London Life Insurance Company v. Dubreuil Brothers Employees Association, a Division of IWA Canada Local 2693 et al. [Indexed as: London Life Insurance Co. v. Dubreuil Brothers Employees Assn.]

49 O.R. (3d) 766

[2000] O.J. No. 2609

Docket No. C31391

Court of Appeal for Ontario

Carthy, Goudge and O'Connor JJ.A.

July 13, 2000

*Application for leave to appeal to the Supreme Court of Canada was dismissed with costs (McLachlin C.J., Iacobucci and Bastarache JJ.). S.C.C. File No. 28165. S.C.C. Bulletin, 2001, p. 498.

Employment -- Labour relations -- Grievance arbitration -- Jurisdiction -- Collective agreement requiring employer to maintain group disability insurance policy in force and to pay premiums -- Employer doing so -- Insurance policy not incorporated into collective agreement -- Insurer denying employee's claim for long-term disability benefits -- Employee filing grievance -- Arbitrator not having jurisdiction to resolve dispute -- Dispute not arising out of interpretation, application, administration or violation of collective agreement.

The insurer denied an employee's claim for long-term disability benefits pursuant to an insurance policy maintained by the employer. The collective agreement between the employer and the union required the employer to pay premiums for the policy and to maintain it in force during the term of the agreement. The employer did so. The insurance policy was not incorporated into the collective agreement. The employee filed a grievance claiming entitlement to the benefits. The employer contested the arbitrator's jurisdiction on the basis that it had complied with its contractual obligations and that the employee's complaint was with the insurer. The arbitrator concluded that where a group insurance policy is provided for by a collective agreement, the insurer's liability is to be decided at arbitration with the same finality that would attach to any other arbitral award. He dismissed the employer's objection to his jurisdiction. The Divisional Court allowed the employer's application for judicial review. The union appealed.

Held, the appeal should be dismissed.

The appropriate standard of review of the arbitrator's decision was that of correctness. His decision that he could proceed to hear the dispute was not based on his reading of the collective agreement but on his interpretation of the common law. While the Labour Relations Act, 1995, S.O. 1995, c. 1, Sch. A clothes the arbitrator with a "final and binding" preclusive clause, it yields no suggestion of a legislative intent to leave to his exclusive decision the meaning of the common law. In answering the question before him, which was one of law, the arbitrator brought no specialized expertise as he does when defining the meaning of the collective agreement.

The arbitrator erred in law when he decided that common law jurisprudence accorded him exclusive jurisdiction to decide the insurer's liability to the employee for benefits under the insurance policy irrespective of the terms of the collective agreement. The arbitrator relied on a case which turned on the fact that the terms of the policy were incorporated by reference into the collective agreement and therefore became an obligation of the employer. The essential character of the dispute in that case concerned the employee's entitlement to long-term disability benefits pursuant to the terms incorporated into the collective agreement. The court's view was that the collective agreement clearly contemplated such a factual situation and conferred on the employee the right to claim against the employer for breach of its obligation. The dispute was therefore properly within the exclusive jurisdiction of the arbitrator. There was no suggestion in that case that the court contemplated that the arbitrator would adju dicate the issue of the insurer's obligation to the employee under the terms of the policy. Such a conclusion would require the arbitrator to resolve a dispute not between the parties to the collective agreement, but between an employee and a stranger to that agreement. It would also require him to adjudicate a dispute arising not from the collective agreement, but from the insurance policy. Such a conclusion would fly in the face of the intention of the legislature as seen in s. 48(1) of the Labour Relations Act, 1995. The dispute in this case did not arise out of the interpretation, application, administration or violation of the collective agreement. It was a dispute about entitlement to benefits under the insurance policy. The facts which gave this dispute its essential character were not intended by the parties to be governed by the collective agreement and did not engage the rights and obligations of the parties found expressly or by inference in that agreement. The arbitrator had no jurisdict ion to deal with the dispute.

APPEAL from a judgment of the Divisional Court ((1998), 98 C.L.L.C. 220-075) allowing an application for judicial review of the jurisdictional decision of an arbitrator.

Canadian Broadcasting Corp. v. Burkett (1997), 1997 1078 (ON CA), 155 D.L.R. (4th) 159 (Ont. C.A.); Pilon v. International Minerals and Chemical Corp. (1996), 1996 1178 (ON CA), 31 O.R. (3d) 210, 141 D.L.R. (4th) 72, 98 C.L.L.C. 220-073 (C.A.); Regina Police Assn. v. Regina (City) Board of Police Commissioners (2000), 183 D.L.R. (4th) 14, 251 N.R. 16, [2000] 4 W.W.R. 149, 2000 SCC 14; Weber v. Ontario Hydro, 1995 108 (SCC), [1995] 2 S.C.R. 929, 24 O.R. (3d) 358n, 125 D.L.R. (4th) 583, 183 N.R. 241, 30 C.R.R. (2d) 1, 12 C.C.E.L. (2d) 1, 24 C.C.L.T. (2d) 217, 95 C.L.L.C. 210-027 Other cases referred to New Brunswick v. O'Leary, 1995 109 (SCC), [1995] 2 S.C.R. 967, 163 N.B.R. (2d) 97, 125 D.L.R. (4th) 609, 183 N.R. 229, 419 A.P.R. 97, 95 C.L.L.C. 210-028 (sub nom. O'Leary v. R.); Pushpanathan v. Canada (Minister of Citizenship and Immigration), 1998 778 (SCC), [1998] 1 S.C.R. 982, 160 D.L.R. (4th) 193 [supp. reasons 1998 787 (SCC), [1998] 1 S.C.R. 1222]; St. Anne Nackawic Pulp & Paper Ltd. v. Canadian Paperworkers Union, Local 219, 1986 71 (SCC), [1986] 1 S.C.R. 704, 73 N.B.R. (2d) 236, 28 D.L.R. (4th) 1, 68 N.R. 112, 184 A.P.R. 236, 86 C.L.L.C. 14,037; United Brotherhood of Carpenters & Joiners, Local 579 v. Bradco Construction Ltd., 1993 88 (SCC), [1993] 2 S.C.R. 316, 106 Nfld. & P.E.I.R. 140, 102 D.L.R. (4th) 402, 153 N.R. 81, 334 A.P.R. 140, 93 C.L.L.C. 14,033 Statutes referred to Employment Standards Act, R.S.O. 1990, c. E.14 Insurance Act, R.S.O. 1990, c. I.8, s. 318 Labour Relations Act, 1995, S.O. 1995, c. 1, Sch. A, ss. 48(1), 56 Authorities referred to Brown and Beatty, Canadian Labour Arbitration, 3d ed. (1988) Picher, "Defining the Scope of Arbitration: The Impact of Weber -- An Arbitrator's Perspective", in K. Whitaker, J. Sack, M. Gunderson and R. Filion, eds., Labour Arbitration Yearbook 1999-2000, vol. 1 (Toronto: Lancaster House, 2000), 99, p. 121.

G. James Fyshe, for appellant, Dubreuil Brothers Employees Association.

Roy C. Filion, Q.C., and Cheryl V. Rovis, for respondent, London Life Insurance Company.

Nigel Campbell, for respondent, Dubreuil Forest Products Ltd.

The judgment of the court was delivered by

[1] GOUDGE J.A.: -- In November 1993, the respondent insurance company denied long-term disability benefits to a unionized employee. The collective agreement between her employer and her union required the employer to maintain the insurance policy in force.

[2] The issue in this appeal is whether an arbitrator under that collective agreement has exclusive jurisdiction to resolve the dispute over benefits between the employee and the insurance company.

[3] The arbitrator answered this question in the affirmative.

[4] The Divisional Court came to the opposite conclusion, determining that the arbitrator's decision was without jurisdiction.

[5] For the reasons that follow I agree with the result reached by the Divisional Court and would dismiss the appeal.

The Facts

[6] In November 1993, London Life denied the employee's claim for long-term disability benefits pursuant to an insurance policy which her employer, Dubreuil Forest Products Limited, maintained for its employees. The collective agreement between her union and her employer required the employer to pay premiums for this policy and to maintain it in force during the term of the agreement. All parties agreed that the employer had fulfilled its obligations.

[7] The employee originally commenced a court action against the insurer claiming entitlement to these benefits. Then, following the release of this court's decision in Pilon v. International Minerals and Chemical Corp. (1996), 1996 1178 (ON CA), 31 O.R. (3d) 210, 141 D.L.R. (4th) 72, the employee filed a grievance claiming entitlement to the benefits which had been denied to her. When the grievance proceeded to arbitration, the employer contested the arbitrator's jurisdiction on the basis that it had complied with its contractual obligations and that the employee's complaint was with the insurer. For its part, the insurer chose not to participate in the arbitration.

[8] The arbitrator considered the recent relevant jurisprudence, particularly the decision in Pilon, and concluded as follows: "where a group insurance policy is provided for by a collective agreement the insurer's liability [is to] be decided at arbitration with the same finality that would attach to any other arbitral award."

[9] He therefore dismissed the employer's objection to his jurisdiction and ordered the union to give the insurer a copy of his award and notice of his intention to hear and decide the employee's claim for benefits from the insurer.

[10] On judicial review the Divisional Court approached the matter differently. It acknowledged that arbitration jurisprudence has over the years developed a well understood method of deciding the arbitrability of benefit entitlement claims. This involves determining into which of four categories the language of the particular collective agreement falls. These four categories were originally identified in Brown and Beatty, Canadian Labour Arbitration, 3rd ed. (1988) and are as follows:

1. where the collective agreement does not set out the benefit sought to be enforced, the claim is inarbitrable;

2. where the collective agreement stipulates that the employer is obliged to provide certain medical or sick- pay benefits, but does not incorporate the plan into the agreement or make specific reference to it, the claim is arbitrable;

3. where the collective agreement only obliges the employer to pay the premiums associated with an insurance plan, the claim is inarbitrable; and

4. where the insurance policy is incorporated into the collective agreement, the claim in arbitrable.

[11] The Divisional Court went on to find that Pilon did not change this approach and since the parties agreed that the language of this collective agreement fell into category three, the griever's claim to be entitled to benefits was inarbitrable and the arbitrator was without jurisdiction. The Divisional Court also found that the arbitrator was not empowered to assert jurisdiction over the insurer in order to add it as a party defendant to the arbitration. For both reasons the arbitrator's decision was quashed.

[12] Pursuant to leave, the union appeals to this court.

Analysis

First issue: The standard of review

[13] The first issue is the appropriate standard of review to be applied by the court to the arbitrator's decision in this case. While the Divisional Court did not expressly address this question, it appears to have applied the standard of correctness on the basis that the arbitrator was addressing a jurisdictional question in determining that he could decide the dispute between the employee and the insurer.

[14] I agree that the appropriate standard of review in this case is that of correctness.

[15] The arbitrator concluded that the common law now extends his exclusive jurisdiction to take in this dispute between the employee and the insurer concerning entitlement to benefits under the insurance policy which the collective agreement required the employer to maintain.

[16] In determining the standard of curial review to be applied to this decision, I would apply the pragmatic and functional analysis 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 Labour Relations Act, 1995, S.O. 1995, c. 1, Sch. A, provides the arbitrator with his statutory framework. While it clothes him with a "final and binding" preclusive clause, it yields no suggestion of a legislative intent to leave to his exclusive decision the meaning of the common law. Most importantly, in answering this question, which is one of law, the arbitrator brings no specialized expertise as he does when defining the meaning of the collective agreement. As Sopinka J. put it in United Brotherhood of Carpenters & Joiners, Local 579 v. Bradco Construction Ltd., 1993 88 (SCC), [1993] 2 S.C.R. 316 at p. 336, 102 D.L.R. (4th) 402 at pp. 415-16:

. . . the rationale for deferring to an arbitrator's interpretation of a collective agreement does not necessarily apply to afford deference to a finding of law made by the arbitrator, when this involves interpretation of a statute or a rule of the common law. Generally, these are not matters within the expertise of the arbitrator, and in the absence of legislative intention that deference should be paid to findings of law made by an arbitrator, such findings would be reviewable on a standard of correctness.

[17] The arbitrator's decision that he could proceed to hear the dispute was not based on his reading of the collective agreement but on his interpretation of the common law. In the circumstances of this case, I am of the view that the arbitrator's decision is appropriately tested against the standard of correctness.

Second issue: The correctness of the decision

[18] As I have indicated, the arbitrator based his decision that the dispute came within his exclusive jurisdiction on his review of the common law. It was not founded at all on the collective agreement or his interpretation of it. He considered St. Anne Nackawic Pulp & Paper Ltd. v. Canadian Paperworkers Union, Local 219, 1986 71 (SCC), [1986] 1 S.C.R. 704, 28 D.L.R. (4th) 1; Weber v. Ontario Hydro, 1995 108 (SCC), [1995] 2 S.C.R. 929, 125 D.L.R. (4th) 583; and Pilon. He distinguished Canadian Broadcasting Corp. v. Burkett (1997), 1997 1078 (ON CA), 155 D.L.R. (4th) 159 (Ont. C.A.) and, particularly in the light of Pilon, concluded as follows:

I can only therefore conclude that the Court intended that where a group insurance policy is provided for by a collective agreement the insurer's liability be decided at arbitration, with the same finality that would attach to any other arbitral award.

[19] In my opinion, the arbitrator erred in his interpretation of the common law. Rather, that law properly applied yields the conclusion that this dispute does not arise out of the collective agreement and hence is beyond the exclusive jurisdiction of the arbitrator.

[20] It was in Weber that McLachlin J. for the Supreme Court of Canada first elaborated the concept of the exclusive jurisdiction of an arbitrator as encompassing those disputes which arise out of the collective agreement. While the arbitrator's jurisdiction also includes certain tasks specifically imposed by legislation (such as enforcement of the Employment Standards Act, R.S.O. 1990, c. E.14, where there is a collective agreement), none of those are relevant to this case. However, the collective agreement and the disputes arising from it remain the core of that exclusive jurisdiction. The question is how such disputes are to be defined. In Weber, McLachlin J. made clear that not every dispute between an employer and employee, nor every dispute that arises in the workplace comes within that exclusive jurisdiction. At p. 957 she posed the fundamental issue in these words:

The question in each case is whether the dispute, in its essential character, arises from the interpretation, application, administration or violation of the collective agreement.

[21] Bastarache J. elaborated on the Weber approach to determining arbitrarily and jurisdiction in Regina Police Assn. Inc. v. Regina (City) Board of Police Commissioners, 2000 SCC 14, 183 D.L.R. (4th) 14. At para. 25 he put it this way:

To determine whether a dispute arises out of the collective agreement, we must therefore consider two elements: the nature of the dispute and the ambit of the collective agreement. In considering the nature of the dispute, the goal is to determine its essential character. This determination must proceed on the basis of the facts surrounding the dispute between the parties, and not on the basis of how the legal issues may be framed: see Weber, supra, at para. 43. Simply, the decision-maker must determine whether, having examined the factual context of the dispute, its essential character concerns a subject-matter that is covered by the collective agreement. Upon determining the essential character of the dispute, the decision-maker must examine the provisions of the collective agreement to determine whether it contemplates such factual situations. It is clear that the collective agreement need not provide for the subject-matter of the dispute explicitly. If the essential character of the dispute arises either explicitly, or implicitly, from the interpretation, application, administration or violation of the collective agreement, the dispute is within the sole jurisdiction of an arbitrator to decide.

(Emphasis added)

[22] This approach is true to the intention of the legislature as set out in the governing legislation, the Labour Relations Act, 1995. Sections 56 and 48(1) of that Act provide the statutory corner-stones for labour arbitration. They read as follows:

56. A collective agreement is, subject to and for the purposes of this Act, binding upon the employer and upon the trade union that is a party to the agreement whether or not the trade union is certified and upon the employees in the bargaining unit defined in the agreement.

48(1) Every collective agreement shall provide for the final and binding settlement by arbitration, without stoppage of work, of all differences between the parties arising from the interpretation, application, administration or alleged violation of the agreement, including any question as to whether a matter is arbitrable.

(Emphasis added)

[23] These sections clearly define those who are bound by a collective agreement and limits the universe of problems intended to be resolved exclusively by labour arbitration to disputes between those parties arising from the collective agreement.

[24] This approach, anchored as it is in the collective agreement, is also true to the historical roots of labour arbitration. That process has evolved as the problem-solving mechanism used by employer and union to resolve disputes over their shared intention as articulated in their collective agreement. M.G. Picher, a highly respected and experienced arbitrator, put the point this way in "Gilmer in the U.S. and Weber in Canada: Workplace Arbitration Exalted . . . and Assaulted", Labour Arbitration Yearbook-1999 (forthcoming) [See * below]

Labour arbitration is a child of contract, conceived and developed to resolve collective agreement disputes in ways that are sensitive to ongoing relationships and long-term industrial relations stability. Unlike the courts, labour arbitration was not conceived or developed primarily as a forum for vindicating rights by enforcing general duties of care, societal standards or public policy. Courts are better suited to adjudicating conflicts of that kind, without regard to where the chips may fall. That difference between courts and boards of arbitration was insightfully reflected in the comments of the great American jurist, Judge Jerome Frank, writing about commercial arbitration:

There is a category of disputes for which the courts seem poorly designed: When two businessmen dispute about a breach of contract, often neither of them wants vindication, or to assuage a feeling of injustice. What they want is a speedy sensible readjustment of their relations, so that they can resume or maintain their usual mutual business transactions.

Historically, labour arbitration has evolved as a non- abrasive process, fashioned to lubricate the wheels and gears of a collective agreement for the mutual benefit of employer and union.

• Since the release of this decision, Mr. Picher's article has been retitled, edited and typeset. The following is the citation information:

Michel G. Picher, "Defining the Scope of Arbitration: The Impact of Weber -- An Arbitrator's Perspective", in K. Whitaker, J. Sack, M. Gunderson and R. Filion, eds., Labour Arbitration Yearbook 1999-2000, vol. I (Toronto: Lancaster House, 2000), 99 at p. 121.

[25] Both Weber and Regina Police Assn. Inc. provide that the arbitrator's exclusive jurisdiction extends to disputes that arise not just expressly, but also inferentially out of the collective agreement. Those that arise implicitly must, nonetheless, be rooted in that agreement. New Brunswick v. O'Leary, 1995 109 (SCC), [1995] 2 S.C.R. 967, 125 D.L.R. (4th) 609 is such a case. There, McLachlin J. found that the collective agreement conferred an implied right on the employer to claim for breach of the employee's express obligation to ensure the safety and dependability of the employer's property and equipment. Hence, where the essence of the dispute was the employee's failure to preserve the employer's property and equipment, it was found to fall within the exclusive jurisdiction of the arbitrator. It was the implied right of the employer contained in the collective agreement that made the jurisdictional difference.

[26] Thus, the exclusive jurisdiction of the arbitrator encompasses those disputes where, given the essential character of the dispute, it can be said that the collective agreement contemplates such factual situations. Did the parties intend that the facts which give the dispute between them its essential character be governed or regulated by their collective agreement? Do those facts engage the rights and obligations of the parties found expressly or by inference in the collective agreement? If so, the dispute is within the exclusive jurisdiction of the arbitrator.

[27] In my view, Pilon makes no change to the law as enunciated by the Supreme Court of Canada in Weber, O'Leary and Regina Police Assn. Inc. In Pilon, the issue before this court was whether the employee was entitled to bring an action against the insurer for long-term disability benefits or whether he must resort to arbitration under the collective agreement. That agreement provided that long-term disability benefits were to be provided by an insurer through a plan administered by the employer and paid for by the employees. The terms of the benefits handbook, setting out among other things the level of those benefits and the eligibility criteria, were incorporated by reference into the collective agreement.

[28] The court based its decision on the law as set out in St. Anne Nackawic and Weber, in particular that where the dispute, regardless of how it may be characterized legally, arises under the collective agreement, the jurisdiction to resolve it lies exclusively with the arbitrator. The court reached two conclusions. First, that the essential character of this dispute did indeed arise out of the collective agreement and therefore was within the exclusive jurisdiction of the arbitrator. Second, that the employee could therefore not sue the insurer.

[29] I need not comment further on the second of these conclusions except to note that the reasons of the court make no reference to s. 318 of the Insurance Act, R.S.O. 1990, c. I.8.

[30] The first conclusion addresses the exclusive jurisdiction of the arbitrator and is entirely consistent with the legal principles I have recited. The Brown and Beatty categories I referred to earlier are helpful in determining the essential character of the dispute. In essence, the court in Pilon found that these facts are aptly described by category four. It held that the terms of the policy were incorporated by reference into the collective agreement and therefore became an obligation of the employer. The essential character of this dispute concerned the employee's entitlement to long-term disability benefits pursuant to the terms incorporated into the collective agreement. The court's view was that this collective agreement clearly contemplated such a factual situation and conferred on the employee the right to claim against the employer for breach of its obligation. The dispute was therefore properly within the exclusive jurisdiction of the arbitrator.

[31] There is no suggestion in the reasons of the court that it contemplated that the arbitrator would adjudicate the issue of the insurer's obligation to the employee under the terms of the policy. Such a conclusion would constitute a root and branch change in the law relating to labour arbitration. It would require the arbitrator to resolve a dispute not between the parties to the collective agreement, but between an employee and a stranger to that agreement. It would also require him to adjudicate a dispute arising not from the collective agreement, but from the insurance policy. Such a conclusion would fly in the face of the intention of the legislature as seen in s. 48(1) of the Labour Relations Act, 1995.

[32] Hence, I conclude that Pilon is entirely consistent with the law as enunciated in Weber, O'Leary and Regina Police Assn. and that the arbitrator in this case was incorrect in concluding that it extended his exclusive jurisdiction to this dispute.

[33] Nor does the CBC case alter this law in any way. Again, the reasons of this court are entirely consistent with the decisions of the Supreme Court. This case also involved a grievance contesting the failure to pay insurance benefits. The arbitrator found that the the employer's obligation under the collective agreement was only to arrange for standard group insurance coverage and pay the premiums for it. Thus, the collective agreement language fell within Brown and Beatty's third category and the dispute was inarbitrable. The court held that having found that the employer had discharged its obligations under the collective agreement, it was patently unreasonable for the arbitrator to impose on the employer a requirement to pay the benefits to the employees, something it was not contractually obliged to do. Put another way, having decided that the employer had fulfilled its obligations and that there was therefore no breach of the collective agreement by one of the parties bound by it, the arbi trator could go no further.

[34] In my view, therefore, the Divisional Court correctly concluded that in this case the arbitrator erred in law when he decided that common law jurisprudence accorded him exclusive jurisdiction to decide the insurer's liability to the employee for benefits under this insurance policy irrespective of the terms of the collective agreement.

[35] Rather, that law puts this dispute outside his jurisdiction. It is not a dispute between those bound by the collective agreement, but between an employee and the insurer, a stranger to that agreement. It is not a dispute arising out of the interpretation, application, administration or violation of the collective agreement, which has admittedly been fully complied with. It is instead a dispute about entitlement to benefits under the insurance policy. The facts which give this dispute its essential character were not intended by the parties to be governed by the collective agreement and do not engage the rights and obligations of the parties found expressly or by inference in that agreement. The dispute therefore does not arise out of the collective agreement and the arbitrator has no jurisdiction to deal with it.

[36] As a corollary to his finding that he had jurisdiction over this dispute the arbitrator ordered that the insurer in effect be added to the proceedings as a defendant. It seems to me that the simple answer to this assertion is that just as the arbitrator had no jurisdiction to hear this dispute, he had no jurisdiction to add the insurer. There was no proceeding properly before him to which the insurer could be added.

[37] In the result, the decision of the Divisional Court quashing the arbitration award is correct and the appeal must be dismissed with costs including the costs of the motion seeking leave to appeal.

Appeal dismissed.