CITATION: Essar Steel Algoma Inc. (Re), 2016 ONSC 1802

COURT FILE NO.: 15-CV-0011169-00CL

DATE: 20160314

SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED

AND IN THE MATTER OF A PLAN OF COMPROMISE OR ARRANGEMENT OF ESSAR STEEL ALGOMA INC., ESSAR TECH ALGOMA INC., ALGOMA HOLDINGS B.V., ESSAR STEEL ALGOMA (ALBERTA) ULC, CANNELTON IRON ORE COMPANY, AND ESSAR STEEL ALGOMA INC. USA

BEFORE: Newbould J.

COUNSEL: Ashley Taylor and Kathryn Esaw, for the Applicants Lou Brzezinski and Alexandra Teodorescu, for the USW Local 2251 Massimo (Max) Starnino, for USW and its Local 2724 Naomi Greckol-Herlich, for the Essar Algoma retirees Clifton P. Prophet and Nicholas Kluge, for the Monitor Bradley Whiffen, for the Ad Hoc Committee of Essar Algoma Noteholders Andrea Lockhart, for Deutsche Bank Evan Cobb, for the board of directors of Essar Algoma

HEARD: March 11, 2016

ENDORSEMENT

[1] Essar Algoma applies for the approval of a grievance claims procedure to govern grievances made against Essar Algoma under two collective agreements between Essar Algoma and Local 2251 and Local 2724. Local 2724 is satisfied with the proposed procedure. Local 2251 is not.

[2] On January 14, 2016, an order was made approving a general claims process to solicit and determine claims that exist against the applicants and their directors and officers. During the negotiations leading to this order, counsel to the USW and the Locals requested an independent claims procedure order designed specifically to deal with grievances. The applicants agreed to such an approach on the understanding that the parties would work together to develop a grievance claims procedure order on consent.

[3] As of the commencement of these CCAA proceedings, approximately 2,768 grievances had been filed and remained unresolved. Many of the grievances go back many years. Since the date of the Initial Order and through to February 26, 2016, approximately 374 additional grievances have been filed.

[4] Article 13 of the collective agreement governing Local 2251 establishes a three-step process for the resolution of grievances, and provides in the third step for the final and binding settlement of grievances by arbitration. Most of the pre-filing grievances have gone through the first two steps and what remains is arbitration under the third step. Under ss. 49(1) of the Labour Relations Act, a party to a collective agreement may request the Minister of Labour to refer a grievance to a single arbitrator to be appointed by the Minister. Up to February 24, 2016, 68 pre-filing grievances and 148 post-filing grievances were referred to the Minister by Local 2251. Arbitrator Bloch was named by the Minister for all of these grievances. By virtue of the stay contained in the Initial Order, he has adjourned all of the grievances pending the end of the CCAA proceedings.

Grievance claims procedure

[5] The grievance claims procedure streamlines the process by which grievance claims are resolved by placing the vast majority of outstanding grievances on an expedited resolution track which will see all of those claims determined by August 31, 2016. A limited number of grievance claims which are not placed on the expedited track will continue to be heard through the process provided for in the collective agreements and a limited number of grievance claims will continue to be stayed and held in abeyance pending the conclusion of the CCAA proceedings.

[6] Under the grievance claims procedure, a chief arbitrator will be appointed, who will oversee the implementation of the grievance claims procedure, including assigning grievance claims to the grievance arbitrators and overseeing the scheduling of mediation and, if necessary, arbitration of the claims. The Honourable John Murray is named in the procedure as the chief arbitrator. It is intended that all of the grievance arbitrators will be experienced labour arbitrators.

[7] The vast majority of the grievance claims will proceed by way of the expedited process. The procedure contemplates that the Local 2251 and Local 2724 will prepare a list of grievances, to which the applicants shall respond. The chief arbitrator will assign those grievance claims to a grievance arbitrator. Any grievance claim which is not included on the list of grievances shall be deemed to be withdrawn with prejudice by the applicable Local and shall be barred and extinguished.

[8] Once a grievance arbitrator has carriage of a grievance claim, he or she will work with the applicants, the USW, the applicable Local and the Monitor to try to come to a consensual resolution of the claim. Where such resolution attempts are not successful, the grievance arbitrator shall proceed to hear, adjudicate and determine the grievance claim. The result of the arbitration will be final and binding on the parties.

[9] There is no question that the grievance claims procedure will assist the applicants in their restructuring attempts. The applicants are in the midst of a sale and investment solicitation process, the outcome of which will determine whether the applicants survive as a going concern. Time is of the essence. The DIP financing matures on August 31, 2016, but may be extended to September 30, 2016. The applicants also need to start building up inventory levels in advance of the winter freeze. In order to have the financing necessary to do this and continue operating, the applicants must implement a restructuring plan or close a sale transaction before the end of September, 2016. In order to effect this, some certainty regarding the potential impact of the unresolved grievances would greatly assist matters. A third party considering an offer to purchase would obviously want to understand the impact of the grievances on the business.

[10] The Monitor participated in the negotiation process and is of the view that the grievance claims procedure is a fair and reasonable method of dealing with grievances, will bring certainty to labour relation claims against the applicants and in turn will aid the applicants in their operations and be of benefit to potential bidders under the SISP. The Monitor believes that approval of the grievance claims procedure is important to the applicants’ restructuring efforts.

Position of Local 2251

[11] The position of Local 2251 is a legal one. Mr. Brzezinski said that his client has no concerns regarding Mr. Murray being appointed. That is understandable. Mr. Murray before his appointment to the bench was a very senior and able labour lawyer and arbitrator and since his retirement from the bench has continued to be heavily involved in labour matters in Ontario. Mr. Brzezinski said that his clients want to take a legal position to ensure that their rights under the collective agreement are maintained and that their rights under the CCAA are made clear.

[12] Under step three of the collective agreement, which provides for arbitration if the grievance cannot be settled, three arbitrators are named who shall be selected on a rotation basis. In case an arbitrator cannot hear the matter in 60 days, the parties may by mutual agreement extend the 60 day period or agree to another arbitrator not on the list. The language of the collective agreement in the third step contemplates a speedy resolution of grievances, but this has not been achieved.

[13] What has happened in this CCAA process is that the applicants have tried to have Local 2251 agree to a grievance claims procedure which essentially would result in the same thing as would happen under the collective agreement. However Local 2251 has refused to agree to it.

[14] One may wonder why Local 2251 would not readily agree to such a procedure. One would think it would be in the interests of a grievor to have his or her claim dealt with as quickly as possible. It would also seem to be in the interests of the grievors to have a procedure to resolve the grievances and thus assist in a positive outcome for the business on which their livelihoods depend.

[15] I will deal with the legal issues raised by Local 2251.

Effect of the stay in the Initial Order

[16] The main argument advanced by Local 2251 is that grievances are not stayed by the Initial Order and that providing for a grievance procedure other than under the collective agreement amounts to an amendment to the collective agreement which is not permitted under section 33 of the CCAA. Mr. Brzezinski took the position in argument that the stay under the Initial Order did not constitute an amendment to the collective agreement but that the imposition of the grievance claims procedure would be an impermissible amendment to the grievance procedures contained in the collective agreement.

[17] Section 33 of the CCAA provides in part as follows:

33.(1) If proceedings under this Act have been commenced in respect of a debtor company, any collective agreement that the company has entered into as the employer remains in force, and may not be altered except as provided in this section or under the laws of the jurisdiction governing collective bargaining between the company and the bargaining agent.

(8) For greater certainty, any collective agreement that the company and the bargaining agent have not agreed to revise remains in force, and the court shall not alter its terms.

[18] In my view, a stay of a grievance procedure under a collective agreement can be ordered under the CCAA. Further, the imposition of a claims procedure under the CCAA that includes grievance claims is not an amendment to the collective agreement. The claims procedure in the collective agreement has been stayed and a claims procedure process under the CCAA, not under the collective agreement, has replaced it during the pendency of the CCAA proceeding.

[19] In Canwest Global Communications Corp. (Re) (2011), 2011 ONSC 2215, 75 C.B.R. (5th) 156 the claims procedure order in a CCAA process was broad enough to cover grievances under the applicable collective agreement and claims for a number of grievances were made and resolved. A few claims were not resolved and the union moved to lift the stay of proceedings to permit the grievances to be dealt with under the applicable collective agreement. Pepall J. (as she then was) dismissed the motion and in doing so stated that there appeared to be no real issue that the grievances are caught by the stay of proceedings. Regarding the utility of the claims process covering grievances, Pepall J. said that generally speaking grievances should be adjudicated in the CCAA claims process. She stated:

33 The claims process is summary in nature for a reason. It reduces delay, streamlines the process, and reduces expense and in so doing promotes the objectives of CCAA. Indeed, if grievances were to customarily proceed to arbitration, potential exists to significantly undermine the CCAA proceedings. Arbitration of all claims arising from collective agreements would place the already stretched resources of insolvent CCAA debtors under significant additional strain and could divert resources away from the restructuring. It is my view that generally speaking, grievances should be adjudicated along with other claims pursuant to the provisions of a claims procedure order within the context of the CCAA proceedings.

[20] Regarding section 33 of the CCAA, Justice Pepall said that a CCAA claims process for grievances was not precluded by section 33. She stated:

38 Justice Mongeon of the Québec Superior Court had occasion to address the effect of section 33 of the CCAA in White Birch Paper Holding Company. He stated that the fact that a collective agreement remains in force under a CCAA proceeding does not have the effect of "excluding the entire collective labour relations process from the application of the CCAA." He went on to write that:

It would be tantamount to paralyzing the employer with respect to reducing its costs by any means at all, and to providing the union with a veto with regard to the restructuring process.

40 I agree with the Monitor's position that if Parliament had intended to carve grievances out of the claims process, it would have done so expressly. To do so, however, would have undermined the purpose of the CCAA and in particular, the claims process which is designed to streamline the resolution of the multitude of claims against an insolvent debtor in the most time sensitive and cost efficient manner. It is hard to imagine that it was Parliament's intention that grievances under collective agreements be excluded from the reach of the stay provisions of section 11 of the CCAA or the ancillary claims process. In my view, such a result would seriously undermine the objectives of the Act.

[21] A stay of grievance claims under a collective agreement has often been imposed under the CCAA. Justice Mongeon did so with respect to claims of retirees in White Birch, as did Justice Morawetz with respect to claims of former employees in Nortel Networks Corp., Re (2009), 2009 31600 (ON SC), 55 C.B.R. (5th) 68. Further, providing for all grievances under collective agreements to be dealt with in a CCAA claims process was ordered in Air Canada by Justice Farley in 2004 (albeit prior to the enactment of section 33 of the CCAA in 2009). In AbitibiBowater Inc., Re 2010 CarswellQue 2338 Justice Gascon (as he then was) ordered claims of former employees to be dealt with in a CCAA claims procedure. In all of these cases the collective agreements contained grievance procedures.

[22] Local 2251 also takes the position that staying grievances from being determined by arbitration under a collective agreement violates the freedom of association right under section 2(d) of the Charter of Rights and Freedoms. It relies on passages from Saskatchewan Federation of Labour v. Saskatchewan, 2015 SCC 4, which dealt with legislation in Saskatchewan that limited the right of public servants to strike. The Court in that case held that the right to strike is an essential part of a meaningful collective bargaining process and that the test whether the legislative interference with the right to strike in a particular case contravenes section 2(d) of the Charter is whether it amounts to a substantial interference with collective bargaining. As the right to strike for designated public servants under the Saskatchewan legislation was prohibited, it was held that the prohibition was a substantial interference with collective bargaining.

[23] For several reasons I do not think this Charter argument can succeed.

[24] Sections 11 and 11.02 of the CCAA provide for a stay of any proceeding against the debtor company. What Local 2251 seeks to do is to challenge the constitutionality applicability of those sections in the face of sections 48 and 49 of the Labour Relations Act. However it has not given the required notice of a constitutional question to the Attorney General of Canada under section 109 of the Courts of Justice Act. Therefore, even if the union were right in its argument, there would be no power in the court to rule the applicability of those sections of the CCAA invalid or to grant a remedy.

[25] In any event, in considering the principles discussed in Saskatchewan, I do not think those principles render constitutionally invalid a stay of a grievance process in a collective agreement in favour of a grievance process under the CCAA. It must be remembered that there is a claims process in place in this CCAA proceeding, as there are in all CCAA proceedings, and that the claims process proposed in this case provides for the arbitration of grievances by experienced labour arbitrators. This process clearly would meet the requirements of an arbitration process contained in section 48 of the Labour Relations Act.

[26] Prior to Saskatchewan, the Supreme Court in Health Services & Support-Facilities Subsector Bargaining Assn. v. British Columbia, 2007 SCC 27 established that s. 2(d) prevents the state from substantially interfering with the ability of workers, acting collectively through their union, to exert meaningful influence over their working conditions through a process of collective bargaining. In Mounted Police Association of Ontario v. Canada (Attorney General), 2015 SCC 1, [2015] 1 S.C.R. 3 it was stated that whatever the nature of the restriction, the ultimate question to be determined is whether the measures disrupt the balance between employees and employer that s. 2(d) seeks to achieve, so as to substantially interfere with meaningful collective bargaining. The issue in Saskatchewan therefore was whether removing the right to strike was an interference that could be said to be a substantial interference with meaningful collective bargaining. It was held that striking, the “powerhouse” of collective bargaining, promotes equality in the bargaining process (para. 55) and was essential to the ability of employees to bargain “on a more equal footing” (para. 56).

[27] The flaw in the argument of the union is that it is the negotiating process and not the results of that process that are constitutionally protected. That was made clear in Health Services. In that case, Chief Justice McLachlin and Justice Lebel stated:

19 At issue in the present appeal is whether the guarantee of freedom of association in s. 2(d) of the Charter protects collective bargaining rights. We conclude that s. 2(d) of the Charter protects the capacity of members of labour unions to engage, in association, in collective bargaining on fundamental workplace issues. This protection does not cover all aspects of "collective bargaining", as that term is understood in the statutory labour relations regimes that are in place across the country. Nor does it ensure a particular outcome in a labour dispute, or guarantee access to any particular statutory regime. What is protected is simply the right of employees to associate in a process of collective action to achieve workplace goals. If the government substantially interferes with that right, it violates s. 2(d) of the Charter: Dunmore. We note that the present case does not concern the right to strike, which was considered in earlier litigation on the scope of the guarantee of freedom of association.

29 ... However, "collective bargaining" as a procedure has always been distinguishable from its final outcomes (e.g., the results of the bargaining process, which may be reflected in a collective agreement). Professor Bora Laskin (as he then was) aptly described collective bargaining over 60 years ago as follows:

Collective bargaining is the procedure through which the views of the workers are made known, expressed through representatives chosen by them, not through representatives selected or nominated or approved by employers. More than that, it is a procedure through which terms and conditions of employment may be settled by negotiations between an employer and his employees on the basis of a comparative equality of bargaining strength.

("Collective Bargaining in Canada: In Peace and in War" (1941), 2:3 Food for Thought 8, at p. 8)

[28] The fruits of the bargaining in this case are the particular terms of the grievance procedure. I do not see them as being constitutionally protected under section 2(d) of the Charter. In Canwest Justice Pepall came to the same conclusion.

[29] Moreover, the issue in this case is whether the grievance arbitration provisions in the collective agreement can be stayed, and whether such a stay amounts to a substantial interference with collective bargaining. I do not think it can be said in this case that the effect of the stay is substantial. The right to a grievance procedure is a given. It is mandated in section 48 of the Labour Relations Act. I think it fair to say that the need to bargain for terms of a grievance procedure is a far cry from being the “powerhouse” of collective bargaining such as the right to strike that promotes equality in the bargaining process. The terms of a grievance procedure to be negotiated surely do not have any substantial influence on the bargaining power of the employees. The grievance provisions that are negotiated reflect the bargaining power of both sides to the negotiations.

[30] Local 2251 also takes the position that a stay imposed under the CCAA is not absolute but is subject to certain limits and exceptions provided for in the CCAA, one of which is that services provided after the date of the Initial Order are to be paid for the purpose of ensuring the continued supply of services during the restructuring effort. Section 11.01 provides that no order made under section 11 or 11.02 has the effect of prohibiting a person from requiring immediate payment for services provided after the order is made or requiring the further advance of money or credit. It is contended that members of Local 2251 continue to provide active services to Essar Algoma and they are entitled to be compensated for their post-filing services in accordance with the package of compensation and benefits provided under their collective agreement. No doubt they are entitled to such compensation but I do not see a grievance procedure as somehow being a form of compensation under section 11.01 of the CCAA. Section 11.01 as an exception to the stay powers in sections 11 and 11.02 is to be narrowly construed (see Nortel Networks Corp., Re 2009 ONCA 833 at para. 17), and it is not possible to construe it as preventing a claims procedure order being imposed.

[31] Finally, Local 2251 contends that the exclusive jurisdiction over grievance arbitration is given to arbitrators under sections 48 and 49 of the Labour Relations Act and that this exclusive jurisdiction applies to insolvency cases under the CCAA. Reliance is placed on statements in cases such as Weber v. Ontario Hydro, 1995 SCC 108 which have held that it is for labour arbitrators and not the courts to determine grievances under collective agreements.

[32] I do not accept this contention of Local 2251. The cases relied on by it did not deal with any issue between a federal and provincial statute. What the union has raised is an issue that requires a consideration of the constitutional doctrine of paramountcy.

[33] Section 48 mandates a grievance arbitration procedure in collective agreements and provides that a decision is binding on the parties. Section 49 permits a request to the Minister to appoint an arbitrator whose decision will be binding on the parties. Sections 11 and 11.02 of the CCAA provide for an order to be made staying proceedings against the debtor company. These provisions permit the staying of grievance claims under a collective agreement. The two statutes are thus in conflict as one cannot comply with the one without violating the other. Thus under the doctrine of paramountcy, the CCAA provisions must prevail over sections 48 and 49 of the Labour Relations Act. See 407 ETR Concession Co. v. Canada (Superintendent of Bankruptcy) 2015 SCC 52; 30 C.B.R. (6th) 207 at paras. 24 and 25.

[34] Moreover, even if there is not a direct conflict in the federal and provincial statutes in question, the doctrine of paramountcy will apply where complying with the provincial law will have the effect of frustrating the purpose of the federal law and therefore the intent of Parliament. See Alberta (Attorney General) v. Moloney, 2015 SCC 51, [2015] 3 S.C.R. 327; 29 C.B.R. (6th) 173 at para. 25; Nortel Networks Corp., Re (2009), 2009 ONCA 833, 59 C.B.R. (5th) 23 at paras 39-39.

[35] In my view, apart from there being a direct conflict between the two statutes in so far as a stay being permitted under the CCAA, it would be very detrimental to the attempt at a successful restructuring in this case if the stay of the approximately 3000 grievance claims and a process for their speedy resolution were not granted. The view of the Monitor is compelling in this regard that that approval of the grievance claims procedure is important to the applicants’ restructuring efforts. Thus in my view the doctrine of paramountcy on this ground leads to the paramountcy of sections 11 and 11.02 of the CCAA over sections 48 and 49 of the CCAA.

Conclusion

[36] The motion by the applicants for the approval of the grievance claims procedure is allowed.

Newbould J.

Date: March 14, 2016