[1984] OLRB Rep. August 1120
2022-83-M The Bricklayers, Masons Independent Union of Canada Local 1, Applicant, v. The Masonry Contractors Association of Toronto Inc. and Parlay Construction Ltd., Respondents
BEFORE: Ian C. Springate, Vice-Chairman, and Board Members F. W. Murray and C. A.
Ballentine.
DECISION OF THE BOARD; August 13, 1984
This is a referral to the Board under section 124 of the Labour Relations Act.
On March 26, 1984 the Board issued a decision in this matter which read, in part, as follows:
"2. The parties acknowledge that Parlay Construction Ltd. is bound by the terms of two collective agreements entered into between the Masonry Contractors' Association of Toronto Inc. and the Bricklayers, Masons Independent Union of Canada, Local 1. One of these collective agreements relates to bricklayers, the other to bricklayers' assistants.
- The collective agreements require that Parlay Construction Ltd. pay certain sums to an employee welfare plan. The agreements also require that the company deduct amounts equivalent to union dues from employee wages and forward them to the union. The parties acknowledge that the company failed to meet the stated time limits for making a number of these payments. On January 16, 1984 the company gave the union three cheques to cover the amounts then outstanding. One cheque, dated January 16, 1984 was with respect to amounts owing for the months of July and August, 1983. This cheque was honoured by the bank. A second cheque was post-dated to February 16, 1984. This cheque was for $3,386.90, the amount owing by Parlay Construction Ltd. with respect to the months of September and October, 1983. This cheque was not honoured by the company's bank. The third cheque was post-dated to March 16, 1984. This cheque, in the amount of $1,455.80, was to cover amounts owing with respect to the months of November and December, 1983. As of the date of the hearing the applicant had not yet presented this cheque for payment."
The Board then went on to direct payment of the amounts still owing, which totalled some $4,842.70. However, the Board reserved on the issue of the enforcement of certain "penalty" provisions in the collective agreements.
- Article 26 in both collective agreements provide as follows:
"26 PENALTIES
A) Any employer which fails to remit monies required in accordance with article 24 (Welfare) and article 25 (Check-Off) by the 15th of the month will be assessed a charge of 1% on the money owing. If any such employer has failed to make the same remittances by the end of the month in which they became due, an additional charge of 2% of the monies owing will be assessed.
B) If after exhausting the grievance procedure, and Arbitration Board has issued a finding of a violation of Articles 8, 9, 10, 14, 24, 25A of this agreement, the violating party shall be liable to pay a penalty of $500.00 to the other party as well as a further penalty of 10% of any monies owing by that party to the other party."
There is no question but that Parlay Construction Limited failed to make timely payments to the employee welfare plan contrary to article 24 of the collective agreements and, in addition, failed to remit to the union amounts deducted from employee wages for union dues contrary to article 25A. Accordingly, by the terms of article 26(A) an additional 3% of the amounts involved became payable. Further, in that this Board, acting as an arbitration board, found the company to be in violation of articles 24 and 25, under article 26(B) a further 10% became payable on the amount then still owing as well as an additional $500.00. It is the position of the respondents, however, that these amounts represent penalties for breach of the collective agreements and hence at law are unenforceable.
The general approach of the civil courts is to enforce an amount stipulated for breach of a contract if the amount in question is a genuine pre-estimate of damages, but not to enforce it (at least not beyond the amount of any actual damages) if it is, in fact, a penalty. The courts have also made it clear that the use of the terms "penalty" or "liquidated damages" in a contract is not conclusive. In the leading case of Clydebank Engineering v. Don Jose Ramos Yzquierdo Y Castaneda [1905] A.C. 6 a clause specified that for each week that a ship's delivery was delayed, a "penalty" of 500 pounds would have to be paid. The Earl of Hallsbury L.C. analyzed the clause in question as follows:
"The first objection is one which appears upon the face of the instrument itself, namely, that it is a penalty, and not, therefore, recoverable as a pactional arrangement of the amount of damages resulting from the breach of contract. It cannot, I think, be denied — indeed, I think it has been frankly admitted by the learned counsel — that not much reliance can be placed upon the mere use of certain words. Both in England and in Scotland it has been pointed out that the Court must proceed according to what is the real nature of the transaction, and that the mere use of the word "penalty" on the one side, or "damages" on the other, would not be conclusive as to the rights of the parties."
- In ascertaining whether amounts referred to in a collective agreement are a penalty or a pre-estimate of liquidated damages, a helpful guide is the reasoning of the United States 7th Circuit Court in United Order of American Bricklayers and Stone Masons Union No. 21 v. Thorleif Larsen & Sons, Inc. 89 LRRM 3113. In that case, a collective agreement contained a clause that made the employer liable for an additional 10% payment on failure to remit welfare and benefit fund contributions in a timely fashion, as well as for payment of all these monies. In construing this clause, the court carefully considered the question of penalties vis-à-vis liquidated damages in the context of an agreement arrived at under a collective bargaining regime. Pell C. J. Set out the requirements of liquidated damages as being two-fold:
"(a) the amount so fixed is a reasonable forecast of just compensation for the harm that is caused by the breach, and
(b) the harm that is caused by the breach is one that is incapable or very difficult of accurate estimation."
It was the view of the court that the union's anticipated damages would go beyond mere loss of the use of funds, but would also include increased administrative costs from collection efforts, the cost of attempts to forecast receipts, possible loss of benefits to employees and harm to labour-management peace. In the circumstances, the Court concluded that it would be just and equitable to regard the collective agreement provision as a genuine pre-estimate of damages and to enforce it. The essential part of the Court's award is set out below:
"It is clear that the defendant contractually agreed to make the contributions and to pay an additional 10% if the payment was not made in time. This would appear to be 'a part of the consideration which [the appellee] agreed to pay for services performed by his employees.'
An underlying purpose of a labor agreement is to provide for a period of industrial harmony between labor and management. It is in keeping with the spirit of our federal labor relations policy that labor contracts are to be enforced as negotiated by the parties. While the difficulties of the advance accurate estimation of damages are otherwise adequately demonstrated in the present case, we do note the difficulty, if not impossibility, of quantifying the intangible damages to labor-management harmony resulting from failure to comply with the provisions which have been hammered out in bargaining sessions.
We are satisfied that the plaintiff has clearly established that the harm caused by the breach is one that is very difficult of accurate estimation. That having been established, we are unable to say under the particular circumstances of this negotiated labor contract that the amount so fixed is not within the range of reasonable forecast of just compensation for the harm caused by the breach."
In our view, the 1% and 2% figures in article 26(A) of the collective agreements we are dealing with are properly viewed as pre-estimates of the costs associated with late payment of the money in question, and not as penalties. In this regard we would also refer to the decision of the Board in Beckett Elevator Company, Limited [1983] OLRB Rep. Sept. 1391 where the Board stated that the requirement of interest is not a penalty but part of the compensation for loss incurred by a breach of a collective agreement. We are also of the view that the additional 10% which becomes payable if the union is required to get an arbitration award to enforce the agreements should be viewed in the same light, especially given the additional time it may take for the arbitration process to be completed. As for the $500.00, we see that as an estimate (and a conservative one at that) of the union's cost in taking a matter to arbitration. We would note in this regard, that a board of arbitration, including this Board when acting under section 124 of the Act, lacks the general power of a court to award costs, and accordingly, any such authority must be found in the relevant collective agreement.
Having regard to the foregoing, we are satisfied that the payments required by article
26 are not penalties, but rather enforceable pre-estimates of losses arising from an employer's violation of the collective agreements. Accordingly, in addition to the amount referred to in the Board's decision of March 26, 1984, the Board hereby directs Parlay Construction Ltd. to forward to the applicant $239.30, being interest of 3% on the total amount not paid on time, $484.27, being interest of 10% on the amount covered by the Board's order of March 26, 1984 plus an additional $500.00. This makes a total of $1,223.57 payable to the applicant over and above the amounts referred to in the Board's order of March 26, 1984.