Canada was entitled to exercise its discretion in deciding to grant more than 250 VSP’s in a year. However, in doing so, “it must take reasonable steps to see if the ‘maximum’ number of VSP’s can be granted”. This was so whether the discretion had been exercised before or after the findings in the October 14, 2008 Award, provided it was done according to the principles stated therein, which the arbitrator quoted and re-affirmed.
[21] The arbitrator then found that Air Canada’s sole justification for the exercise of its discretion in denying the 90 additional VSP’s was the purported increase in labour costs that would result, rather than savings. He held that it was incumbent on Air Canada to provide evidence that prior to making the decision to deny it had in fact analyzed the costs that would be incurred if the applications were granted, and that from that analysis it could reasonably conclude additional net costs would be incurred. This process would necessarily require a degree of transparency.
[22] On the evidence presented, the arbitrator further concluded that he could not find that Air Canada had actually analyzed the cost of denying the additional VSP’s before denying them; and that if it had, it was not evident that the result of such analysis justified the denials. He also found that it was impossible to determine what the company had taken into account (or to what effect), what factors it had relied on, or what assumptions it had used. He made the following observations about the evidence presented by the company:
...The problem with the evidence presented, whether direct evidence or hearsay, is that Air Canada has presented very limited or no evidence at all that establishes that the costs of granting the additional VSP’s were actually assessed for the particular applicants prior to implementation of the denial decision, and even if any costs assessment was made, Air Canada has presented no evidence of on what basis and with regard to what factors any such assessment was made, nor any evidence that any such assessment took account of the actual demographic and employment data of the applicants in question. There is no evidence of what data, factors, or calculations Air Canada might have taken into account at the relevant time, before the denial decisions were made, or of what the actual results were of any such calculations for the affected applicants. I have only economic evidence generated by an expert asked to justify the conclusion to deny the applications after the decision was implemented, but with no evidence of any of the data or analysis that went into the actual decision to deny the applications.
Air Canada submits that it obviously would have granted the VSP’s beyond 250 for the year had it believed that they would result in lower costs, so its refusal to do so can only be explained on the basis that granting them would increase net costs. There could of course be numerous other reasons for denying the VSP’s; for example, because Air Canada was simply applying a policy of not granting more than 250 in any year, as the Union asserts, or because it believed that the immediate costs ramifications for the clawback would be so great that they would outweigh savings in other areas. Whatever might have been the rationale for denying the additional VSP’s has not been demonstrated on the evidence, and I am left essentially with Air Canada’s assertion that it made the decision for the submitted reasons and that it was based upon the analysis later performed by Leslie after the fact. I am asked to accept the assertion that Air Canada did make such a decision at the time, applying the financial factors its expert now outlines as relevant and valid, in the absence of any adequate explanation for why evidence of how it actually exercised its discretion was not presented.
[23] Having found that the 90 eligible applications had been denied without justification on the sole but unexplained basis that it would result in added costs, Arbitrator Herman concluded that there was no sustainable reason for denial, and that the company must therefore immediately offer VSP’s to the 90 applicants in question and compensate them for any loss.
IV. The position of the parties
[24] Air Canada submitted that the appropriate standard of review in this case was “correctness” because the arbitrator had exceeded his jurisdiction. As authority, it referred the court to the following cases: Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190; George Brown College of Applied Arts & Technology v. O.P.S.E.U. (2003), 68 O.R. (3d) 161 (C.A.); and St. Joseph’s of the Diocese of London in Ontario v. S.E.I.U., Local 210 (1997), 35 O.R. (3d) 91 (C.A.). In the alternative, Air Canada submitted that if “reasonableness” was the appropriate standard, then the arbitrator’s modification of the collective agreement by amending it or adding to its terms was unreasonable. In particular, the company referred the court to paragraph 59 of Dunsmuir (supra):
Administrative bodies must also be correct in their determinations of true questions of jurisdiction or vires. We mention true questions of vires to distance ourselves from the extended definitions adopted before CUPE. It is important here to take a robust view of jurisdiction. We neither wish nor intend to return to the jurisdiction/preliminary question doctrine that plagued the jurisprudence in this area for many years. “Jurisdiction” is intended in the narrow sense of whether or not the tribunal had the authority to make the inquiry. In other words, true jurisdiction questions arise where the tribunal must explicitly determine whether its grant of power gives it authority to decide a particular matter. The tribunal must interpret the grant of authority correctly or its action will be found to be ultra vires or to constitute a wrongful decline of jurisdiction....
[25] Air Canada emphasized that Arbitrator Herman had found no bad faith, discrimination or arbitrariness on the company’s part, and that he had also recognized that the company had expressed a reason for denying the 90 additional eligible applications, namely added labour costs rather than savings. That being so, and in the face of the strong management rights clause, he ought to have dismissed the grievance.
[26] Instead, Arbitrator Herman held that the company must provide evidence demonstrating how it had exercised its discretion prior to making its decision; that there be a cost analysis reasonably supporting the conclusion that granting additional applications would have resulted in net costs; that such cost analysis be done on an applicant-by-applicant basis; and that the decision to deny be justified with sustainable reasons. Air Canada submitted that there was no language in the collective agreement allowing the arbitrator to make such enquiries or impose such requirements.
[27] By deciding as he had, the arbitrator had effectively modified the agreement and written in terms, thereby “cloaking” himself with the right to manage, rather than leaving that function to the company. Also, while Arbitrator Herman may have found that Air Canada’s witnesses were either not prepared or able to testify as to who had assessed the costs of granting the VSP’s, what factors had been taken into account, or how they were assessed, calculated or weighed, the witnesses did not have to address those matters because it was outside the arbitrator’s jurisdiction to ask such questions. The company relied on the following cases as examples of the position it was advancing: Hamilton (City) v. C.U.P.E., Local 167 (1997), 33 O.R. (3d) 5 (C.A.);George Brown College of Applied Arts & Technology v. O.P.S.E.U, (supra); Greater Essex County District School Board v. O.S.S.T.F., District 9, (supra); St. Joseph’s of the Diocese of London in Ontario v. S.E.I.U., Local 210, (supra); Stelco Inc. v. U.S.W.A., Local 1005 (1994), 17 O.R. (3d) 218 (C.A.) and Toronto Transit Commission v. A.T.U., Local 113, [2005] O.J. No. 651 (Div. Ct.).
[28] CUPE submitted that the applicable standard of review was “reasonableness”, and that the arbitrator should be accorded considerable deference. In addition to Dunsmuir (supra), CUPE referred the court to the following cases: Taub v. Investment Dealers Association of Canada, 2009 ONCA 628, [2009] O.J. No. 3552 (C.A.); Marianhill Inc. v. Canadian Union of Public Employees, Local 2764, 2009 ONCA 525, [2009] O.J. No. 2703 (C.A.); Lakeport Beverages v. Teamsters Union, Local 938 (2005), 258 D.L.R. (4th) 10 (Ont. C.A.); and Parry Sound (District) Social Services Administration Board v. Ontario Public Service Employees Union, Local 324 (O.P.S.E.U.), 2003 SCC 42, [2003] 2 S.C.R. 157.
[29] The head-note in Dunsmuir (supra, at pages 192 and 193) describes the “reasonableness” standard:
A court conducting a review for reasonableness inquires into the qualities that make a decision reasonable. Reasonableness is concerned mostly with the existence of justification, transparency and intelligibility within the decision-making process and with whether the decision falls within a range of possible, acceptable outcomes which are defensible in respect of the facts and the law. It is a deferential standard which requires respect for the legislative choices to leave some matters in the hands of administrative decision makers, for the processes and determinations that draw on particular expertise and experiences, and for the different roles of the courts and administrative bodies within the Canadian constitutional system.
V. Analysis
(a) Standard of Review
[30] The Supreme Court of Canada in Dunsmuir directed that the reviewing court need not undertake an exhaustive analysis of the appropriate standard where the jurisprudence had already settled the question. However, if the standard had not already been settled by the courts in respect of the type of matter in question, then the reviewing court should consider three main factors: the presence of a privative clause in the governing legislation, whether the question involved a discrete and special administrative regime in which the decision-maker had special expertise, and the nature of any question of law in issue, particularly whether it was of central importance to the legal system or stood outside the decision maker’s area of special expertise.
[31] Firstly, I am quite satisfied that the appropriate standard of review in this case is “reasonableness”. The existing jurisprudence clearly establishes that “reasonableness” is the standard of review in labour arbitration matters such as ours where the arbitrator is interpreting and applying a collective agreement. In Dunsmuir (supra, at paragraph 68), the court observed:
This Court has often recognized the relative expertise of labour arbitrators in the interpretation of collective agreements, and counselled that the review of their decisions should be approached with deference: CUPE, at pp. 235-36; Canada Safeway Ltd. v. RWDSU, Local 454, [1998] 1 S.C.R. 1079 at paragraph 58; Voice Construction, at paragraph 22.
[32] The cases cited by CUPE also demonstrate a long line of existing jurisprudence to that effect. With respect to the authorities cited by Air Canada, where standard of review was an issue or commented upon, “reasonableness” or the former standard of “patent unreasonableness” (depending on the development of the law at the time) was applied. None of those cases applied the “correctness” standard.
[33] In our case, the arbitrator’s statutory authority is derived from Canada Labour Code, R.S.C. 1985, c. L-2. Section 58 of the Code also contains a strong privative clause. This signals Parliament’s desire that deference be accorded to the decisions of arbitrators.
[34] The arbitrator was required to interpret and apply the parties’ collective agreement, a matter within the specialized expertise of labour arbitrators. There was no suggestion that the question of law at issue in this case was of central importance to the legal system or outside the arbitrator’s specialized area of expertise. I therefore conclude that Arbitrator Herman’s decision merits considerable deference.
[35] This does not mean, however, that the decision should not be scrutinized within the parameters of the “reasonableness” standard. This is so whether jurisdiction or some other question is in issue. If the arbitrator modified the collective agreement without basis and thereby added terms that were not there, he would be acting unreasonably and would be subject to review by this court.
(b) Jurisdictional Issue
[36] The critical issue in our case is whether Arbitrator Herman modified the collective agreement and added terms that could not be justified based on the language of the agreement itself. In the Greater Essex County District School Board case (supra, at paragraph 29), Swinton J. summarized what an arbitrator can or cannot do when implying language into a collective agreement:
An arbitrator cannot “alter, modify or amend” the language of the collective agreement...While an arbitrator may imply language into a collective agreement, he or she may do so only if that language is necessary in order to give effect to the parties’ agreement (Hamilton (City) v. C.U.P.E., Local 167 (1997), 33 O.R. (3d) 5 (Ont. C.A.) at p. 10). An arbitrator can also require an employer to exercise its management rights reasonably in order not to negate or unduly limit other provisions in the collective agreement (Metropolitan Toronto (Municipality) v. C.U.P.E. (1990), 69 D.L.R. (4th) 268 (Ont. C.A.) at p. 286).
[37] The 2004 MOU specifically amended the collective agreement. Therefore, Paragraph 2 of the 2004 MOU, requiring the company to offer “at least 250 VSP’s per calendar year for 5 years commencing in 2004”, became part of the collective agreement and was binding on both parties. The very fact that it required Air Canada to offer any number of VSP’s was an abridgement or modification of management’s rights under Section 3.01 of the collective agreement. That being so, the arbitrator could require the company to exercise its management rights reasonably in order “not to negate or unduly limit” the provision itself or other provisions in the collective agreement that might be related or have a bearing upon it – in this case, the governing principle that the maximum number of VSP’s would be granted.
[38] While Section 15.03 of the collective agreement (quoted above at paragraph 4) restricts the arbitrator’s authority to alter, modify or amend the collective agreement, Sections 15.02 and 15.06 of the collective agreement grant him positive jurisdiction:
15.02 The arbitrator shall have jurisdiction to consider any matter properly submitted to him under the terms of this Agreement.
15.06 The arbitrator shall, in the case of a grievance appeal, have the authority to render any decision that s/he considers just and equitable.
[39] Air Canada conceded that it must grant a minimum of 250 VSP’s in each of the 5 calendar years where it received that number of eligible applications during the year. If the company had received 250 eligible applications in one of those years and had refused to grant some, CUPE could surely have grieved the company’s decision on the basis of the wording of the MOU, and the arbitrator could have made an award enforcing the agreement. By its concession to that extent, Air Canada admits the arbitrator’s jurisdiction to enforce the particular wording of the 2004 MOU.
[40] However, the MOU did not state that Air Canada must offer a “maximum” of 250 VSP’s per year. Rather, it required the company to offer “at least 250 VSP’s” with the added provision that “a governing principle of this program is that the maximum number of VSP’s will be granted”. This “governing principle” is equally a part of the collective agreement as the words “at least 250”, and cannot be ignored. Arbitrator Herman focused first on the meaning and inter-relationship of the words or terms “at least”, “governing principle” and “maximum number will be granted”. In other words, he was interpreting them. Upon reaching a conclusion, he focused on their application to the factual situation at hand.
[41] The primary thrust of Air Canada’s position was that Sections 3.01 and 3.02 of the collective agreement prevented the arbitrator from embarking on that analysis in the first place. The company did not focus much critical attention on the arbitrator’s reasoning itself. I do not agree with Air Canada’s approach, because it means that the language just-mentioned would have to be ignored. But of course, it is there, and it must mean something. It cannot be ignored. The arbitrator had no choice but to enquire into what it meant.
[42] The introductory recitals of the 2004 MOU state the underlying purpose of the language and understanding that followed – i.e. Air Canada’s financial crisis and the need for expeditious reduction of its labour costs as part of a broader restructuring process. And of course, each side was to benefit by its terms, as I have earlier observed (at paragraph 6 above).
[43] I conclude that Arbitrator Herman was in fact interpreting the language of the 2004 MOU in question. He did not make it up or add to it. He attempted to understand it and apply it in order to give effect to the parties’ agreement. In my view, the process he followed in interpreting the words was rational and clear. His reasoning process was transparent and intelligible because the factual and circumstantial considerations he relied on were apparent and logically connected.
[44] Accepting that there was language requiring interpretation, I find that the reasoning process and conclusions that followed were well within the range of possible, acceptable outcomes, and defensible on the basis of the facts and law in issue. Indeed, Air Canada did not offer an alternative interpretation because, as I have observed, its position centred on the process followed not being jurisdictionally available to the arbitrator to begin with. That position might have been weakened by admitting that interpretation was available and offering an alternative.
[45] In his reasons, the arbitrator held that Air Canada must take reasonable steps to see whether the maximum number of VSP’s could be granted. While Air Canada asserted that granting additional VSP’s beyond 250 in 2008 would cost it money, that position was disputed by CUPE. Therefore, the arbitrator was required to determine, on the evidence, whether Air Canada could reasonably conclude that additional net costs would be incurred if further VSP’s were granted.
[46] Air Canada took issue with the arbitrator’s treatment of some of the evidence, in particular his conclusions about the testimony of the Mercer expert and several management witnesses. This is an area however, where the arbitrator is entitled to considerable deference, provided there is supporting evidence. Air Canada has not demonstrated where or how the arbitrator misunderstood or otherwise erred in his assessment of the evidence. It was not refuted that the Mercer witness had been asked to justify Air Canada’s position on the cost effect of granting the 90 additional eligible applications after the fact of the taking of the decision to deny, that she had not been specifically involved in the assessment process leading to the denials, that pension savings could result to the company by granting VSP’s to relatively young eligible applicants, or that her analysis had not been applied to the actual eligible applicants denied.
[47] Nor did Air Canada deny that the particular management witnesses had been unable to explain the analysis followed or factors considered by the company in reaching its decision. Rather it took the position that these witnesses could not be called upon for such evidence (Applicant’s Factum, at paragraph 39):
Air Canada’s witnesses were not prepared to testify who assessed the costs of granting the VSP’s, what factors were taken into account, or how those factors were assessed, calculated or weighed because Arbitrator Herman did not have the jurisdiction to make those inquiries. Air Canada had no legal obligation to demonstrate the details of how it exercised its management discretion concerning the denied VSP’s, to assess the VSP’s on an “applicant by applicant” basis, to justify each one of the denials, or to give “sustainable reasons” for each one of the denials.
[48] The arbitrator’s central task was to determine what the words “at least 250 VSPs per calendar year” meant in view of the “governing principle...that the maximum number of VSP’s will be granted”, and how those words applied to the factual situation before him – including in view of the management rights provisions that were also a part of the collective agreement. Arbitrator Herman received and assessed evidence in order to interpret and apply this language. There was an evidentiary basis to his conclusion that it could not be established that Air Canada had actually analyzed the costs of denying the VSP’s before deciding and communicating them, that any analysis that had taken place was sufficient to justify the denials, and it was not apparent what factors Air Canada had taken into account, or to what effect, in making its decision.
[49] As Air Canada committed itself to granting “at least” 250 VSP’s annually and to maximize the number approved as a “governing principle”, it seems within the reasonable range of possible outcomes that the company would have to demonstrate its reasoning not to grant more than 250 VSP’s with some transparency, and that reasoning would have to be rational and based on circumstances, factors or information pertinent to the individual applicants and the company’s situation at the time. Otherwise, how could one tell whether the terms of the VSP agreement had been satisfied in any given year? How could one ascertain that there was integrity to a decision and that it was not simply wilful or convenient?
[50] The arbitrator suggested factors and the types of analysis that Air Canada might consider or conduct. I conclude that these were only suggestions, put forward to capture the notion that decisions to deny must be measurable, comprehensible and reasonable. There may be other factors that might affect a decision, and some of the factors suggested might not have a bearing on the decision. Assessing the cost of VSP’s on an applicant by applicant basis would permit the measure of whether some combination of applications over and above the 250 might still offer a saving to the company on a short and/or long term basis while also being operationally feasible.
[51] Arbitrator Herman acknowledged the company’s discretion, but concluded that the wording of the 2004 MOU required Air Canada to assess its obligation to grant VSPs above and beyond 250 with a degree of rationality and transparency. In doing so, I conclude that he was requiring the employer to exercise its management rights reasonably in order not to negate or unduly limit the wording of the 2004 MOU, which was part of the collective agreement.
[52] Finally, Air Canada’s position that it had determined that the additional eligible VSP’s would have increased its costs, if granted, was a conclusion, although the company tried to characterize it as a reason. While application of the language of the 2004 MOU will result in conclusions – i.e. the acceptance or denial of eligible applications for VSP’s over the total number of 250 – there must be underlying reasons upon which it can be explained and assessed as to whether the governing principle has been followed. The company must generate those reasons because in its management role it controls the relevant information.
[53] Finally, the language at issue in the 2004 MOU is quantitative in nature, and therefore understanding and interpreting it will necessarily require and involve evidence and analysis of a quantitative nature. Air Canada was asking CUPE to trust its conclusion without explaining or justifying how it was reached, including in respect of the actual applicants individually or in some combination. Parties to agreements, and those mandated to arbitrate and adjudicate their terms, are surely entitled to information that will permit an assessment of whether the governing principle has been complied with.
VI. Conclusion and Order
[54] For all these reasons, I conclude that the arbitrator’s decision was reasonable and that it merits deference. The application is therefore dismissed.
[55] As the parties agreed, costs shall be to the Respondent in the fixed sum of $7,500 inclusive of GST and payable forthwith.
Justice W.L. Whalen
Justice M.R. Dambrot
Justice K.E. Swinton
RELEASED: January 22, 2010
CITATION: AIR CANADA v. CUPE 2010 ONSC 456
DIVISIONAL COURT FILE NO.: 160/09
DATE: 20100122
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
WHALEN, DAMBROT and SWINTON JJ.
B E T W E E N:
AIR CANADA
Applicant
- and -
CANADIAN UNION OF PUBLIC EMPLOYEES, AIR CANADA COMPONENT
Respondents
REASONS FOR JUDGMENT
Released: January 22, 2010