CAW LAW REPORT

Issue 2-Volume 2 May 12, 1992

INTRODUCTION

The CAW-Canada Law Report is making its first appearance for 1992; consequently, this second issue of volume 2 is a special double issue designed to make up for lost time and keep pace with the rapid evolution of statutory and case law affecting our membership.

The policies of the Federal Conservative government continue to have a devastating impact upon workers, their families, and communities across Canada. It seems every few days there is a headline in a newspaper somewhere in Canada proclaiming the fact that personal and commercial bankruptcies have reached all time highs.

Businesses of all shapes and sizes have become insolvent. Some, but not all insolvent businesses will be treated according to the provisions of the Federal Bankruptcy Act.

In some instances, when a workplace becomes insolvent, that is, management cannot meet its ongoing liabilities as they generally become due, management must take full blame for the economic catastrophe that has occurred. In other instances, the Federal Conservative government's policies of a high dollar, high interest rates, and free trade condemn the workplace in question to bankruptcy, regardless of the merits of management's actions.

Some business people, confronted with an increasing debt load, stubborn bankers, and unmanageable liabilities, have devised new legal strategies to stay alive and keep their creditors at bay. One of these new strategies involves a piece of federal legislation called the Company Creditors Arrangement Act. This law is being increasingly used by insolvent companies to rearrange their affairs, and gain breathing space before one of their creditors puts the company into bankruptcy court. If a company obtains protection under the Company Creditors Arrangement Act, it may have a real impact upon our members and our union. Therefore, the first part of the CAW-Canada Law Report is designed to examine the Company Creditors Arrangement Act ("CCAA"). The CCAA is a statute you may be seeing more of in the future.

The CCAA is a federal statute. It applies to any company incorporated in the federal or any provincial jurisdiction, except for banks, railway, insurance, or trust companies. The CCAA originated in the depression years as a means of providing for the reorganization and continuation of insolvent businesses. Historically, it was never used extensively, and during the 1960's and 1970's it actually appeared to be in danger of falling into complete disuse. Recently, however, the particular advantages which it confers on a debtor company in dealing with secured creditors like banks or other financial institutions, have given this statute a new prominence. The CCAA is quite a brief statute, it consists of only twenty sections. By contrast, the Federal Bankruptcy Act consists of one hundred and fifteen sections.

Section 4 of the CCAA allows a debtor company to go to court using a summary procedure, to obtain an order that all of the company's secured and unsecured creditors attend a meeting to review and vote upon a proposed "compromise" or "arrangement" regarding the company's outstanding debt. The summary procedure referred to above means, amongst other things, that a debtor company may proceed to court without giving notice to the collective bargaining agent with whom it has a binding legal relationship. Essentially, when a debtor company goes to court under section 4 of the CCAA, it undertakes to prepare a detailed plan which may rearrange the terms and amounts of debt payable by the company to its creditors.

The proposed plan or "arrangement" is generally drafted by the debtor company's own management officials, and not by a third party receiver manager. On occasion, the proposed "arrangement" is not put before the court when the company first appears during its summary application. A company may only appear in court to gain the benefit of the CCAA if it can demonstrate that it is insolvent.

The crucial feature of a proposed plan or "arrangement" is that it rearranges or, properly put, reduces creditors rights. The terms of a proposed arrangement may lawfully defer the payment of money owing to creditors, and rewrite terms of payment. Normally, the purpose of a plan or "arrangement" under the CCAA is to give the debtor company time to survive its debt load. A proposed plan or arrangement has to be ultimately approved by the Ontario Court (General Division). The court must find that the proposed plan is feasible and reasonably addresses the interests of all concerned, including all creditors and shareholders of the company. However, before the court approves the proposed arrangement, the plan itself must be approved by a meeting of creditors.

The court normally gives the debtor company directions during its first appearance noted above with respect to how and when these creditor meetings will be organized and how the different creditors will be classified. The court may also order that pending the creditors meetings referred to above and the ultimate disposition of the proposed arrangement under the CCAA, all legal proceedings against the company are suspended and stayed. This means that if a debtor company goes to court pursuant to the CCAA and proposes a plan to rearrange its debt, and obtains an order staying all legal proceedings against it, our arbitration process will be temporarily frozen. No arbitration proceedings will be permitted to commence or continue against the company.

The classification of creditors under the proposed plan is critical to the debtor company's hopes of obtaining approval of its plan by the court. In some instances, the creditors will be classified in two separate categories, that is secured or unsecured creditors.

The debtor company's plan or arrangement must be accepted by a double majority of creditors. That is, the plan must be accepted by at least 50% of the creditors in a given category who have at least 75% of the dollar value of the creditors voting on the plan in that given category. Accordingly, if the creditors of the debtor company are divided into two categories, that is unsecured and secured creditors, the following test must be satisfied by the company. The arrangement must be accepted by at least 50% of the unsecured creditors who have at least 75% of the dollar value of unsecured debt. In addition, at least 50% of the secured creditors who have at least 75% of the dollar value of a secured debt must approve the plan.

If there is any question as to which category a creditor belongs to, it is resolved by the court. As noted above, the CCAA is a brief and short statute. It does not contain a detailed guideline as to what should be found in a company's plan or arrangement.

What should be done when a representative learns that an employer has filed an application in court under the CCAA?

The union representative should immediately determine if any monies are owing to individual workers and/or the union. Consideration should be given to all of the financial obligations which may bind the employer to the union, ie. paid education leave contributions, pension trust fund contributions, recreation fund contributions, or any other worker related fund to which the employer is bound to contribute.

The union representative should then contact the responsible official of the company and file a detailed claim with respect to any debt owing to a worker in the bargaining unit or the union.

It is my advice that the following categories of money should not be classified as a debt per se, but should be treated as trust monies:

a) union dues already deducted by the employer;

b) vacation pay pursuant to the Employment Standards Act in Ontario and any other provincial jurisdiction;

c) pension trust fund contributions. Our argument is that these above noted monies are trust monies and as such are exempt from the application of the CCAA. Our argument is that these trust monies should be paid out immediately, regardless of any proposed CCAA plan filed in court or considered by other creditors. We have recently had an opportunity to test this argument in a situation involving a company called Tecumseh Metal Products in Windsor. In this particular case, there was approximately $15,000 of union dues owing to the union which had already been deducted by the employer from the pay cheques of the workers involved. The CAW-Canada Legal Department filed a motion in the Ontario Court (General Division) claiming that this union dues money should be paid out immediately to the union because it was not covered by the provisions of the CCAA. We argued that this sum of union dues monies was held in trust by the employer.

A day before the motion was scheduled to be heard, the employer contacted the CAW-Canada Legal Department and agreed that the money in question was held in trust by the employer. The employer further undertook to pay the union one hundred cents on the dollar with respect to these union dues monies. We have adjourned the motion pending further settlement discussions between the employer and the CAW. We have communicated to the employer our requirement that the outstanding union dues monies be held in a separate bank account to maintain the security of the funds and their trust nature.

The CAW-Canada Legal Department has organized all of the legal authorities regarding the trust nature of union dues monies and these authorities are simply a phone call away if you should be confronted with a similar problem in the future.

The CAW-Canada has been implicated in several recent arbitration decisions in which an employer's obligation to provide weekly indemnity or long term disability group insurance benefits to a worker has been contested.

Most, if not all CAW-Canada collective agreements now make some provision for an income protection benefit when a worker is absent due to sickness or injury.

Frequently, the collective agreement in question will contain specific terms as to the employer's obligation to pay premiums to an insurance carrier such as Great West Life Insurance, or Manufacturers Life Insurance Company, to sustain the group insurance program in question. However, it is to be noted that a general contractual obligation binding the employer to pay premiums to an insurance company for the provision of weekly indemnity or long term disability benefits may not be enough to guarantee a worker his/her proper benefit coverage and payment when that worker is absent because of illness or injury. A company's obligation to pay premium costs for W.I. and/or L.T.D. does not lawfully oblige that same company to pay these same benefits directly to the workers in question. This proposition was made clear in a recent arbitration award of W.B. Rayner, called S.K.D. Company Limited and CAW-Canada Local 89 (January 7, 1992). In that case, the company argued that its sole obligation under the collective agreement was to pay premiums on a policy of insurance which provided weekly indemnity benefits. The company argued that it had no obligation to pay these same weekly indemnity benefits directly to the worker in question. In the result, the arbitrator agreed with the company's submissions and found that the failure of the worker to receive weekly indemnity benefits was not an arbitral issue between the union and the company. The arbitrator referred to a leading case named Re: Andres Wines (B.C.) Limited, 30 L.A.C. (2d) 259 (Christie) in which the arbitrator found that documents such as group insurance plans fall into one of four categories. These categories are as follows: (1) the plan or policy is not mentioned in the agreement (2) the collective agreement specifically provides for payment of benefits, (3) the collective agreement provides for payment of premiums, (4) the plan or policy is incorporated by reference into the collective agreement.

In the S.K.D. case, the arbitrator found that there was no clear language in the collective agreement to incorporate the group insurance plan into the collective agreement or oblige the company to pay benefits directly to the worker.

What follows below is some suggested contract language which in the past has been found to be incorporate the group insurance plan into a collective agreement.

It is agreed and understood by the parties to this collective agreement that the group welfare and group insurance plans form part of the collective agreement, and may only be altered or amended by mutual agreement of both parties.

In my view, if the group insurance programs are incorporated into the collective agreement, the employer is ultimately responsible for the payment of benefits promised by the group insurance programs.

What follows below is contract language which obliges the employer to provide certain specified benefits, not just to arrange and pay for premiums.

"The employer shall make available the following or similar benefits as mutually agreed between the employer and the union to eligible regular employees. The costs of the benefits listed below shall be paid 100% by the employer."

With respect to the clause noted above, the employer is free to finance the promised benefits any way it likes. Also, the employer is free to select any insurance carrier it prefers. However, the employer may not unilaterally change the benefits promised and provided for in the contract.

Several recent arbitration awards have examined the above noted question. The issue plainly put is as follows: If a collective agreement provision appears to conflict with the Human Rights Code, do arbitrators exceed their jurisdiction or improperly amend the collective agreement by applying the Human Rights Code to the grievance dispute in question? The Ontario Divisional Court has unanimously answered this question, and has ruled that an arbitration board must and should apply a statute such as the Human Rights Code to a collective agreement dispute, even if the collective agreement in question is silent with respect to the guarantees found in the Human Rights Code.

The facts of the case were as follows: A teacher with the Haldiman Board of Education in Ontario named James Demaline claimed an early retirement incentive under the collective agreement negotiated by his union, the Ontario Secondary School Teachers Federation. One of the conditions for eligibility for this early retirement incentive was that an applicant teacher be fifty-five years of age. The grievor was only fifty-three years of age when he retired but had the necessary thirty-five years credit. He was refused the early retirement incentive and launched a grievance. A majority of the arbitration board concluded that the age fifty-five requirement in the collective agreement was not nullified by the Human Rights Code's prohibition against age discrimination. The grievor challenged this arbitration decision in court. The employer argued in court that since human rights legislation is quasi constitutional, any dispute respecting it should be pursued exclusively under the legislation's own mechanism, that is, in this case, the Ontario Human Rights Commission.

The Ontario Court of Justice decided that the Board of Arbitration was wrong in its finding that it would not apply the Ontario Human Rights Code to the collective agreement dispute in question. The Ontario Court of Justice quashed the arbitration award. The court rejected the employer's argument that Boards of Arbitration may not apply the Human Rights Code. The court found that the grievor was not seeking to enforce, in another forum, rights granted under the Code. Rather, the court decided that the grievor was simply seeking to maintain the collective agreement and have it interpreted in conformity with the law. The court found that the grievor was simply trying to make sure that his collective agreement was in conformity with the law of the land. The court found as follows:

"The irony in the [respondent school board's] position is that it results in s.51(1) having the effect of bringing collective agreements between school boards and teachers automatically into line with all public policies except the most important, i.e. human rights policy. An employee with a grievance having Code implications must, in every case, place his grievance and the grievance procedure `on hold' while he proceeds under the quite distinct procedure provided in the Code. In my opinion, that is not the law.

Bhadauria, Blainey, and Andrews are all cases in which individuals sought to obtain remedies in court proceedings for alleged violation of rights protected by the Code. The same thing was attempted in Jones v. Bell Canada et al (Ont. H.Ct., Rosenberg J., unreported June 2, 1986). The courts have ruled that no right of action springs directly from a breach of the Human Rights Code.

In my view, this is not a case of an individual seeking to enforce in another forum, rights given by the Code. Demaline's grievance is that the collective agreement as amended by act of the Legislature has not been honoured by his employer. It is not necessary, in the circumstances, that Demaline invoke the procedure and remedies under the Code, even though it may be open to him to do so."

The arbitration board had wrongly assumed that it would be amending the collective agreement to make in conform to the Human Rights Code, the Court held. Rather, it was the Legislature itself which implicitly amended it. Again, to quote from the decision:

"It is not the board of arbitration which grants the remedy by amending the collective agreement to conform with the Human Rights Code, it is the Legislature which has amended the collective agreement. As stated by Morden J.A. on behalf of the Court of Appeal in Re Ontario Hydro (1983), 41 O.R. (2d) 669 at 679:

`...it seems reasonable to me to think that s.37(1) [of the Labour Relations Act] is also applicable to a case where an arbitrator concludes on his or her interpretation of a collective agreement that there is a "difference" between the parties as described in s.37(1) but that the agreement contains a provision which bars access to arbitration to resolve the difference. In such circumstances the provision which bars access runs flatly contrary to the language and policy of the subsection and it is the duty of the arbitrator to refuse to apply it on the ground that it contravenes the public law of this province.

If the arbitrator does this he is not himself modifying the agreement. It is the law which does so - but solely to the extent of exercising a provision which is contrary to it. Further, to apply s.37(1) this way is not to use it to confer substantive or procedural rights on the employee in question which do not exist under the agreement.'

The majority of the board of arbitration assumes that to apply s.51(1) on the basis of an apparent conflict between s.4(1) of the Code and the collective agreement would be to countenance the amendment of the agreement by the board, contrary to Article 8.05 of the agreement. In this, it has erred in law. Article 8.05 specifically forbids the board of arbitration making a decision which is inconsistent with any Act or regulation."

The effect of this decision is quite plain. The Ontario Court of Justice (General Division) has now concluded that arbitrators have the jurisdiction to apply statutes such as the Ontario Human Rights Code to collective agreements, even if the collective agreements are silent with respect to the guarantees found within the Ontario Human Rights Code. The practical result of this decision is that Human Rights issues relating to a grievance under a collective agreement can be disposed of relatively quickly in the context of grievance proceedings without having to resort to the more lengthy and complicated Human Rights complaint process. The name of this court decision: Ontario Secondary Schools Teachers Federation District 53 and James Demaline v. Haldiman Board of Education. It was decided on September 10, 1991.

The following brief set of facts gave rise to an important ruling by the Ontario Divisional Court in a case called American Barrick Recourses Corporation and United Steelworkers (1991), 2 O.R. (3d) 266.

The Ontario Labour Relations Board scheduled a hearing to deal with an application for certification made by the Steelworkers. All of the appropriate notices were delivered according to the Board's normal procedures. A group of dejecting empoloyees lead by one individual worker filed a statement of desire ("petition") against the union in a timely fashion, and also requested that the hearing be held in a more convenient location. The statement of the objecting employees was received by the Board prior to the hearing date, but through an administrative error, caused by the objecting employees erroneously naming the employer, was misfiled and was not brought to the Board's attention until after the hearing. The objecting employees themselves did not attend the hearing. A few days after the hearing the petition was discovered and the Board notified the employer, the union and the objectors of its existence and the fact that it had not been submitted to the Board. The employer asked for a new hearing. The Board gave the employer, the union and the objectors an opportunity to state their positions in writing, which they all did. The Board decided not to have a further hearing and issued a certificate to the union.

The employer then proceeded to court. The employer brought an application for judicial review of the Board's certification decision. The employer argued that there was a denial of justice by the Board in its not having considered the evidence of the objecting employees at its hearing and that the Board had lost jurisidiction because the evidence of the objecting employees went to the issue of membership which was at the very heart of the matter that the Board had to decide.

The court had the following to say:

"In our opinion, the employer has no status to bring this application. The application to this court is not brought by the objecting employees. The objecting employees are aware of the employer's application to this court because the employer has filed an affidavit from one of the objecting employees in support of the employer's case....

If there was a denial of anyone's right, it was the denial of the objectors rights, not that of the employer. The court should be cautious in sanctioning an employer's application in the guise of being on behalf of the objecting employees. The application is dismissed with costs to the respondent union."

This case is a helpful authority when one is confronted with an employer who is seeking to put forward the arguments of so-called "objecting" employees. The employer has no business asserting the arguments of anyone other than itself.

Does delay in imposing discipline justify an arbitrator in imposing no penalty, even if the employee has admitted to wrong doing? Yes, an Ontario Court has unanimously ruled. The facts of a Divisional Court case called Air Canada v. Judith McCormack and I.A.M. Local 148 are straight forward. Several employees of Air Canada were investigated for drug related activity in the workplace by the R.C.M.P. After the undercover operation was completed, the employer waited several months before imposing discipline on the employees. The discipline eventually imposed was challenged at arbitration, and a preliminary issue was raised respecting delay. Arbitrator Judith McCormack set aside the discipline on the basis of the employer's delay and the resulting prejudice to the grievors in their ability to respond to the allegations against them, even though there had been an admission of wrong doing. Air Canada sought to have this decision quashed in court. An unanimous three person panel of the Divisional Court, Ontario Court of Justice upheld the award. The fact that certain employees had admitted wrong doing did not deprive them of a right to a fair hearing on the merits, the court held. The arbitrator concluded that those rights had been prejudiced by delay and, while the court might not agree with that conclusion, it was one within the jurisdiction of the arbitrator to decide. The court ruled:

"An admission of wrong doing does not necessarily or automatically result in discipline. The surrounding circumstances and details of the wrong doing are crucial in determining mitigation. The grievor who admits wrong doing still has some rights which are capable of being prejudiced. An admission of wrong doing is therefore not in itself an answer to a charge of prejudice. It was open in this case for the arbitrator to determine that the delay made it impossible to have a fair hearing on the merits notwithstanding an admission of some degree of wrong doing."

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