Corporation of the County of Huron Huronview Home for the Aged v. Service Employees' Union Local 210 affiliated with Service Employees International Union

[Indexed as: Huron (County) Huronview Home for the Aged v. Service Employees' Union Local 210]

50 O.R. (3d) 766

[2000] O.J. No. 3928

Docket No. C33492

Court of Appeal for Ontario

Charron, MacPherson and Sharpe JJ.A.

October 25, 2000

• Application for leave to appeal to the Supreme Court of

Canada dismissed with costs June 21, 2001 (Gonthier, Major and

Binnie JJ.). S.C.C. File No. 28334. S.C.C. Bulletin, 2001,

p. 1153.

Administrative law -- Boards and tribunals -- Judicial review -- Standard of review -- Patent unreasonableness -- In applying patent unreasonableness standard, reviewing court deciding whether there is rational basis for decision -- Reviewing court not obligated to search for "correct" meaning of impugned legislation that was subject of board hearing.

Employment -- Labour relations -- Management rights -- Layoff -- Employer laying off employees as result of government funding cuts -- Collective agreement listing "right to decide on the number of employees needed at any time" among exclusive management rights -- Arbitrator ruling that right subject to specific provisions of collective agreement governing layoffs -- Layoff provisions defining "layoff" to mean discontinuation of position due to lack of work -- Arbitrator ruling layoffs due to funding cutback and not lack of work and layoffs violating collective agreement -- Divisional Court allowing employer's application for judicial review -- Standard of review of arbitrator's decision that of patent unreasonableness -- Arbitrator's decision not patently unreasonable -- Divisional Court erring in law by placing undue emphasis upon economic reality facing employer -- Union's appeal allowed.

The employer owned and operated two municipal "homes for the aged" facilities. In 1993, the provincial government introduced a new funding formula for homes for the aged, which resulted in a significant cut in the funding for the employer's facilities. The funding cuts were accompanied by legislative changes in the minimum standard of care to be provided in nursing homes. As a result of the funding cuts and changes to the required standard, the employer developed a restructuring plan which resulted in 19 layoffs. The union representing the employees of the two facilities grieved, alleging that the employer had violated the terms of the collective agreement dealing with layoffs. The arbitrator held that the management rights clause of the collective agreement, which gave the employer the exclusive "right to decide on the number of employees needed at any time", was subject to the specific provisions of the collective agreement governing layoffs. These provisions defined "layoff" to mean the discontinuation of a position due to lack of work. The arbitrator concluded that the layoffs in question were the direct result of the government's funding cutback and not due to a lack of work. He found that the layoffs violated the collective agreement. The Divisional Court allowed the employer's application for judicial review and quashed the award. The court held that a lack of work can arise from various factors, including the financial inability to continue to provide work. The court concluded that the meaning afforded the layoff provisions of the collective agreement by the arbitrator was patently unreasonable when viewed in relation to the management rights provisions and the reality of the economic situation facing the employer. The union appealed.

Held, the appeal should be allowed.

The standard of review of the arbitrator's decision was that of patent unreasonableness. When applying the patently unreasonable test, a reviewing court should simply ask whether there is a rational basis for the arbitrator's interpretation, rather than searching for a "correct" meaning of the statute and measuring the rationality of the arbitrator's decision by its degree of deviation.

Provisions defining management rights and defining the conditions necessary for the employer to resort to layoffs are typically found in collective agreements, the very area of the arbitrator's expertise. The arbitrator provided a rational explanation for his interpretation of the layoff clause as a limitation on the management rights clause. The arbitrator applied a well-accepted rule of interpretation, namely, that in considering the context of the contract as a whole, a general power is to be read as limited by a specific restriction. The arbitrator's interpretation was one that the collective agreement could reasonably and logically bear, and it was not open to the Divisional Court to interfere.

One of the purposes of a contract is to allocate the risk of future economic contingencies. In the labour relations context, employers typically assume the risk of future economic contingencies in return for the assurance of a work force prepared to undertake its duties on the terms specified in the collective agreement. In his award, the arbitrator frankly acknowledged and took into account the difficult economic situation facing the employer in light of the government's funding cuts. It was not open to the arbitrator, or the Divisional Court, to rewrite the bargain the parties had negotiated based on the "reality of the economic situation facing the employer".

APPEAL from a judgment of the Divisional Court allowing an application for judicial review of the decision of an arbitrator.

Cases referred to BG Checo International Ltd. v. British Columbia Hydro & Power Authority, 1993 145 (SCC), [1993] 1 S.C.R. 12, 75 B.C.L.R. (2d) 145, 14 C.C.L.T. (2d) 233, 99 D.L.R. (4th) 577, 147 N.R. 81, [1993] 2 W.W.R. 321; Canada (Attorney General) v. Public Service Alliance of Canada, 1993 125 (SCC), [1993] 1 S.C.R. 941, 93 C.L.L.C. 14,022, 101 D.L.R. (4th) 673, 150 N.R. 161; Canada (Director of Investigation and Research) v. Southam Inc., 1997 385 (SCC), [1997] 1 S.C.R. 748, 71 C.P.R. (3d) 417, 144 D.L.R. (4th) 1, 209 N.R. 20; Pushpanathan v. Canada (Minister of Citizenship and Immigration), 1998 778 (SCC), [1998] 1 S.C.R. 1222, 160 D.L.R. (4th) 193, 226 N.R. 201, [1998] 1 S.C.R. 982; Toronto (City) Board of Education v. Ontario Secondary School Teachers' Federation, 1997 378 (SCC), [1997] 1 S.C.R. 487, 144 D.L.R. (4th) 385, 208 N.R. 245, 25 C.C.E.L. (2d) 153; Union des Employés de Service, Local 298 v. Bibeault, 1988 30 (SCC), [1988] 2 S.C.R. 1048, 35 Admin. L.R. 153, 89 C.L.L.C. 14,045, 95 N.R. 161, 24 Q.A.C. 244 (sub nom. Syndicat National des employés de la Commission Scolaire Regionale de l'Outaouais (CSN) v. Union des employés de service, Local 298 (FTQ)); United Brotherhood of Carpenters & Joiners, Local 579 v. Bradco Construction Ltd., 1993 88 (SCC), [1993] 2 S.C.R. 316, 334 A.P.R. 140, 93 C.L.L.C. 14,033, 102 D.L.R. (4th) 402, 153 N.R. 81, 106 Nfld. & P.E.I.R. 140 Statutes referred to Labour Relations Act, 1995, S.O. 1995, c. 1, Sch. A, s. 48(1) Long-Term Care Statute Law Amendment Act, 1993, S.O. 1993, c. 2

James Renaud, for appellant. D.J. Murphy, Q.C., for respondent.

The judgment of the court was delivered by

[1] SHARPE J.A.: -- The collective agreement between the parties to this appeal contains provisions dealing with management rights and with layoffs. The Corporation of the County of Huron and Huronview Home for the Aged ("the employer"), faced with significant cuts in government funding and relying on the management rights clause, redefined the duties of the workforce and laid off 19 employees. The Service Employees' Union Local 210 Affiliated with Service Employees International Union ("the union") grieved, alleging that the employer had violated the terms of the collective agreement dealing with layoffs. An arbitrator delivered detailed reasons interpreting the collective agreement in favour of the union and allowing the grievance. The Divisional Court allowed the employer's application for judicial review and quashed the arbitration award. The union appeals, with the leave of this court, arguing that the Divisional Court erred in quashing the award as it cannot be said that the arbitrator's decision was patently unreasonable.

Facts

[2] The employer owns and operates municipal "homes for the aged" facilities, including Huronview Home for the Aged ("Huronview") and Huronlea Home for the Aged ("Huronlea"). These homes are partially funded by the provincial government. The union is the bargaining agent for the employees of Huronview and Huronlea.

[3] In 1987 the employer made plans to demolish the then existing Huronview building and replace it with two facilities, Huronview and Huronlea. The resident capacity at the two new homes was less than the capacity at the old Huronview.

[4] In preparation for the move to the two new homes, the resident population at the old Huronview was reduced and the union and the employer agreed to a "Transitional Staffing Plan" which provided for a reduced workforce and set out the new positions and shifts available at the new homes, as determined by the employer. Employees, in accordance with seniority, bid on the jobs set out in this plan. The move to the two new facilities occurred in April 1993.

[5] In late July or early August 1993, the provincial government introduced a new funding formula for homes for the aged, which resulted in a significant cut in the funding for Huronview and Huronlea. The funding cuts were accompanied by legislative changes in the minimum standard of care to be provided in nursing homes: Long-Term Care Statute Law Amendment Act, 1993, S.O. 1993, c. 2. As a result of the funding cuts and changes to the required standard, in September 1993 the employer developed a restructuring plan resulting in the 19 layoffs that are the subject of this appeal.

The collective agreement

[6] The relevant provisions of the collective agreement are as follows:

Article 4.02

The Union further recognizes the right of the Employer to operate and manage the Home for the Aged in all respects in accordance with its commitments and obligations and responsibilities. The right to decide on the number of employees needed at any time, the right to use modern methods, machinery and equipment and jurisdiction over all operations, building equipment and employment at the Home for the Aged at Clinton, Ontario are solely and exclusively the responsibility of the Employer. The Employer has the right to make and alter from time to time and enforce rules and regulations to be observed by the employees. Such rules and regulations shall not be inconsistent with the provisions of the Agreement.

Article 12.06

Layoff shall mean the discontinuation of a position(s) due to lack of work. In the event of a proposed layoff, the Home will:

(a) provide the Union with no less than sixty (60) calendar days notice of such layoff,

and;

(b) meet with the Union through the Union/Steward Committee to review the following:

(i) the reason causing the layoff

(ii) the service the Home will undertake after the layoff

(iii) the method of implementation including the areas of cut back and the employees to be laid off.

Article 12.12

As a result of layoff or attrition, no employees shall have their regular workload increased.

Letters of Understanding:

1. Re: No Contracting Out

The Employer agrees not to contract out work presently performed by the Bargaining Unit.

2. Re: Work of the Bargaining Unit

Employees in the bargaining unit as of January 1, 1988, will not have reduced hours of work or pay during the term of this Agreement as a result of volunteer or others doing work normally carried out by the employees covered by our Agreement.

3. Re: Full Time/Part Time Ratio

The Parties agree that the Employer has an obligation to manage the Home in an efficient manner, however, the Employer will employ employees on a full time basis whenever possible and will not divide full time positions into part time positions without the approval of the Union Management Committee.

(Emphasis added)

Arbitration award (Dissanayake)

[7] In his award, the arbitrator identified the primary issue as whether the 19 layoffs were contrary to the collective agreement. The arbitrator found that the employer's general power to decide on the number of employees needed at any time (article 4.02) was subject to the specific provisions of article 12.06 governing layoffs. The arbitrator interpreted article 12.06 as restricting the employer's right to lay off employees to instances where there is a "lack of work". The arbitrator defined the central issue before him "to be one of determining based on the evidence, whether the layoffs in question was a result of a lack of work. If it was not, the layoffs would have been in contravention of article 12.06."

[8] After a detailed review of the evidence, the arbitrator concluded that the layoffs in question were the direct result of the government's funding cutback and not due to a lack of work. He found, accordingly, that the layoffs violated the collective agreement. The gist of the arbitrator's decision is summarized in the following passage from his decision:

For all the above reasons, I conclude that the layoffs in question were not "due to lack of work" as anticipated by article 12.06. On the contrary, the work was there to be performed, but the employer could not afford to have the employees do all of the available work because of the funding cuts. The employer has been caught between a rock and a hard place. On the one hand, it has undertaken obligations under the collective agreement which have financial costs. On the other it is dependent on the Province for funding in order to be able to meet those obligations. The Province has unilaterally reduced the amount of funding and the union is pursuing its strict rights under the collective agreement taking the position that (as union counsel put) "where the employer finds the funding is not the union's problem." As noted, while I sympathize with the difficult situation faced by the employer, I have no jurisdiction to relieve the employer from its obligations under the collective agreement, by considering the em ployer's fiscal difficulties. I have no alternative but to declare that the layoffs were not permitted under this collective agreement, which limits layoffs to situations where positions are discontinued "due to lack of work".

[9] The arbitrator relied on the following facts in support of his conclusion that the layoffs were the result of funding cut-backs, and not a result of lack of work or a reassessment of staffing needs following the completion of the transition to the new homes:

-- The employer's restructuring proposal (which ultimately led to the layoffs) states that the staffing structure of both homes underwent close review as a result of the change in provincial funding.

-- While in the past the employer had provided care and services that exceeded the minimum provincial care requirements, the employer decided as a result of the provincial funding cuts to reduce services and care in the homes to the point where these minimum requirements were met. This decision to reduce services and care (with the attendant job losses) was based on the reduction in funding and not on a lack of work.

-- The employer, in purported compliance with its obligation under article 12.06(b)(i) to provide the union with the reason for the layoffs, actually stated that the changes resulting in the layoffs were introduced because of the cut in the provincial funding.

-- The employer's administrator testified that the restructuring which resulted in the layoffs came about as a result of the cut in provincial funding.

[10] The arbitrator concluded as follows:

There is not an iota of evidence to suggest that following the move, the Employer realised that its initial conclusions as to staffing requirements [i.e. those set out in the transitional Staffing Plan] were incorrect and that it reassessed its staffing situation. On the contrary, the evidence is that right up to the date of layoff the employees who had filled the positions, deemed by the Employer to be required in the Transitional Staffing Plan, continued to have a full shift's work. The totality of the evidence indicates that what occurred was, when the Province reduced funding the Employer was not prepared or was not able to pick up the shortfall. It therefore decided to cut costs. It did so by initiating a restructuring plan, a primary component of which was the layoff of employees.

Divisional Court (Cunningham, Lofchik, McKinnon JJ.)

[11] The Divisional Court quashed the award of the arbitrator in its entirety. The basic thrust of its brief written endorsement is captured in the following extract:

While there may have been no lack of the sort of work that had been performed up to that point there was indeed a lack of work following the cutbacks, because the scope of the work had been redefined by the employer in the light of the financial cutbacks. Taking the Arbitrator's finding on its face, an employer could never react to a negative financial climate. It should be obvious that a lack of work can arise from various factors: diminished resident demand, for example, or the financial inability to continue to provide work. That the lack of work arises from the latter cause makes it no less real than the former.

The finding of the Arbitrator unreasonably curtails the rights of the employer set out in Article 4, including the right to determine the size of the workforce.

The intent of Article 12 merely assures employees that downsizing will not result in additional work. It does not constitute a guarantee that the scope of work or the size of the workforce are immune from change. The meaning afforded Article 12 by the Arbitrator is patently unreasonable when judged in relation to Article 4 and the reality of the economic situation facing the employer. To maintain the meaning afforded by the Arbitrator would place the employer in a financial straitjacket which should be avoided if possible. A reasonable interpretation of the agreement, in our view, avoids that eventuality.

Issues

[12] The appellant raises the following issues on this appeal:

1. Did the Divisional Court err in law by failing to apply the appropriate standard of review in a judicial review of a labour arbitration board?

2. Did the Divisional Court err in law in finding that the arbitrator's award was "patently unreasonable"?

3. Did the Divisional Court err in law by placing undue emphasis upon "the economic reality facing the employer", thereby effectively amending the collective agreement?

4. Did the Divisional Court err in law by quashing the arbitrator's award for alternative relief?

Analysis

Issue 1: Did the Divisional Court err in law by failing to apply the appropriate standard of review in a judicial review of a labour arbitration board?

[13] The appropriate standard of review is determined by using the pragmatic and functional analysis first expounded by Beetz J. in Union des Employés de Service, Local 298 v. Bibeault, 1988 30 (SCC), [1988] 2 S.C.R. 1048, 24 Q.A.C. 244, and most recently described by Bastarache J. in Pushpanathan v. Canada (Minister of Citizenship and Immigration), 1998 778 (SCC), [1998] 1 S.C.R. 982, 160 D.L.R. (4th) 193. The pragmatic and functional approach involves consideration of four factors:

(i) the presence or absence of a privative clause;

(ii) the expertise of the tribunal;

(iii) the purpose of the Act as a whole and the provision in particular; and

(iv) the nature of the problem (whether it is a question of law, mixed law and fact, or fact).

A court will use the four factors to determine the appropriate standard for assessing the impugned decision on a spectrum ranging from correctness to patent unreasonableness.

[14] It has been repeatedly held that these factors point to a high level of curial deference with respect to the decisions of labour arbitrators interpreting the provisions of a collective agreement. Section 48(1) of the Labour Relations Act, 1995, S.O. 1995, c. 1, Sch. A, provides that an arbitrator's decision is "final and binding". The task of interpreting collective agreements is squarely within the jurisdiction and expertise of a labour arbitrator. The purpose and the nature of grievance arbitration in effective and efficient management of conflict between employers and employees depends upon prompt and final determinations by expert arbitrators with minimal interference by the courts. Grievances typically give rise to questions of fact or, at best, questions of mixed law and fact. All four factors point to the patently unreasonable standard.

[15] Cory J. articulated the rationale for the highly deferential patently unreasonable standard to be applied by courts when reviewing the interpretation of collective agreements by labour arbitration boards in Toronto (City) Board of Education v. Ontario Secondary School Teachers' Federation, 1997 378 (SCC), [1997] 1 S.C.R. 487 at pp. 504-05, 144 D.L.R. (4th) 385 at p. 397:

Canada (Attorney General) v. Public Service Alliance of Canada, 1993 125 (SCC), [1993] 1 S.C.R. 941 . . . (PSAC No. 2), emphasized the essential importance of curial deference in the context of labour relations where the decision of the tribunal, like the Board of Arbitration, in the instant appeal is protected by a broad privitive clause. There are a great many reasons why curial deference must be observed in such decisions. The field of labour relations is sensitive and volatile. It is essential that there be a means of providing speedy decisions by experts in the field who are sensitive to the situation, and which can be considered by both sides to be final and binding.

In particular, it has been held that the whole purpose of a system of grievance arbitration is to secure prompt, final and binding settlement of disputes arising out of the interpretation or application of collective agreements and the disciplinary actions taken by an employer. This is a basic requirement for peace in industrial relations, which is important to the parties and society as a whole . . .

It was for these reasons that PSAC No. 2 stressed that decisions of labour relations tribunals acting within their jurisdiction can only be set aside if they are patently unreasonable. That is very properly an extremely high standard, and there must not be any retreat from this position.

[16] There can be no doubt that the appropriate standard of review of the arbitrator's award was that of patent unreasonableness. As I have already noted, that is the standard of review the Divisional Court purported to apply. The respondent did not seriously question the applicability of the patently unreasonable standard, but focussed its defence of the Divisional Court's judgment on the proposition that the arbitrator's award was patently unreasonable. The real issue is whether or not the Divisional Court correctly applied that standard.

Issue 2. Did the Divisional Court err in law in finding that the arbitrator's award was "patently unreasonable"?

[17] While the Divisional Court explicitly acknowledged the "patently unreasonable" standard in its reasons, the union submits that it applied a lower standard of "correctness" or "unreasonableness" in making its decision. The employer maintains that the arbitrator's decision was patently unreasonable and that the Divisional Court properly granted judicial review.

[18] The patently unreasonable standard is a very strict test. It was described by Cory J. in Canada (Attorney General) v. Public Service Alliance of Canada, 1993 125 (SCC), [1993] 1 S.C.R. 941, 101 D.L.R. (4th) 673, writing for the majority at pp. 690-691 D.L.R., pp. 963-64 S.C.R., in the following terms:

It is said that it is difficult to know what "patently unreasonable" means. What is patently unreasonable to one judge may be eminently reasonable to another. Yet any test can only be defined by words, the building blocks of all reasons. Obviously, the patently unreasonable test sets a high standard of review. In the Shorter Oxford English Dictionary "patently", an adverb, is defined as "openly, evidently, clearly". "Unreasonable" is defined as "not having the faculty of reason, irrational, not acting in accordance with reason or good sense". Thus, based on the dictionary definition of the words "patently unreasonable", it is apparent that if the decision the Board reached, acting within its jurisdiction, is not clearly irrational, that is to say evidently not in accordance with reason, then it cannot be said that there was a loss of jurisdiction. This is clearly a very strict test.

It is not enough that the decision of the Board is wrong in the eyes of the court; it must, in order to be patently unreasonable, be found by the court to be clearly irrational.

[19] When applying the patently unreasonable test, a reviewing court should simply ask whether there is a rational basis for the agency's interpretation, rather than searching for a "correct" meaning of the statute and measuring the rationality of the agency's decision by its degree of deviation. In United Brotherhood of Carpenters & Joiners, Local 579 v. Bradco Construction Ltd., 1993 88 (SCC), [1993] 2 S.C.R. 316, 102 D.L.R. (4th) 402, Sopinka J., dealing with the way that the reviewing court should approach the task of applying the patently unreasonable test in the face of various definitions of the standard, explained the test at pp. 340-01 [S.C.R.]:

A decision is not patently unreasonable simply because, had there been a right of appeal, it would have been overruled by most appellate judges. [paraphrased]

What these statements mean, in my view, is that the court will defer even if the interpretation given by the tribunal to the collective agreement is not the "right" interpretation in the court's view nor even the "best" of two possible interpretations, so long as it is an interpretation reasonably attributable to the words of the agreement.

[20] In Canada (Director of Investigation and Research) v. Southam Inc., 1997 385 (SCC), [1997] 1 S.C.R. 748, 144 D.L.R. (4th) 1, Iacobucci J. described the difference between an unreasonable and a patently unreasonable decision at p. 777 [S.C.R.]:

The difference . . . lies in the immediacy or obviousness of the defect. If the defect is apparent on the face of the tribunal's reasons, then the tribunal's decision is patently unreasonable. But if it takes some significant searching or testing to find the defect, then the decision is unreasonable but not patently unreasonable.

[21] Provisions defining management rights and defining the conditions necessary for the employer to resort to layoffs are typically found in collective agreements, the very area of the arbitrator's expertise. The employer provided the arbitrator with cogent arguments in support if its contention that, pursuant to the management rights clause, it had the right to redefine the scope of the work and determine the number of employees required. The arbitrator provided a rational explanation for his interpretation of the layoff clause (article 12.06) as a limitation on the management rights clause (article 4.06). The arbitrator applied a well-accepted rule of interpretation, that in considering the context of the contract as a whole, a general power is to be read as limited by a specific restriction: BG Checo International Ltd. v. British Columbia Hydro & Power Authority, 1993 145 (SCC), [1993] 1 S.C.R. 12, 99 D.L.R. (4th) 577.

[22] It is not for the court on judicial review to say whether the arbitrator's decision was correct or even reasonable: to justify interference, the decision must be patently unreasonable. To be patently unreasonable, the decision of the arbitrator would have to be "clearly irrational" and "not in accordance with reason". In my view, the arbitrator's interpretation was one that the collective agreement could reasonably and logically bear, and it follows that it was not open to the Divisional Court to interfere.

Issue 3: Did the Divisional Court err in law by placing undue emphasis upon "the economic reality facing the employer", thereby effectively amending the collective agreement?

[23] In his award, the arbitrator frankly acknowledged and took into account the difficult economic situation facing the employer in light of the government's funding cuts. It was not open to the arbitrator nor, for that matter, to the Divisional Court, to rewrite the bargain the parties had negotiated, based on the "reality of the economic situation facing the employer". One of the purposes of a contract is to allocate the risk of future economic contingencies. In the labour-relations context, employers typically assume the risk of future economic contingencies in return for the assurance of a work force prepared to undertake its duties on the terms specified in the collective agreement. It is evident from the arbitrator's award that he was very much alive to the harsh economic reality the employer faced on account of the cuts in funding by the provincial government. He did not ignore that factor, but rather he found that on a proper interpretation of the terms of the collective agreement, the employer, and not the employees, had to assume the risk and bear the brunt of the funding cuts. As the arbitrator provided a rational basis for his interpretation of the collective agreement in relation to the funding cuts, it was not open to the Divisional Court to interfere with his award.

Issue 4: Did the Divisional Court err in law quashing the arbitrator's award for alternative relief?

[24] My conclusion with respect to the application of the patently unreasonable standard to the arbitrator's award provides sufficient basis to restore the arbitrator's award. Accordingly, it is unnecessary to deal with the issues of natural justice and jurisdiction raised by the appellant in relation to the Divisional Court quashing the entirety of the Arbitrator's award.

Conclusion

[25] For these reasons, I would set aside the order of the Divisional Court, restore the award of the arbitrator, and dismiss the application for judicial review with costs to the union both here and below.

Appeal allowed.