Hydro Ottawa Ltd. v. International Brotherhood of Electrical Workers, Local 636

[Indexed as: Hydro Ottawa Ltd. v. I.B.E.W., Local 636]

85 O.R. (3d) 727

Court of Appeal for Ontario,

Feldman, Cronk and Blair JJ.A.

April 19, 2007

Employment -- Labour relations -- Arbitration -- Union filing policy grievance regarding use of non-bargaining unit personnel to perform bargaining unit work -- Arbitrator not exceeding his jurisdiction and improperly answering question that had not been referred to him for arbitration when he determined whether collective agreement implicitly limited or prohibited use of agency personnel to perform work in question.

Employment -- Labour relations -- Collective agreement -- Union filing policy grievance regarding use of non-bargaining unit personnel to perform bargaining unit work -- Person employed by outside agency performing bargaining unit work side by side with bargaining unit employees, under supervision of Employer's own managers and using equipment and materials supplied by Employer -- Article 21 of collective agreement providing that Employer could contract out work -- Arbitrator finding that conduct in question involved contracting in rather than contracting out -- Arbitrator finding that collective agreement contained implied term prohibiting use of agency workers in disputed fashion for period longer than two weeks -- Arbitrator's decision not being patently unreasonable.

The Union filed a policy grievance regarding the use of non- bargaining unit personnel to perform bargaining unit work. The dispute involved the use of individuals employed by an outside agency in the Employer's accounting department to perform bargaining unit work in an integrated fashion with bargaining unit employees. The arbitrator made three awards over the course of the grievance procedure. First, he determined that the Union could argue the question of whether the persons in dispute were actually employees of the Employer, who should have been included in the bargaining unit, even though management was treating them as if they were independent contractors rather than employees. In a second award, he found that one of the individuals in question was a true employee of the Employer but that the other individual was not. In a third award, he concluded that the collective agreement prohibited the use of agency workers in the manner under dispute for a period longer than two weeks. The Employer brought an application for judicial review of the third award. The Divisional Court allowed the application, setting aside the award on the basis that the arbitrator exceeded his jurisdiction in effect, by amending the collective agreement to create a third class of employees not contemplated by it -- namely, a person who is not an employee of the Employer but who is like a bargaining unit employee. The Divisional Court found that this was a patently unreasonable result. The Union appealed.

Held, the appeal should be allowed.

The arbitrator did not exceed his jurisdiction by improperly answering a question that had not been referred to him for arbitration, i.e., the question of whether Article 6 of the collective agreement implicitly limited or prohibited the contracting out of the work in question to agency personnel. That issue [page728] was not a "new issue"; rather, it was more in the nature of a legal argument raised by the Union to support its position on the question sent to arbitration. It was an issue embedded in the broader question which formed the substance of the grievance.

The standard of review of the arbitrator's decision was patent unreasonableness. The arbitrator rejected the Employer's argument that its use of agency personnel in the circumstances constituted "contracting out", and that to imply a term in the agreement prohibiting the use of agency employees for periods longer than two weeks would conflict with the express provisions of Article 21, which permitted contracting out. He held that the conduct in question constituted "contracting in" rather than "contracting out", so that Article 21 did not apply. He found that the provisions of Article 6 (containing definitions of various classes of employees) and the wage schedules in the agreement supported the implication of a term restricting the use of outside agency workers to perform bargaining unit work, in the circumstances of this case, for a period in excess of two weeks. Contrary to the finding of the Divisional Court, the arbitrator's decision did not create a new class of employee. Rather, he concluded that the impugned arrangement conflicted with the collective agreement because the agency worker did not belong to one of the agreed upon classes of employees. The arbitrator's finding that the use of non-bargaining unit agency personnel to perform bargaining unit work side by side with bargaining unit employees, under the supervision of the Employer's own managers and using the same equipment and materials supplied by it, did not constitute contracting out, was a finding open to him on the record and was not patently unreasonable. The arbitrator's conclusion that Article 6 implicitly limited the use of agency workers was not patently unreasonable and did not contravene the dictates of Article 10.5.2, precluding an arbitrator from adding to or subtracting from or otherwise changing the provisions of the collective agreement. An implied term is a term of the contract; it is not an amendment to or modification of the contract.

APPEAL from the order of the Divisional Court, [2005] O.J. No. 5537, 205 O.A.C. 310, allowing an application for judicial review of a decision of an arbitrator.

Cases referred to

Lakeport Beverages v. Teamsters Local Union 938 (2005), 2005 29339 (ON CA), 77 O.R. (3d) 543, [2005] O.J. No. 3488, 258 D.L.R. (4th) 10, 2005 C.L.L.C. Â220-057, 34 Admin. L.R. (4th) 60 (C.A.), apld Bristol-Myers Pharmaceutical Group, Division of Bristol- Meyers Canada Inc. and Canadian Automobile Workers, Local 1538 (Re) (1990), 1990 12933 (ON LA), 15 L.A.C. (4th) 210 (Shime); St. Jude's Anglican Home and British Columbia Nurses Union (Re), 1996 20272 (BC LA), [1996] B.C.C.A.A.A. No. 60, 53 L.A.C. (4th) 111, consd

Other cases referred to

401548 Ontario Ltd. and Retail, Wholesale & Department Store Union, Local 448 (Re) (1980), 1980 1575 (ON SC), 28 O.R. (2d) 697, [1980] O.J. No. 3605, 111 D.L.R. (3d) 502 (Div. Ct.); Blouin Drywall Contractors Ltd. v. United Brotherhood of Carpenters and Joiners of America, Local 2486 (1975), 1975 707 (ON CA), 8 O.R. (2d) 103, [1975] O.J. No. 31, 57 D.L.R. (3d) 199 (C.A.); Canada (Attorney General) v. Public Service Alliance of Canada, 1993 125 (SCC), [1993] 1 S.C.R. 941, [1993] S.C.J. No. 35, 101 D.L.R. (4th) 673, 150 N.R. 161, 93 C.L.L.C. Â14-022; Centre communautaire juridique de l'Estrie v. Sherbrooke (City), 1996 168 (SCC), [1996] 3 S.C.R. 84, [1996] S.C.J. No. 86, 138 D.L.R. (4th) 193, 201 N.R. 61, 36 M.P.L.R. 81; County of Athabasca No. 12 and Alberta Teachers' Association, Athabasca Local (Re) (1978), 1978 3532 (AB GAA), 19 L.A.C. (2d) 1; Domtar Inc. v. Québec (Commission d'appel en matière de lésions professionnelles), 1993 106 (SCC), [1993] 2 S.C.R. 756, [1993] S.C.J. No. 75, 105 D.L.R. (4th) 385, 154 N.R. 104, 49 C.C.E.L. 1; Essex County Roman Catholic School Board v. Ontario English Catholic Teachers' Assn. (2001), 2001 4461 (ON CA), 56 O.R. (3d) 85, [2001] O.J. No. 3602, 205 D.L.R. (4th) 700 (C.A.); [page729] Grande Prairie General and Auxiliary Nursing Home District No. 14 and United Nurses of Alberta, Loc. 37 (Re) (1996), 1996 20373 (AB GAA), 57 L.A.C. (4th) 173; Kennedy Lodge Nursing Home and Service Employees' Union, Local 204 (Re) (1980), 1980 3978 (ON LA), 28 L.A.C. (2d) 388; Labourers' International Union of North America, Local 183 v. Condominium Corp. No. 46, [1977] O.L.R.B. Rep. 445; Law Society of New Brunswick v. Ryan, [2003] 1 S.C.R. 247, [2003] S.C.J. No. 17, 257 N.B.R. (2d) 207, 223 D.L.R. (4th) 577, 302 N.R. 1, 674 A.P.R. 207, 2003 SCC 20, 31 C.P.C. (5th) 1; Maple Leaf Foods Inc. v. Alejandro, 1999 2908 (ON CA), [1999] O.J. No. 1790, 120 O.A.C. 264, 17 Admin. L.R. (3d) 1 (C.A.); Multi Fittings v. International Molders & Allied Workers, Region 8 (1989), 1989 4136 (ON SC), 70 O.R. (2d) 328, [1989] O.J. No. 1586, 36 O.A.C. 258 (Div. Ct.); Municipal Property Assessment Corp. and Ontario Public Service Employees Union (Re) (2002), 2002 78941 (ON LA), 109 L.A.C. (4th) 385 (Howe); National Steel Car Ltd. v. United Steelworkers of America, Local 7135, 2006 40973 (ON CA), [2006] O.J. No. 4868, 278 D.L.R. (4th) 345 (C.A.); Radio Shack and United Steelworkers of America, Local 6709 (Re) (1994), 1994 18720 (ON LA), 44 L.A.C. (4th) 69 (Beck); School District No. 57 (Prince George) and United Brotherhood of Carpenters & Joiners, Local 2106 (1990), 1990 12890 (BC LA), 15 L.A.C. (4th) 105; United Steelworkers of America and Russelsteel Ltd. (Re) (1966), 1966 853 (ON LA), 17 L.A.C. 253; Voice Construction Ltd. v. Construction & General Worker's Union, Local 92, [2004] 1 S.C.R. 609, [2004] S.C.J. No. 2, 238 D.L.R. (4th) 217, 318 N.R. 332, [2004] 7 W.W.R. 411, 2004 SCC 23, 29 Alta. L.R. (4th) 1, 14 Admin. L.R. (4th) 165

Authorities referred to

Adams, George W., Canadian Labour Law, 2nd ed., looseleaf (Aurora, Ont.: Canada Law Book, 1993) Brown, Donald J.M. and David M. Beatty, Canadian Labour Arbitration, 4th ed., looseleaf (Aurora, Ont.: Canada Law Book, 2006) Hayes, James K.A. and Michael D. Wright"Contracting Out at Arbitration: A Union Perspective" (1995) 5 Lab. Arb. Y.B. 373 MacDowell, R.O."Contracting Out at Arbitration: An Arbitrator's Perspective" (1995) 5 Lab. Arb. Y.B. 325 MacPherson, Robert A."Contracting Out at Arbitration: A Management Perspective" (1995) 5 Lab. Arb. Y.B. 355 Mitchnick, Morton G."Contracting Out: Two Solitudes" (1998) 8 Lab. Arb. Y.B. 79

Ronald Lebi, for appellant. Jennifer E. Birrell and Raquel Chisholm, for respondent.

The judgment of the court was delivered by

BLAIR J.A.: --

Background and Facts

[1] There are two issues raised on this appeal:

(a) Did the Arbitrator improperly answer a question that had not been referred to him for determination? [page730]

(b) Was the Arbitrator's decision that the collective agreement implicitly prohibited the type of "contracting in" engaged in by the employer in this case, patently unreasonable?

[2] For the reasons that follow, I would answer both questions in the negative and, accordingly, allow the appeal.

[3] Hydro Ottawa Limited and the International Brotherhood of Electrical Workers, Local 636 are parties to a collective agreement. The Union filed a policy grievance regarding the use of non-bargaining unit personnel to perform bargaining unit work. The particular dispute in this case involved the use of individuals employed by an outside agency in the Hydro Ottawa accounting department to perform bargaining unit work in an integrated fashion with bargaining unit employees.

[4] The grievance procedure evolved over a series of decisions. At an early stage the Arbitrator had determined that one of the individuals whose working arrangement was disputed -- Bruno DePasquale -- was not an employee of Hydro Ottawa but remained an employee of the agency, Accountemps. Mr. DePasquale is one of a number of workers in a similar position at Hydro Ottawa. When the grievance arose, he had been working full time in the Hydro Ottawa accounting department under the disputed arrangement from January 2002 to September 5, 2003. He was paid by Accountemps.

[5] The Union's grievance states:

Grievance: Management is in violation of employee, bargaining unit and union rights as per the collective agreement and any relevant clauses therein, past practices or Legislative rights that apply. The Local Union grieves against the contracting out of work in all departments of Hydro Ottawa and affiliated organizations. The Local Union relies on Article 21 and all other relevant provisions of the collective agreement; on the breach of the established practice of not eroding the bargaining unit through the use of contractors; on the breach of the commitment made during collective bargaining not to staff with contractors and temporary employees; on the breach of the established practice of not intermingling contractors and employees in the performance of their respective duties; on the breach of the established practice of consulting with the Local Union when a perceived need for contractors arises; and on the breach of the established practice of inviting the Local Union to "bid" on work that would otherwise go to contractors.

Resolution sought: That Hydro Ottawa and all affiliated organizations cease and desist from their use of contractors other than in accordance with the collective agreement, established practices, and commitments made to the Local Union in collective bargaining. That the Company be ordered to produce to the Local [page731] Union an accounting of all work performed by contractors subsequent to the date of amalgamation of the local utilities, including the dollar value of such contracting, through to and including the date of the arbitration decision. That the Company be ordered to produce to the Local Union a monthly accounting following the date of the decision. That the Company remit to the Local Union all union dues in the dollar amounts that would have been remitted to the Local Union had the work wrongfully contracted out been performed by employees.

[6] The Arbitrator found that the Union's grievance was "largely a complaint about the performance of bargaining unit work by contractors who [were] not part of the bargaining unit" and who were not employees of Hydro Ottawa. He made three awards over the course of the grievance procedure. First, he determined -- over objections from Hydro Ottawa that the issue went beyond the original issue submitted to him -- that the Union could argue the question of whether "the persons in dispute [were] actually employees of Hydro Ottawa, who should [have been] included in the bargaining unit, even though management [was] treating them as if they [were] contractors rather than employees". In a second award, dated December 10, 2003, the Arbitrator found that one of the individuals in question (Kathryn Keyes) was a true employee of Hydro Ottawa, but that the other individual (Mr. DePasquale) was not (the "Second Award"). Finally, in a third award -- the decision under review here -- he concluded that the collective agreement prohibited the use of agency workers in the fashion under dispute for a period longer than two weeks (the "Third Award").

[7] Hydro Ottawa sought judicial review of the Third Award. On that review, the Divisional Court set aside the arbitrator's award on the basis that he had exceeded his jurisdiction by, in effect, amending the collective agreement to create a third class of employee not contemplated by it -- namely, a person who is not an employee of Hydro Ottawa but "who is 'like' a bargaining unit employee". Applying the decision of this court in Lakeport Beverages v. Teamsters Local Union 938 (2005), 2005 29339 (ON CA), 77 O.R. (3d) 543, [2005] O.J. No. 3488 (C.A.) as to the standard of review -- as it was bound to do -- the Divisional Court concluded that this was a patently unreasonable result. The Union now appeals to this court.

Analysis

A. Did the arbitrator improperly answer a question that had not been referred to him for determination?

[8] Hydro Ottawa submits that the Arbitrator improperly assumed jurisdiction over a matter not remitted to him by the parties for arbitration, namely, the issue of whether the collective agreement implicitly limits or prohibits the contracting out [page732] of the work in question to agency personnel.[^1] According to Hydro Ottawa, this "new" issue was not put to the Arbitrator by either party, but instead was initiated by the Arbitrator himself during argument relating to the Second Award concerning whether the relevant workers were employees of Hydro Ottawa or Accountemps.

[9] An arbitrator has no inherent jurisdiction and is limited to determining the dispute remitted by the parties in accordance with the language of the collective agreement. Once the grievance is submitted, neither the arbitrator nor one of the parties may unilaterally alter the substance or expand the scope of the grievance: Donald J.M. Brown and David M. Beatty, Canadian Labour Arbitration, 4th ed., looseleaf (Aurora, Ont.: Canada Law Book, 2006) at 2:1300 (The Submission to Arbitration), 2:3122 (The Form of the Grievance) and 3:2200 (Change of Position) ("Brown & Beatty"). An arbitrator who does so exceeds his or her jurisdiction, and any decision made as a result is patently unreasonable. Hydro Ottawa submits that is the situation here.

[10] While I accept the law on this point as stated, I do not accept the submission in the circumstances of this case.

[11] The Arbitrator concluded that the issue of whether the collective agreement implicitly limited or prohibited management's rights to enter into the impugned working arrangement did not fall outside of the scope of the grievance and, therefore, that he had jurisdiction to deal with it. I agree.

[12] The definitions of "casual employee" and "temporary employee" in Article 6 of the collective agreement and the provisions of Article 21 (providing for "contracting out") are particularly relevant to this issue. These provisions, and other terms of the collective agreement, are recited in full later in these reasons, at para. 25.

[13] An arbitrator is required to construe the submission to arbitration or the grievance in the context of the applicable collective agreement to determine its scope, and grievances should be construed liberally to get at the real issue between the parties: Blouin Drywall Contractors Ltd. v. United Brotherhood of Carpenters and Joiners of America, Local 2486 (1975), 1975 707 (ON CA), 8 O.R. (2d) 103, [1975] O.J. No. 31 (C.A.); Brown & Beatty, supra, at 2:1300 (The Submission to Arbitration). [page733]

[14] Here, as the Arbitrator noted, the thrust of the complaint in the written grievance was that Hydro Ottawa was using outside contractors, rather than its own employees, to perform "in house" bargaining unit work. Although the grievance stated that the Union was grieving "against the contracting out of work in all departments of Hydro Ottawa and affiliated organizations", the nature of the complaint was broad, referring to breaches of the collective agreement through the use of "contractors" (which the Arbitrator concluded was broad enough to embrace an employment agency) and relying not just upon Article 21, but also on "all other relevant provisions of the collective agreement". As the Arbitrator also remarked, there would have been no need for Hydro Ottawa to advance its submission that Article 21 permitted it to contract out the work if the workers were employed by it. There would be no contracting out in that case. "As a matter of logic" he said"[A]rticle 21 would have come into play, as a response to the union's reliance on [A]rticle 6, only if the union had suggested the import of [A]rticle 6 was to restrict contracting out".

[15] The "issue" of whether Article 6 implicitly limited Hydro Ottawa's right to utilize non-bargaining unit agency workers to do bargaining unit work in the fashion in question was not a "new" issue remitted to the grievance procedure, in my view. Rather, it was more in the nature of a legal argument raised by the Union to support its position on the question sent to arbitration. It was an issue embedded in the broader question which formed the substance of the grievance.

[16] The Article 6 line of reasoning emerged during argument of the Second Award. The Arbitrator deliberately postponed determining it at that stage in order to give the parties full opportunity to address the argument at the third stage hearing, and the parties took full advantage of that opportunity. Accordingly, no denial of natural justice, in the sense of Hydro Ottawa not being given the opportunity to be heard on the point, arises.

[17] I am not persuaded, therefore, that in the circumstances of this case the Arbitrator erred or exceeded his jurisdiction in addressing and resolving the Union's argument premised on Article 6 of the collective agreement. It would have been preferable, nonetheless, as I note later in these reasons -- and, perhaps, fairer to Hydro Ottawa, which did not request the two-stage procedure -- if the Arbitrator had avoided that procedure and considered the whole issue before him, and all of the legal arguments, at the same time.

[18] I turn, therefore, to the question of whether the decision of the Arbitrator was patently unreasonable. [page734]

B. Was the Arbitrator's decision "patently unreasonable"?

[19] Respectfully, I disagree with the conclusion of the Divisional Court that the Arbitrator's decision was patently unreasonable.

1. Standard of review

[20] Counsel agree that the standard of review is patent unreasonableness: Lakeport Beverages v. Teamsters Local Union 938, supra, at paras. 20-34. While that term has been the subject of numerous attempts at description in the authorities, a decision is generally considered to be patently unreasonable only if it is "clearly irrational" or "evidently not in accordance with reason"[^2] or if it produces "a result [that] must almost border on the absurd".[^3]

2. The Arbitrator's decision

[21] The Arbitrator concluded that the collective agreement did not permit Hydro Ottawa to utilize the services of Mr. DePasquale, an employee of Accountemps -- and other workers like him -- for more than two weeks. In short, he found that the collective agreement implicitly limited the use of non- bargaining unit agency personnel to perform bargaining unit work on a "contracting in" basis.

[22] The Arbitrator framed the issue as follows:

The question to be answered is whether the collective agreement implicitly restricts the engagement of someone employed by an outside agency to perform bargaining unit work, where he or she does such work on Hydro Ottawa's premises, under the supervision of its managers, and using its materials and equipment. This sort of arrangement is aptly described as a "labour-only" contract.[^4] The agency supplies labour but its client provides premises, supervision, materials and equipment.

(Footnote added) [page735]

[23] In a reasoning process that encompassed several steps, the Arbitrator answered the question he posed in the affirmative. First, he concluded that his earlier decision finding Mr. DePasquale was not an employee of Hydro Ottawa was not determinative of the issue, observing that "[t]he question of whether a person supplied by an agency is employed by the agency or by its client is logically distinct from the question of whether the client's collective agreement permits the individual's services to be used if he or she is an employee of the agency." The "only issue at hand", he went on to say"[was] whether Hydro Ottawa's collective agreement allowed the use of agency employees". On this second point, the Arbitrator rejected Hydro Ottawa's argument that its use of agency personnel in the circumstances constituted "contracting out" and that to imply a term in the agreement prohibiting the use of agency employees for periods longer than two weeks would conflict with the express provisions of Article 21 permitting such conduct. He held that because the nature of the "contracting in" in this case did not amount to "contracting out", as that concept is understood in labour relations, Article 21 did not assist the Company. The provisions of Article 6 and the wage schedule in the collective agreement supported the implication of a term restricting the use of outside agency workers to perform bargaining unit work, in the circumstances of this case, for a period in excess of two weeks.

[24] What is it, then, that makes this decision patently unreasonable?

3. Applying the standard of review to the Arbitrator's decision

[25] The following provisions of the collective agreement are particularly pertinent to this issue:

1.1 Recognition

Hydro Ottawa Limited (the Company) recognizes Local 636 of the International Brotherhood of Electrical Workers (IBEW -- the Union) as the exclusive Bargaining Agent for all the employees of the Company below the rank of Supervisor, save and except the following: Executive Assistants, all employees of the Human Resources Department, one Payroll Clerk, Engineers, Budget Officer, Programmer/Analyst, Key Accounts Coordinator, casual employees, students employed during the vacation period, students under a recognized Co-op Program, and those persons hired for less than 24 hours per week.

1.2 Management Rights

The Company has and shall retain the exclusive right and power to manage its business and plan and direct its work force. This includes the right to hire, lay off, suspend for just cause, discharge for just cause, promote, [page736] demote and discipline any employee, subject to the provisions as set forth specifically in this Collective Agreement. This also includes the right to make and alter, from time to time, policies and practices to be observed by employees, provided they are not inconsistent with the provisions of this Collective Agreement.

2.0 Purpose

The purpose of this agreement is to establish and maintain a harmonious relationship between the employer, the union and employees, and to set out the terms and conditions which have been agreed to through collective bargaining.

6.0 Definitions

"bargaining unit" means the employees of the Company as described in Clause 1.1 of this Agreement.

"casual employee" means a person hired for a period of two weeks or less for a particular job and/or in the case of an emergency. Casual employees are not members of the bargaining unit and are not covered by the provisions of this collective agreement.

"employee" means a person who is a member of the bargaining unit.

"part-time employee" means a person whose hours of work are less than full time but more than 24 hours per week. Part- time employees are members of the bargaining unit and are covered by the provisions of this collective agreement. Part-time employees may be either regular or temporary employees.

"temporary employee" means a person hired for a specified period of time, without the intent of continuous employment. Temporary employees whose initial term of employment is two weeks or more are members of the bargaining unit. Temporary employees may be either full-time or part-time.

10.5 Arbitration

10.5.2 . . . An arbitrator shall not have the power to add to or subtract from or otherwise change the provisions of this Collective Agreement.

21.0 Contracting Out

Hydro Ottawa may contract out work; however, the performance of work by outside contractors will not cause the lay-off or demotion of any employee. An employee whose job is eliminated because of contracting out may request to be laid off.

[26] The Divisional Court ruled that the Arbitrator had erred (a) by amending the collective agreement to create a third class of worker not found therein ("a person who is 'like' a bargaining unit employee") and (b) by implying a term into the collective agreement (prohibiting the use of agency employees for bargaining unit [page737] work for a period of more than two weeks) that was directly in conflict with the provisions of Article 21 (permitting contracting out). The Arbitrator therefore exceeded his jurisdiction.

[27] On behalf of Hydro Ottawa, Ms. Birrell reasserts these two points on appeal, adding, for good measure, that the Arbitrator effectively re-wrote the collective agreement, contrary to Article 10.5.2 which specifically deprives an arbitrator of the "power to add to or subtract from or otherwise change the provisions of [the] Collective Agreement".

[28] In my view, however, the Arbitrator committed none of the errors attributed to him. Respectfully, the Divisional Court misconstrued the Arbitrator's decision when it concluded that he had amended or re-written the collective agreement. It erred in two respects in this regard: first, the Arbitrator's decision did not create a new class of employee not provided for in the collective agreement; secondly, the Divisional Court's approach overlooks both the Arbitrator's finding that the work arrangement in this case did not constitute "contracting out", and the implications of that finding for the interpretation of the collective agreement.

[29] The Divisional Court's comment that it was applying"without accepting" the standard of review confirmed by this court in Lakeport Beverages, supra, suggests at most a lukewarm recognition of the patent unreasonableness test for the purpose of reviewing an arbitrator's interpretation of a collective agreement and may provide some insight into the court's approach to the merits of the Arbitrator's decision. In the end, it appears that the Divisional Court imposed its own view of what was the "correct" decision on the parties. Respectfully, that was not its role.

No new class of employee

[30] The Arbitrator's decision did not create a new class of employee or hold by implication that the agency worker "belong[ed] to a class specifically limited to employees". Rather, the effect of the Arbitrator's decision was to the contrary; he concluded that the impugned arrangement conflicted with the collective agreement because the agency worker did not belong to one of the agreed upon classes of employees. Thus, it is not a question of the Arbitrator having created a new class of employee not contemplated in the collective agreement. He simply found that the non-bargaining unit worker could not be used to do the work in question, for a period of longer than two weeks. As he said at the end of his decision:

If Mr. DePasquale was employed by Accountemps, the collective agreement did not permit Hydro Ottawa to utilize his services for more than two weeks. [page738]

[31] The Arbitrator made this finding on the basis that the relevant working arrangement did not involve contracting out and that the scheme of the collective agreement -- crystallized by the definitions in Article 6 and the wage schedules to the agreement -- is to provide for the requirements of short-term or spot labour to be met through the use of casual employees (whose term of engagement is limited to a maximum of two weeks, and who are not within the bargaining unit) or temporary employees (who are hired for a specified period of time, without the intent of continuous employment, but who become members of the bargaining unit if hired for a period of two weeks or more). The Arbitrator concluded that to permit Hydro Ottawa to use non-bargaining unit agency employees to do bargaining unit work in the impugned fashion would be to undermine the collective bargaining relationship by allowing it to circumvent that scheme.

The implied term

[32] The view that the term implied by the Arbitrator conflicts with the express provision in Article 21 permitting contracting out is founded on the premise that what Hydro Ottawa did in this case constituted "contracting out". This premise has both a factual and an interpretive aspect to it. In both respects, arbitrators are entitled to considerable deference in cases of this nature. Here, the Arbitrator concluded that Hydro Ottawa's use of outside agency workers did not constitute contracting out. His decision in that regard was not patently unreasonable, in my view. I say this for the following reasons.

[33] First, the Arbitrator found as a fact that Hydro Ottawa's use of non-bargaining unit agency personnel to perform bargaining unit work side by side with bargaining unit employees, under the supervision of its own managers and using the same equipment and materials supplied by it, did not constitute contracting out. That factual finding was open to him on the record and is entitled to considerable deference. I can see no basis for interfering with it and, for that reason alone, Article 21 is of little assistance to Hydro Ottawa in this case.

[34] Secondly, the Arbitrator took an interpretive approach to the collective agreement that was consistent with the body of arbitral decision-making dealing with the notions of "contracting out" and "contracting in". In spite of a reference in some texts -- picked up by some arbitrators (including this one in an earlier ruling in this grievance proceeding) -- to "contracting in" being a subset or subcategory of "contracting out", arbitrators have in fact distinguished between the two forms of working [page739] arrangements. The Arbitrator's decision to do so in this case, then, cannot be said to be patently unreasonable.

[35] A brief review of the notions of contracting out and contracting in, and their treatment in the labour relations context, may be helpful in assessing this interpretive approach.

Contracting out/Contracting in

[36] The Arbitrator's decision reasonably conforms to the concepts of contracting out and contracting in as those concepts have evolved in the labour relations field. "Contracting out" is said to involve a situation where "an integral function or a whole operation of the business of the employer is assigned to an independent contractor"; the work is often done off site and, where done at the same location as the bargaining unit employees, usually involves work of a different nature even though it is bargaining unit work; the independent contractor controls the work, and the employer has "effectively abdicated" the work to the outside contractor. "Contracting in", on the other hand, involves a situation where non- bargaining unit personnel are brought into the workplace to work alongside bargaining unit employees, performing the same work as those employees, under the same supervision and utilizing the same materials and equipment provided by the employer; the way in which the bargaining unit and non- bargaining unit employees work is "virtually indistinguishable". See Re St. Jude's Anglican Home and British Columbia Nurses Union, 1996 20272 (BC LA), [1996] B.C.C.A.A.A. No. 60, 53 L.A.C. (4th) 111, at pp. 119-20 L.A.C. (Larson); Re Bristol-Myers Pharmaceutical Group, Division of Bristol-Myers Canada Inc. and Canadian Automobile Workers, Local 1538 (1990), 1990 12933 (ON LA), 15 L.A.C. (4th) 210 (Shime); Re Radio Shack and United Steelworkers of America, Local 6709 (1994), 1994 18720 (ON LA), 44 L.A.C. (4th) 69 (Beck). These and other arbitral decisions all emphasize that contracting in is "inherently destructive of the bargaining relationship" and generally contrary to the obligations undertaken by the employer in the collective agreement: St. Jude's, supra, at p. 119 L.A.C.

[37] Here, the Arbitrator found that, because the impugned working situation entailed the use of non-bargaining unit agency workers to do bargaining unit work side by side with bargaining unit employees, subject to the same supervisors and utilizing the same equipment and materials supplied by Hydro Ottawa -- in effect, making them indistinguishable from bargaining unit employees -- the arrangement had more in common with the assignment of bargaining unit work to non-unit employees than with a true contracting out. He recognized there was merit to [page740] both sides of the argument, but he chose to accept the "contracting in" view of the circumstances.

[38] Hydro Ottawa relies heavily, however, on an argument that has its origins in a long and established practice in labour relations -- dating back at least to the arbitration decision of Professor Arthurs in Re United Steelworkers of America and Russelsteel Ltd. (1966), 1966 853 (ON LA), 17 L.A.C. 253 -- to the effect that arbitrators will not imply a term prohibiting "contracting out" in a collective agreement. As Arbitrator P.J. Brunner noted in Re Kennedy Lodge Nursing Home and Service Employees' Union, Local 204 (1980), 1980 3978 (ON LA), 28 L.A.C. (2d) 388, at p. 391:

The law appears to be reasonably clear according to both textwriters and arbitrators that absent express language in the collective agreement to the contrary, bona fide contracting out of work to persons (non-employees) who are not within the bargaining unit is a management right.

[39] This principle has been accepted by the Divisional Court: see Re 401548 Ontario Ltd. and Retail, Wholesale & Department Store Union, Local 448 (1980), 1980 1575 (ON SC), 28 O.R. (2d) 697, [1980] O.J. No. 3605 (Div. Ct.), and Multi Fittings v. International Molders & Allied Workers, Region 8 (1989), 1989 4136 (ON SC), 70 O.R. (2d) 328, [1989] O.J. No. 1586 (Div. Ct.).

[40] Hydro Ottawa submits further that "contracting in" is merely a subcategory or subset of "contracting out" or subcontracting, and has been recognized as such by the text writers and in the body of arbitral-decision making that has developed: see Brown & Beatty, supra, at 5:1310; Adams, supra, at para. 8.260; St. Jude's, supra; Re Municipal Property Assessment Corp. and Ontario Public Service Employees Union (2002), 2002 78941 (ON LA), 109 L.A.C. (4th) 385, at p. 399 (Howe). Accordingly, Hydro Ottawa contends that Article 21 of the collective agreement governs, whatever form the "contracting in" or "subcontracting" takes, and permits Hydro Ottawa to use agency employees in the manner at issue.

[41] There are several flaws in this reasoning in my view, however -- keeping in mind particularly that what is at issue here is whether the decision of the Arbitrator was patently unreasonable. For one thing, there is little support in the body of arbitral decision making dealing with contracting in/ contracting out, or in the legal writing on the subject, to support the view that a similar restrictive interpretive approach should be taken to "contracting in" as is taken to "contracting out". In addition, as noted above, the Arbitrator found as a fact that the working arrangement here did not constitute contracting out; thus, Article 21 is marginally relevant at best. Finally, it is evident that reasonable people in the labour relations field have held differing reasonable [page741] views on the contracting out/ contracting in issue and, in particular, on whether contracting in, by definition, amounts to contracting out. Accordingly, it cannot be said that favouring one view or the other is patently unreasonable.

[42] Indeed, the fact that there are differing reasonable views held in this area of labour relations is illustrated even in relation to the question that is taken to be no longer debatable in the arbitration sector in Canada, namely that "unless the collective agreement contains a specific prohibition, it is open to management to contract out certain aspects of the work or undertaking to persons other than employees or members of the union. . . ": Re 410548 Ontario Ltd., supra, at p. 699 O.R. Much was said in argument about this apparently well-settled view. I observe, however, that the view is not universally accepted in the labour relations field. Labour boards have demonstrated a willingness to place contracting out arrangements under considerable scrutiny, particularly in relation to bad faith bargaining, unfair labour practices, and successor-employer and related-employer issues. Moreover, arbitrators in the United States are prepared to take the same tack. See, generally, on this point, Morton G. Mitchnick"Contracting Out: Two Solitudes" (1998) 8 Lab. Arb. Y.B. 79.[^5]

[43] Moreover, in none of the texts or arbitration decisions in which it is suggested that "contracting in" is a subcategory or subset of "contracting out" is there any analysis of the factual differences between the two concepts or any discussion about whether the same underlying labour relations policy considerations should apply to them. A review of the arbitration decisions dealing with the subject reveals that there are factual differences between the two types of situations that are significant in terms of the collective bargaining relationship. As well, there are reasons for concluding that the same policy considerations do not necessarily apply. For example, while contracting out (which involves the effective abdication of the work by the employer to the subcontractor) admittedly impinges upon the bargaining unit work that would otherwise be done by union members, it is far less inherently destructive of the collective bargaining relationship than contracting in (where the work of the two groups [page742] is virtually indistinguishable). Consequently, the rationale for protecting management's general right to control the assignment of work may be less compelling in the latter situation than in the former.

Implying a term in this case

[44] The distinction between contracting out and contracting in, together with the potentially different policy considerations underlying them, was recognized by Arbitrator Shime -- correctly, in my view -- in Bristol-Myers, supra, at p. 216, where he said:

When all of these factors are analyzed within the context of the instant case a number of clear distinctions [between a true contracting out situation and a contracting in situation] emerge. First, as I have indicated this is a contracting in situation where persons are assigned work "in house" so to speak, which is work normally performed by bargaining unit employees. The persons were intermingled with bargaining unit employees and worked under the direction and control of foremen and a lead hand employed by Bristol-Myers. Secondly, unlike the Russelsteel case, this is a contracting in situation in which the assignment of work and the way it was performed even absent actual intent are inherently destructive of the bargaining relationship and the wage structure under the collective agreement. In my view, it is unlikely that the board in the Russelsteel case ever intended its decision to apply to a contracting in situation such as exists in the present case.

(Emphasis added)

[45] Recognizing the parallels between the contracting in situation in Bristol-Myers and that in the present case, the Arbitrator cited the foregoing passage with approval. It was not patently unreasonable for him to follow this line of analysis. Other arbitration decisions and commentators have concluded that the assignment of work to non-bargaining unit employees in such circumstances is not normally thought of as contracting out: see the decisions and commentaries collected in Brown & Beatty, supra, at 5:1310, n. 2.

[46] Hydro Ottawa also argues, however, that the relevant body of arbitral decision making -- of which St. Jude's and Bristol-Myers are said to be examples -- establishes a two-step process in determining whether the employer has engaged in contracting out: first, it must be determined who is the non- bargaining unit worker's employer, and secondly, it must be determined whether the collective agreement prohibits contracting out (otherwise the Russelsteel principle -- permitting contracting out in the absence of an express provision to the contrary -- applies). If it is determined that the worker is employed by an outside agency, and if the collective agreement contains a clause permitting contracting out, that is the end of the enquiry: the company [page743] is entitled to put the contracting out arrangement in place. In the context of this case, Hydro Ottawa contends, the Arbitrator found that Mr. DePasquale was employed by Accountemps and not by Hydro Ottawa and, having made that finding, he was compelled to find as well that the impugned working arrangement was permitted because of the provisions of Article 21.

[47] I do not agree, but there are a number of points arising from that submission that need to be canvassed. First, I do not read either Bristol-Myers or St. Jude's as promoting such a compartmentalized approach. Rather, I see them as calling for a cohesive analysis of the notional employer and the contracting in/contracting out problems in the context of the subject working arrangement and the provisions of the collective agreement, with a view to determining the ultimate question, namely, whether the company has effectively contracted out the work in the circumstances. Secondly, while I can appreciate that the apparent disconnect between the Arbitrator's finding in the Second Award (that Mr. DePasquale was not an employee of Hydro Ottawa) and his finding in the Award under review (that the impugned working arrangement was not permitted by Article 21) may have evoked a certain sense of unfairness in Hydro Ottawa about the Arbitrator's decision, I do not think the decision is thereby rendered patently unreasonable. Finally, as I shall explain, even if Bristol-Myers and St. Jude's, or other arbitral decisions, do adopt a different approach than that employed by the Arbitrator, his decision is not patently unreasonable simply because he followed a different path to arrive at his award, provided the award is not patently unreasonable on the record before him. I turn to these considerations now.

Bristol-Myers and St. Jude's

[48] As noted, I do not read either Bristol-Myers or St. Jude's as calling for the type of compartmentalized approach contended for by Hydro Ottawa. It is true that in both cases the arbitrator addressed the question of who was the real employer (the agency or the company), but both arbitrators concluded that the determination of that matter was not dispositive of the contracting in/contracting out issue. The notional employment consideration is itself only a test for determining the ultimate question, which is whether the company has successfully contracted out the work in issue.

[49] In Bristol-Myers, supra, Arbitrator Shime -- noting that the contracting in situation with which he was dealing was different from a normal contracting out situation -- observed, at p. 215, that: [page744]

In my view, where persons are brought into a work situation to work alongside regular employees and where they perform the same work as those employees, the mere fact that those persons are recruited through the auspices of an independent agency is not sufficient to create a "true" contracting out situation as that term is generally understood.

[50] In St. Jude's, supra, the issue was whether agency nurses who filled in from time to time were employed by the agency and not covered by the collective agreement, or were employees of the nursing home for purposes of that agreement. Arbitrator Larson noted that there were two divergent lines of arbitral decisions relating to the use of agency workers and whether they would become subject to the requirements of the relevant collective agreements. He made it clear, however, that in his view the question of who was the real or notional employer of the non-bargaining unit workers was simply a test to help determine the contracting out issue. His reasons, at pp. 116-17 and 119-20, explain how the "notional employer" and "contracting out" versus "contracting in" issues are linked and form the basis for a single unified analysis. He said:

In fact, whether the collective agreement contains a contracting out clause can never be determinative, in such cases, for the simple reason that the real question to be decided is whether a true contracting out has occurred in the first place. That is the whole point of the applicability of the various tests, which is to say, to determine whether the employer has effectively abdicated that work to the employment agency so that one could conclude that the provisions of the collective agreement would not apply to it. If the work has not been contracted out, then it follows logically that the collective agreement continues to control how it must be done. Only if it has been properly contracted out does the work fall outside of the control of the collective agreement.

. . . [w]hat must be understood is that notional employment is itself only a test to determine the real substance of the issue in dispute, which is whether the client employer has managed to successfully contract out the bargaining unit work done by the agency employee. For that purpose, one looks to see if the agency employee is being worked in essentially the same manner as other employees but the objective of the test is not to determine who is the real employer in those circumstances but rather whether the work has been genuinely contracted out. If the work remains under the control of the client employer or, what is the same thing, if the agency employee is required to work in essentially the same manner as any other employee of the client employer, one would have to conclude that the agency employee is effectively employed by the client employer. More importantly, if one determines that the work remains under the control of the client employer such that it has not been contracted out to the agency employer, it follows logically that the work remains subject to the prescriptions of the collective agreement.

. . . . . [page745]

A contracting-in involves a situation where the employer purports to engage a contractor to do bargaining unit work at the same site as the bargaining unit employees. As with any contracting-out situation, whether that constitutes an effective alienation of the work so as to preclude any further application of the collective agreement to it must be measured by reference to the various tests set out in the cases. Only where the work is genuinely contracted out or is incidental to the work of the bargaining unit, can the employer escape the obligation to apply the terms of the collective agreement to it. But it should be obvious that because of the nature of a contracting-in, it will be difficult for the employer to meet those tests since, in almost every case, that employer will be unable to functionally separate it out of its own work systems.

(Emphasis added)

[51] In other words, the purpose of applying the test for notional employment of agency workers is to determine whether there has been an effective contracting out. Here, as noted above, the Arbitrator addressed the specific question of whether a true contracting out had occurred. He concluded that it had not.

Any apparent inconsistency between the second award and the award under review does not render the latter patently unreasonable

[52] I would add the following comments, however, because the Arbitrator's decision to deal separately with the "notional employer" issue (in the Second Award) and the "contracting in/ contracting out" issue (in the decision under review) may have led to what Hydro Ottawa views as inconsistent findings in the two awards and, thus, to the sense of unfairness referred to above. While I do not view his two findings -- that Mr. DePasquale was not an employee of Hydro Ottawa, but that the working arrangement under attack, nonetheless, did not constitute contracting out -- as necessarily incompatible in the determination of the ultimate issue, for the reasons I outline, Hydro Ottawa could be forgiven if, once the first finding was made, it thought it had an advantage in the debate to follow concerning contracting out.

[53] It would have been preferable, in my view, had the Arbitrator followed the approach and analysis of Bristol-Myers and St. Jude's and conducted the notional employer and contracting out inquiry simultaneously rather than in two separate stages. Had he done so, he may well have come to a different conclusion on the notional employer issue and thus avoided the difficulties arising from the two-staged inquiry.

[54] In Bristol-Myers, for example, Arbitrator Shime made two findings. The first was that the control and utilization of agency personnel to do bargaining unit work created an employment [page746] relationship between Bristol Myers and the agency workers. The second was that those circumstances did not constitute a true contracting out. Instead they amounted to "a contracting-in situation in which the assignment of work and the way it was performed even absent actual intent are inherently destructive of the bargaining relationship and the wage structure under the collective agreement". These findings fit together harmoniously. Here, however, the Arbitrator's findings fit less comfortably, leading to the result that troubles Hydro Ottawa.

[55] The reason for this apparent inconsistency is that the Arbitrator treated the question of the identity of Mr. DePasquale's true employer not as just one of the tests for determining whether there was a true contracting out, as in Bristol Myers and St. Jude's, but as a separate issue that focused on comparing his relationship with Hydro Ottawa and his relationship with the agency, based upon an analysis of the criteria set out in Labourers' International Union of North America, Local 183 v. York Condominium Corp. No. 46, [1977] O.L.R.B. Rep. 445.[^6]

[56] With respect to the Arbitrator, it appears from the body of arbitral decision-making surrounding the question of contracting in/contracting out, including cases such as Bristol Myers and St. Jude's, that the better approach is to treat the issue of identifying the true employer, not as a separate inquiry, but as part of the test for determining whether there has been contracting out. In this regard, both the assignment and nature of the work performed by the agency workers and its effect on the integrity of the bargaining unit are relevant.

[57] Finally, had the arbitrator addressed the issues before him in awards two and three in one award, as Arbitrator Shime did in Bristol Myers, the procedural and jurisdictional concerns that caused part of this appeal may have been avoided.

[58] Having expressed these caveats about the Arbitrator's decision, however, I do not think they alter the disposition of this appeal. At the end of the day, the Arbitrator did focus on the proper ultimate issue, namely whether the working arrangement in question amounted to an effective contracting out by Hydro Ottawa and, if it did not, whether the collective agreement [page747] implicitly prohibited the engagement of workers in the position of Mr. DePasquale on other than a casual or temporary employee basis. Based on the analysis in these reasons, I do not think his decision in this regard was patently unreasonable.

The Arbitrator's approach to interpreting the collective agreement

[59] In any event, even if a different approach were suggested by other arbitration decisions, the failure of a subsequent arbitrator to follow previous decisions does not by itself make the subsequent arbitrator's decision patently unreasonable. The doctrine of stare decisis has no application in such circumstances. See Domtar Inc. v. Québec (Commission d'appel en matière de lésions professionnelles), 1993 106 (SCC), [1993] 2 S.C.R. 756, [1993] S.C.J. No. 75, at pp. 800-01 S.C.R., per L'Heureux-Dubé J.; Maple Leaf Foods Inc. v. Alejandro, 1999 2908 (ON CA), [1999] O.J. No. 1790, 120 O.A.C. 264 (C.A.), at para. 23, per Goudge J.A.; Essex County Roman Catholic School Board v. Ontario English Catholic Teachers' Assn. (2001), 2001 4461 (ON CA), 56 O.R. (3d) 85, [2001] O.J. No. 3602 (C.A.), at paras. 30-31, per MacPherson J.A.; and National Steel Car Ltd. v. United Steelworkers of America, Local 7135, 2006 40973 (ON CA), [2006] O.J. No. 4868, 278 D.L.R. (4th) 345 (C.A.), at para. 31, per MacPherson J.A. In each case the issue is whether the arbitrator's interpretation of the collective agreement is supportable on the record and not patently unreasonable in that context. Lack of unanimity is the price to be paid for having independent and specialized decision-makers in the labour relations field protected by the standard of review of patent unreasonableness.

[60] An example of an arbitration decision where the arbitrators held it was reasonable to imply a term in the collective agreement that the employer would not erode or undermine the bargaining unit by assigning work to non- bargaining unit workers (in that case managerial personnel) is Re Grande Prairie General and Auxiliary Nursing Home District No. 14 and United Nurses of Alberta, Loc. 37 (1996), 1996 20373 (AB GAA), 57 L.A.C. (4th) 173. In that case, the arbitration panel found that such a term could be implied, in spite of the existence of the usual management rights clause.[^7] [page748]

[61] Brown & Beatty note that there have been different approaches amongst arbitrators about how to treat the assignment of bargaining unit work to non-bargaining unit workers. The authors observe that, while earlier awards often treated such work assignments on the same basis as they did subcontracting (i.e., contracting out), later awards have distinguished between such assignments and contracting out. They have done so on the basis of implied restrictions on management's discretion to make such assignments arising from provisions in collective agreements dealing with such considerations as seniority, classification, bargaining unit recognition and wage security. See Brown & Beatty, supra, at 5:1410 and related footnotes. (The decision in this case is cited as one example of this line of arbitration cases.)

[62] Overall, the Arbitrator took a purposive approach to interpreting the collective agreement, concluding that:

(i) the purpose of the provisions in Article 6 defining "casual employees" (excluded from the bargaining unit) and "temporary employees" (members of the bargaining unit if hired for longer than two weeks) was "to ensure the wage schedule and other provisions of the agreement are not significantly undermined by longer-term employment outside the agreement";

(ii) an agency employee working under the arrangements in this case "very closely resembles a temporary employee of Hydro Ottawa";

(iii) the extended use of agency employees in this fashion "would undermine the collective agreement"; and

(iv) Article 6 of the collective agreement "implicitly placed a two-week limit on the engagement of [agency employees in such circumstances]".

[63] In adopting a purposive interpretation of the collective agreement, the Arbitrator was following one of two distinct approaches taken by arbitrators towards collective agreements over the years. The first is the orthodox contract law approach. The second is the more liberal purposive approach, which recognizes that a collective agreement is different from a normal commercial contract and that it must be read and construed in the context of the labour relations environment in which it was negotiated. This difference in the approach to interpreting collective agreements was noted by the arbitration board in Re Grande Prairie General, supra.

[64] Whether the orthodox approach to contractual interpretation and the purposive approach to the meaning of a collective agreement are significantly different is a matter of debate that need not be resolved for the purpose of this appeal. Both approaches resort to the traditional markers of contractual interpretation, seeking to determine the intention of the parties from [page749] the language of the agreement in the contextual setting in which it was written. The differences may be in degree -- the purposive approach to interpreting a collective agreement placing, perhaps, a little more emphasis on the collective bargaining context in which the agreement is negotiated than the orthodox approach does on the setting of a commercial contract. These differences are not material in the circumstances of this case, however, and the Arbitrator cannot be said to have been patently unreasonable in having adopted one accepted approach over the other.

[65] The Arbitrator considered Hydro Ottawa's submission that he should be reluctant to imply terms into a collective agreement, as other arbitrators have been. In particular, Hydro Ottawa relied upon the decision of Arbitrator Sychuk in Re County of Athabasca No. 12 and Alberta Teachers' Association, Athabasca Local (1978), 1978 3532 (AB GAA), 19 L.A.C. (2d) 1. At pp. 6-7, Arbitrator Sychuk said:

The legal principles governing the implication of a term into a contract are very strict and an arbitration board, like the Court, must be extremely careful as to how and when it implies a term into a collective agreement. If the term is raised by one of the parties during negotiations, but there is no agreement with respect to the same, such a provision cannot become an implied term within the legal test discussed in Issue No. 3 hereof. It is only those terms that are not raised during negotiations, but which had they been raised during negotiations, both parties would have instantaneously expressed their agreement therewith, that are capable of being implied into a contract.

It may be appropriate to comment as to the possible reasons why the arbitration jurisprudence to date does not reflect a trend on the part of arbitrators to imply terms into a collective agreement. It is a fundamental principle of law that an implied term cannot conflict with an express provision to the contrary. In view of the fact that most collective bargaining agreements contain an express management rights clause which reserves unto the employer the management of the operation, except to the extent that the same is expressly dealt with in the collective bargaining agreement, it is not surprising that arbitrators have not found implied terms on matters on which the collective agreement is silent, because such implied terms would in all probability be in conflict with the express provision to the contrary in the management rights clause.

[66] These comments support the approach to collective agreement interpretation that places considerable stock in the context of collective bargaining. The Arbitrator was alert to the strict test for implying terms into a collective agreement, but was satisfied that the term he implied was appropriate in this case. He concluded:

Based on a purposive reading of article 6, I have concluded this article implicitly limits the use of agency workers. This approach offends neither [page750] article 1.2 [Management Rights] nor article 2 [Purpose]. The management rights contained in article 2 may not be exercised in a manner "inconsistent" with other provisions in the agreement, including article 6. I read article 1.2 as saying no more than the agreement contains agreed terms and conditions of employment. This article does not preclude the implication of such additional terms as are necessary to ensure the express terms are not undermined.

[67] I cannot say this conclusion was unreasonable, much less patently unreasonable.

[68] Nor would I say the Arbitrator's conclusion that Article 6 implicitly limits the use of agency workers contravenes the dictates of Article 10.5.2 precluding an arbitrator from adding to or subtracting from or otherwise changing the provisions of the collective agreement. An implied term is a term of the contract; it is not an amendment to or modification of the contract. As Arbitrator Larson observed in Re School District No. 57 (Prince George) and United Brotherhood of Carpenters & Joiners, Local 2106 (1990), 1990 12890 (BC LA), 15 L.A.C. (4th) 105, at p. 111:

The problem with that argument is that it misconceives the nature of an implied right. An implied right is not one that is invented by an arbitrator, but rather, is one that arises out of an interpretation of the collective agreement. It is one that is not expressed in absolute terms but that can, nevertheless, be inferred by an ordinary and natural reading of the agreement. Were it otherwise, an arbitrator would not be entitled under art. 4.02[^8] to interpret the collective agreement where the meaning was not absolutely clear.

Disposition

[69] In conclusion, the Arbitrator did not undertake to determine a matter that had not been submitted to him for arbitration. His finding that Hydro Ottawa's assignment of outside agency workers to do the bargaining unit work in question did not constitute "contracting out" within the meaning of Article 21 of the collective agreement and was subject to an implied term prohibiting the use of such workers for periods of more than two weeks -- having regard to the provisions of Article 6 and the wage schedules in the agreement -- was not patently unreasonable. In my respectful view, the Divisional Court erred in holding that it was.

[70] Accordingly, I would allow the appeal, set aside the order of the Divisional Court, and restore the decision of the Arbitrator. [page751]

[71] The appellant is entitled to its costs of the appeal, and of the application for leave to appeal, fixed as one set of costs in the total amount of $10,000, in accordance with the agreement of counsel.

Appeal allowed.

[^1]: I note this is not the same issue as the one that was the subject matter of the Arbitrator's first decision, namely, whether the Union should be permitted to argue the "true employer" issue. No quarrel is taken with that decision.

[^2]: Canada (Attorney General) v. Public Service Alliance of Canada, [1993] a S.C.R. 941, 1993 125 (SCC), [1993] S.C.J. No. 35, at pp. 963-64 S.C.R., per Cory J.; Centre communautaire juridique de l'Estrie v. Sherbrooke (City), 1996 168 (SCC), [1996] 3 S.C.R. 84, [1996] S.C.J. No. 86, at paras. 9-12, per Gonthier J.; Law Society of New Brunswick v. Ryan, 2003 SCC 20, [2003] 1 S.C.R. 247, [2003] S.C.J. No. 17, at para. 52, per Iacobucci J.

[^3]: Voice Construction Ltd. v. Construction & General Workers' Union, Local 92, 2004 SCC 23, [2004] 1 S.C.R. 609, [2004] S.C.J. No. 2, at para. 18.

[^4]: Describing a working arrangement as a "labour only" contract is another way of saying that it involves "contracting in": see George W. Adams, Canadian Labour Law, 2nd ed., looseleaf (Aurora, Ont.: Canada Law Book, 1993) at para. 8.260 ("Adams").

[^5]: For an interesting overview of the longstanding debate about contracting out in the field of labour relations, from differing perspectives, see also R.O. MacDowell"Contracting Out at Arbitration: An Arbitrator's Perspective" (1995) 5 Lab. Arb. Y.B. 325; Robert A. MacPherson"Contracting Out at Arbitration: A Management Perspective: (1995) 5 Lab. Arb. Y.B. 355; and James K.A. Hayes and Michael D. Wright"Contracting Out at Arbitration: A Union Perpective" (1995) 5 Lab. Arb. Y.B. 373.

[^6]: The seven criteria set out in that decision involve determining (i) who is the party exercising direction and control over the employee performing the work (ii) who is the party bearing the burden of remuneration, (iii) who is the party imposing discipline, (iv) who is the party hiring the employees, (v) who is the party with the authority to dismiss the employees, (vi) who is the party perceived to be the employer by the employees, and (vii) the existence of an intention to create the relationship of employer and employee.

[^7]: In the curcumstances, however, the panel found on the facts that the mamagerial employees were not doing bargaining unit work. There is no mention in the decision of whether the applicable collective agreement contained a provision permitting or prohibiting contracting out.

[^8]: Article 4.02 of the collective agreement in that case prohibited a third party from amending, modifying or expanding the provisions of the collective agreement.