CITATION: Air Canada Pilots Association v. Air Canada, 2014 ONSC 6133
DIVISIONAL COURT FILE NO.: DC-13-196-00
DATE: 20141030
ONTARIO SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
C. Horkins, Harvison Young and Grace JJ.
BETWEEN:
AIR CANADA PILOTS ASSOCIATION Applicant
– and –
AIR CANADA, JAZZ AIR and AIR LINE PILOTS ASSOCIATION Respondents
COUNSEL: Christopher Rootham, for the Air Canada Pilots Association John Craig and Bonny Mak Waterfall, for Air Canada Frank Cesario, for Jazz Air Andrew Lokan, for the Air Line Pilots Association
HEARD at Toronto: September 25, 2014
GRACE J.
[1] Arbitral awards were released by two different arbitrators on July 30, 2012 and January 29, 2013. Each requires adherence to a different available seat mile ratio (“ASM”). Air Canada Pilots Association (“ACPA”) seeks an order of certiorari quashing the latter decision. ACPA submits that the January 29, 2013 award is unreasonable; alternatively, the later award should yield to the earlier one in order to eliminate an operational conflict.
[2] For the reasons that follow, I decline to quash the January 29, 2013 award on either ground.
A. The Factual Background
[3] ACPA is the certified bargaining agent representing pilots employed by Air Canada. Shortly after acquiring Canadian Airlines in 2000, Air Canada entered into a collective agreement with ACPA having a four year term (the “2000 Collective Agreement”).
[4] The 2000 Collective Agreement included provisions relating to regional aircraft to be operated by designated regional carriers. One of them was Air Canada Regional (“ACR”). ACR was then a wholly owned subsidiary of Air Canada. It is now known as Jazz Air (“Jazz”). The Air Line Pilots Association (“ALPA”) is the certified bargaining agent representing pilots employed by Jazz.
[5] One provision of the 2000 Collective Agreement provided that Air Canada’s pilots would fly a minimum of 100 air seat miles for every 12 assigned to the regional carriers. Expressed differently, Air Canada and ACPA agreed to an ASM ratio of 12:100. Along with other provisions in the 2000 Collective Agreement, the ASM ratio limited the type and amount of flying that could be contracted out to the predecessor of Jazz.
[6] In 2003, Air Canada and Jazz sought protection under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended. During the restructuring process, Jazz and ALPA executed a letter of intent. Air Canada agreed to abide by its terms. Soon afterward, Air Canada and ACPA entered into a new collective agreement (the “2003 Collective Agreement”) that was to be in effect until mid-2009.
[7] The letter of intent and the 2003 Collective Agreement contained inconsistent provisions concerning regional air service. Unable to negotiate a resolution of the issues they created, Air Canada, ACPA, Jazz and ALPA agreed to participate in a binding arbitration before Martin Teplitsky, Q.C. (“Arbitrator Teplitsky”).
[8] Prior to completion of the arbitration, the parties agreed that Arbitrator Teplitsky would act, instead, as mediator.
[9] On March 4, 2004, the parties entered into a Small Jets Settlement Agreement (the “SJSA”).
[10] Pursuant to the SJSA, existing fleets of small aircraft were allocated between Air Canada and Jazz. Future plans to acquire small aircraft were to be disclosed and discussed. Effectively, the SJSA provided for a sharing of regional flying.
[11] The parties agreed that Arbitrator Teplitsky would continue to serve as arbitrator/mediator in respect of all disputes and issues of implementation related to the SJSA.
[12] Paragraph 10 of the SJSA provides that:
Air Canada shall ensure that a minimum of 100 ASM’s are flown by Air Canada for every 12 ASM’s flown by Jazz.
[13] That was the same ASM ratio that had been adopted by Air Canada and ACPA in the 2000 Collective Agreement.
[14] Paragraph 12 of the SJSA reads:
The collective agreements shall be amended by the parties to give effect to this settlement.
[15] On July 12, 2004 Air Canada, Jazz, ACPA and ALPA executed a three paragraph agreement. The operative terms are as follows:
The March 4, 2004 Settlement Agreement is hereby incorporated into each of the ACPA/Air Canada and the ALPA/Jazz Collective Agreements, and the terms of the Settlement Agreement are hereby incorporated therein.
All inconsistencies between the Settlement Agreement and the Collective Agreements shall be resolved by applying the Settlement Agreement terms, which prevail over the Collective Agreement terms.
Martin Teplitsky, Q.C. shall remain seized if any issues arise concerning this agreement.
[16] Insofar as Air Canada and ACPA were concerned, the SJSA thereupon became part of the 2003 Collective Agreement.
[17] In 2009, the terms of the 2003 Collective Agreement were rolled over for an additional two years (the “2009 Collective Agreement”). The 12:100 ASM ratio was preserved.
[18] As the expiry date of the 2009 Collective Agreement approached, Air Canada and ACPA began negotiating a new agreement. In March 2011, they entered into a tentative agreement which was subsequently rejected by ACPA members. The tentative agreement contemplated an amendment of the ASM ratio from 12:100 to 29:100 and a change in its manner of calculation.
[19] With no new collective agreement in place, Air Canada notified ACPA of its intention to lock out Air Canada’s pilots effective March 12, 2012.
[20] Parliament responded by enacting the Protecting Air Services Act, S.C. 2012, c. 2 (“PASA”).
[21] That statute required Air Canada and ACPA to arbitrate their dispute. Douglas Stanley, Q.C. (“Arbitrator Stanley”) was appointed as arbitrator.
[22] PASA also obligated Air Canada and ACPA to submit lists of matters agreed to and in dispute. Each party was to submit a final offer in respect of disputed items and proposed contractual language that could be incorporated into a new collective agreement.
[23] Arbitrator Stanley’s task was a limited one. The statute required that he select one of the final offers those parties submitted and that he favour the offer that seemed likely to ensure Air Canada’s continued viability and the sustainability of its pension plan. Section 26 of PASA described the process as “final offer selection”.
[24] The list of contentious items included the ASM ratio. Neither final offer included a term that mirrored the SJSA. ACPA proposed that the 12:100 ASM ratio continue but contemplated the inclusion of other regional carriers in the calculation.
[25] While Air Canada’s final offer contemplated a similar change in calculation, the airline proposed the 29:100 ASM ratio from the tentative agreement. Air Canada’s offer also envisioned a possible transfer of 15 Embraer 175 jets (the “Embraer jets”) to a contract carrier, provided that the employment of its pilots was unaffected.
[26] Both offers had the effect of reducing Jazz’s share of available seat miles.
[27] On July 31, 2012, Arbitrator Stanley released his award. Air Canada’s final offer was chosen. At p. 79, Arbitrator Stanley wrote:
…I conclude that Air Canada’s offer … satisfies the need for terms and conditions of employment that are consistent with those in other airlines and that will provide the necessary degree of flexibility to ensure the short and long-term economic viability and competiveness of the employer; and the sustainability of the employer’s pension plan, taking into account any short-term funding pressures on the employer.
[28] As a result, a new collective agreement was born (the “2012 Collective Agreement”). Section 32(1) of PASA provides, in part:
Despite anything in Part I of the Canada Labour Code, the arbitrator’s decision constitutes a new collective agreement between the employer and the union that is effective and binding on the parties beginning on the day on which it is made.
[29] Air Canada issued a press release a few months later. It announced an agreement to transfer the Embraer jets to Sky Regional Airlines, Inc. (“Sky”). Since those jets would be flown by non-ACPA pilots once acquired by Sky, their post-transfer use was to be factored into the regional carrier side of the ASM ratio.
[30] Counsel for ALPA wrote to Arbitrator Teplitsky on November 6, 2012. He alleged that Air Canada’s agreement with Sky contravened the terms of the SJSA and invoked Arbitrator Teplitsky’s jurisdiction under that agreement.
[31] Arbitrator Teplitsky received written and oral submissions from ACPA, Air Canada, ALPA and Jazz. In his January 29, 2013 award (the “Teplitsky award”), Arbitrator Teplitsky decided that the SJSA did not prevent Air Canada from transferring the Embraer jets to Sky. However, he reached two other conclusions that were favourable to ALPA.
[32] First, Arbitrator Teplitsky determined that Air Canada and ACPA could not change the ASM ratio from 12:100 to 29:100 without the consent of the other parties to the SJSA. He concluded that the provision in the 2012 Collective Agreement effecting that change was “of no force and effect vis-à-vis ALPA and Jazz”.
[33] Second, Arbitrator Teplitsky decided that the ASM’s associated with the Embraer jets were not to be attributed to the regional carrier side of the ASM ratio despite Air Canada’s agreement with Sky.
B. The Issues and the Standard of Review
[34] The parties agree that the standard of review is reasonableness: Nor-Man Regional Health Authority Inc. v. Manitoba Association of Health Care Professionals, 2011 SCC 59, [2011] 3 S.C.R. 616 at para. 31; Newfoundland and Labrador Nurses’ Union v. Newfoundland and Labrador, 2011 SCC 62, [2011] 3 S.C.R. 708 at paras. 15-18.
[35] ACPA argued that the Teplitsky award was unreasonable because the SJSA had ceased to operate.
[36] Alternatively, ACPA submitted that the Stanley and Teplitsky awards are in operational conflict. It maintained that the Stanley award should prevail because ACPA and Air Canada cannot comply with both awards at the same time.
[37] I will deal with each of those arguments in turn.
C. Analysis and Decision
i. The Reasonableness of the Teplitsky Award
[38] ACPA advanced three grounds for its submission that the SJSA had ceased to operate.
[39] First, ACPA alleged that the factual substratum of the SJSA has disappeared because Jazz has ceased to be a wholly owned subsidiary of Air Canada. In fact, by 2008 Air Canada’s equity interest in Jazz had been divested entirely.
[40] I do not accept this submission. The legal basis for ACPA’s substratum argument is a questionable one. The “changed substratum doctrine” has developed in and thus far seems to have been restricted to, the area of employment law. In Rasanen v. Lisle-Metrix Ltd., 2002 49611 (Ont. S.C.J.) at para. 39, Dambrot J. described the doctrine in these words:
In several cases…despite the presence of a clearly specified alternative to reasonable notice, the contractual notice period has been determined not to prevail. This arises where, over the course of the period of employment, virtually all of the important terms of the agreement change, but the contract is never altered.[^1]
[41] Although brief, the SJSA is a multi-faceted agreement negotiated and executed by four sophisticated parties. It does not specify a term. It does not contain any rights of termination. I question whether the doctrine could – or should – apply to such a document.
[42] In any event, the doctrine is of narrow application. Arbitrator Teplitsky found that the SJSA was a subsisting agreement based on its terms. He referred to provisions that contemplate future expansion by Air Canada and Jazz. If Air Canada or Jazz plan to increase their fleets of specified aircraft, obligations of disclosure and consultation arise. If the parties are unable to agree, the issue is to be referred to Arbitrator Teplitsky. In his award, Arbitrator Teplitsky noted “although parts of the agreement have been fulfilled, other aspects have not.”
[43] Further, nothing in the SJSA suggests that its existence or continued operation is predicated upon a particular corporate structure or relationship. Arbitrator Teplitsky was particularly well suited to consider that issue. He was part of the process that resulted in the negotiation and execution of the SJSA in 2004. As the SJSA contemplated, his services have been utilized whenever disputes or issues of implementation arise. Arbitrator Teplitsky has previously released decisions dated September 16, 2005, June 19, 2006, November 7, 2007, October 18 and 25, 2010.
[44] The last-mentioned decision related to ACPA’s allegation that Jazz breached the SJSA when it agreed to operate six aircraft on behalf of Thomas Cook. The substratum argument was raised and rejected by Arbitrator Teplitsky then. ACPA did not apply to quash that decision.
[45] Furthermore, the evidentiary record amply supported the conclusion that the substratum doctrine does not apply. Arbitrator Teplitsky’s attention was drawn to a May 6, 2011 newsletter released by ACPA’s Negotiating Committee. It summarized the tentative agreement that had been negotiated with Air Canada. ACPA’s members were advised that “[a]lthough the removal of the [S]JSA through bargaining is not legally possible, the effect ... has been limited”. Arbitrator Teplitsky correctly noted: “The implication is that the settlement continues in effect.”
[46] The 2012 Collective Agreement went even further. Section 28(4) of PASA required Arbitrator Stanley to draft his decision “in a manner that constitutes a new collective agreement” between Air Canada and ACPA. He was obligated, “to the extent possible,” to “incorporate the contractual language” that was in the final offer he selected. The 2012 Collective Agreement included a provision that applied “notwithstanding the Small Jets Settlement Agreement”. That language would not have been needed if the SJSA had already ceased to operate.
[47] Arbitrator Teplitsky recognized there had been changes in circumstances since 2004. However, the effect was a practical, not legal, one. Subsequent events did not make the SJSA any less effective in law. At page 7 of his award, Arbitrator Teplitsky wrote:
Finally, I recognize that the landscape has dramatically changed since the SJSA was entered into. First, Air Canada and Jazz are now separate publicly traded corporations with no overlapping ownership. Their relationship is an arms-length commercial one. Second, Air Canada and ACPA have a new collective agreement which permits extension of regional flying by entities other than Jazz. It may be that these parties should consider “renegotiating” the SJSA. This is their decision. My reserved jurisdiction under the SJSA and the July, 2004 agreement does not permit me to make a new bargain for the parties…There is no basis in law for me to take these subsequent events into account which were not in contemplation of the parties when the SJSA was entered into, in exercising my reserved jurisdiction as a “rights” arbitrator.
[48] Arbitrator Teplitsky’s conclusion on the issue was a reasonable one.
[49] Second, ACPA maintained that the SJSA ceased to be enforceable because it was not incorporated into the 2012 Collective Agreement.
[50] The logic of the submission escapes me. The 2012 Collective Agreement came into existence as a result of a statutory process that involved only two of the four parties to the SJSA. Neither participant submitted a final offer which was consistent with the terms of that agreement.
[51] PASA required that Arbitrator Stanley select the final offer of Air Canada or ACPA. Jazz and ALPA were not given a voice. The arbitrator was not asked to determine whether Air Canada and Jazz were obligated to submit a final offer that mirrored the terms of the SJSA in light of paragraph 12 of that document. As already mentioned, it required Air Canada and ACPA on the one hand, and Jazz and ALPA on the other, to amend their collective agreements to give effect to the settlement.
[52] It should be obvious that Arbitrator Teplitsky correctly rejected the suggestion that two of four contracting parties can impose their will on the others. In commenting on the arrangement agreed to by Air Canada and ACPA, Arbitrator Teplitsky observed at page 5 of his award:
These changes are material; were not agreed to by either Jazz or ALPA and I am unaware of any authority permitting 2 of 4 parties to effect contractual changes binding on the other two and none was provided [to] me.
[53] I agree. PASA did not allow Air Canada and ACPA to rewrite contracts entered into with third parties.
[54] Third, ACPA submits that the effect of the Teplitsky award is to make the SJSA permanent contrary to the Canada Labour Code, R.S.C. 1985, c. L-2 and labour relations principles.
[55] Once again, I disagree.
[56] ACPA based its submission on the reasons given by Estey J. in Bradburn v. Wentworth Arms Hotel, 1978 44 (SCC), [1979] 1 S.C.R. 846. However, that judgment did not prohibit the creation of provisions of “infinite application”. Instead, Estey J. outlined the approach to be taken when construing a contract of indefinite duration. At p. 861, the learned justice wrote:
It would take the clearest possible language…to drive a court to an interpretation which would find the parties voluntarily stripping themselves of the opportunity to call to their aid the provisions of statute to change a collective agreement, and to substitute for those proceedings so traditional now in the labour relations of our community, a permanent agreement continuing until both parties agree upon a replacement agreement.
[57] As noted, the SJSA did not specify a term or terminating event. Arbitrator Teplitsky was well-positioned to undertake the task of determining whether the SJSA was spent.
[58] Arbitrator Teplitsky carefully reviewed the terms of the agreement. He did not conclude that the SJSA was to operate forever. He only expressed an unwillingness to “curtail the operation of the SJSA prematurely” because that “would deprive ALPA of its bargain.”[^2] That conclusion followed logically and necessarily from his finding that some parts of the agreement had been performed, while others had not.
[59] That interpretation was a reasonable one. The arbitrator did not transform a contract of indefinite duration into one of infinite operation.
ii. Operational Conflict
[60] ACPA is correct that the Stanley and Teplitsky awards deal inconsistently with the ASM ratio issue. However, they do so for the reason I have already given. Air Canada and ACPA tried to amend a four party agreement in a two-party statutory process.
[61] The 2003 Collective Agreement had been amended to include the SJSA. The terms of the SJSA were continued in the 2009 Collective Agreement.
[62] PASA was enacted because ACPA’s members refused to ratify the tentative agreement and a lockout was looming.
[63] The final offers Air Canada and ACPA submitted pursuant to PASA could have mirrored the terms of the SJSA. Had they done so, the 2012 Collective Agreement would have contained the ASM ratio set forth in the three agreements that preceded it. However, each party proposed modifications.
[64] Arbitrator Stanley performed the limited task PASA imposed. He heard from Air Canada and ACPA and selected one of their final offers based on his assessment of the statutory factors. The positions of Jazz and ALPA were not considered.
[65] Arbitrator Teplitsky undertook a different task. He performed a role all four parties to the SJSA agreed he would assume. He received, heard and considered submissions from all of those bound by the SJSA’s terms.
[66] The Teplitsky award prevails.
[67] There is no reason why this court should quash the Teplitsky award. It was, in all respects, a reasonable one. If quashed, ACPA and Air Canada would be allowed to benefit from an operational conflict they created.[^3] The problem created by the existence of two inconsistent agreements can and should be eliminated by strokes of those parties’ pens.[^4]
D. Conclusion and Costs
[68] For the reasons given, ACPA’s application is dismissed.
[69] As agreed, ACPA shall pay ALPA the all-inclusive sum of $15,000 on account of costs.
[70] No other costs order was sought and none is made.
___________________________ Horkins J.
Harvison Young J.
Grace J.
Released: October 30, 2014
CITATION: Air Canada Pilots Association v. Air Canada, 2014 ONSC 6133
DIVISIONAL COURT FILE NO.: DC-13-196-00
DATE: 20141030
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
C. Horkins, Harvison Young and Grace JJ.
BETWEEN:
AIR CANADA PILOTS ASSOCIATION Applicant
– and –
AIR CANADA, JAZZ AIR and AIR LINE PILOTS ASSOCIATION Respondents
REASONS FOR JUDGMENT
Grace J.
Released: October 30, 2014
[^1]: Aff’d 2004 16321 (Ont. C.A.).
[^2]: These excerpts are drawn from p. 4 of the Teplitsky award.
[^3]: In B.C. Telephone v. Shaw Cable Systems, 1995 101 (SCC), [1995] 2 S.C.R. 739 at 770, L’Heureux-Dubé J. cautioned that “[c]onflicts should not be sought out or artificially created by the courts as a justification for judicial interference.”
[^4]: The right of ACPA and Air Canada to amend any provision in the 2012 Collective Agreement other than a provision relating to its term is preserved by s. 32(3) of PASA.