Dayco (Canada) Ltd. v. CAW-Canada, [1993] 2 S.C.R. 230 (1993)

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Dayco (Canada) Ltd. v. CAW-Canada,

[1993] 2 S.C.R. 230

Dayco (Canada) Ltd. Appellant v.

National Automobile, Aerospace and Agricultural

Implement Workers Union of Canada (CAW-Canada)

(formerly International Union, United Automobile,

Aerospace and Agricultural Implement Workers of

America (UAW)) and Howard D. Brown, Arbitrator Respondents

Indexed as: Dayco (Canada) Ltd. v. CAW-Canada

File No.: 22180.

1992: May 7; 1993: May 6.

Present: Lamer C.J. and La Forest, Sopinka, Gonthier, Cory, McLachlin and Iacobucci JJ.

on appeal from the court of appeal for ontario

Labour relations -- Grievance arbitration -- Company ending retired workers' benefits derived from expired collective agreement -- Union initiating grievance -- Whether or not grievance arbitrable -- Whether or not arbitrator correctly assumed jurisdiction.

Judicial review -- Labour Relations Board -- Grievance arbitration -- Company ending retired workers' benefits derived from expired collective agreement -- Union initiating grievance -- Whether or not grievance arbitrable -- Whether or not arbitrator correctly assumed jurisdiction -- Whether or not privative clause applicable -- Labour Relations Act, R.S.O. 1980, c. 228, s. 44.

Appellant shut down its Hamilton plant in 1983 and permanently closed it in 1985. The company provided certain group insurance benefits to its employees under former collective agreements, the last one of which was signed on April 27, 1983 and expired on April 21, 1985. Prior to the final closing, the company and the union negotiated a shutdown agreement, under which the group insurance benefits for active employees would be discontinued six months after the plant closed. The agreement did not mention the retirees' benefits. The collective agreement was formally terminated on May 29, 1985. The pension plan was wound up and an annuity was bought to satisfy the company's outstanding pension obligations.

The company advised all retirees that their benefits would be terminated when the benefits for active employees were to cease under the shutdown agreement. The union lodged a grievance on behalf of the retired workers, demanding reinstatement of the benefits. The company refused to acknowledge this grievance and objected to the arbitrator's jurisdiction. In its opinion, there was no collective agreement in place when the grievance was lodged and it had no obligations to the retired workers on any basis but the collective agreement.

At the arbitration hearing the company renewed its objection to the grievance, and argued that the arbitrator had no jurisdiction because the collective agreement had ended. The arbitrator heard submissions on this point only, and then adjourned the hearing. In a written award, he rejected the company's arguments on jurisdiction, found that the matter before him was arbitrable, and ordered the arbitration to proceed on the merits at a later date. The company applied for judicial review of the arbitrator's decision, and the Divisional Court set aside the award. An appeal to the Court of Appeal was allowed, thus reinstating the arbitrator's award. This appeal raises two issues. The first is the scope of judicial review of the arbitrator's decision. The remaining issue is the correctness of the arbitrator's finding that a promise to pay benefits to retired employees can survive the expiration of the collective agreement in which the promise is made.

The union sought to cross-appeal that portion of the Court of Appeal's order directing that the arbitration proceed before a different arbitrator. That order was made at the request of the company, in the belief that the arbitrator had in effect pre-judged the merits of the case in the course of determining his jurisdiction.

Held: The appeal and cross-appeal should be dismissed.

Per La Forest, Sopinka, Gonthier, McLachlin and Iacobucci JJ.: At this Court, the appellant only challenged the conclusion of the arbitrator on the general proposition that a promise in a collective agreement can survive the expiry of the collective agreement in which the promise is made. In answering the question the arbitrator was not acting within his jurisdiction in a strict sense. Rather he was deciding upon jurisdiction and as such was required to be correct.

Courts should, as a matter of policy, defer to the expertise of the arbitrator in questions relating to the interpretation of collective agreements. An arbitrator has jurisdiction stricto sensu to interpret the provisions of a collective agreement in the course of determining the arbitrability -- i.e., the arbitrator's jurisdiction -- of matters under that agreement. But here the viability and subsistence of the collective agreement is challenged. The collective agreement is the foundation of the arbitrator's jurisdiction, and in determining that it exists or subsists, the arbitrator must be correct. If the issue is arbitrable, then the arbitrator has jurisdiction, at least in the limited sense of being empowered to decide that question. The more difficult problem is whether the arbitrator, in making that inquiry, has the right to be wrong. This requires a pragmatic and functional analysis of the appropriate standard of review.

The wording of the precise grant of power in s. 44 of the Labour Relations Act is not determinative of the scope of an arbitrator's jurisdiction. In viewing the text of s. 44(2) as a whole, the power to determine arbitrability will for many "matters" connote a grant of jurisdiction stricto sensu. When the "matter" must be measured against the collective agreement to determine if it is arbitrable, the arbitrator will have the right to be wrong. This takes account of the entire purpose of the provision, which is to empower the arbitrator to deal with differences between the parties relating to the agreement. Moreover, this is in accord with the arbitrator's core area of expertise. But when there is a dispute over whether the grievance pertains to some other agreement or no agreement at all, then the board must determine its jurisdiction, and it must be correct in so doing.

The conclusions that emerge from the wording of the statute are confirmed by considering the role of the arbitrator within the arbitration scheme established by the Act. The phrase "final and binding upon the parties" in s. 44 has a limited privative effect on the issue in this appeal. Section 44 should be contrasted with the strong and explicit privative clause in s. 108 protecting decisions of the Labour Relations Board. If the legislature had intended to mandate the same judicial deference to an arbitrator as to the board, it could simply have brought the arbitrator under the shelter of s. 108.

A consideration of the purpose of arbitration and the expertise of arbitrators indicates that an arbitration board falls towards the lower end of the spectrum of those administrative tribunals charged with policy deliberations to which the courts should defer. Tribunals vested with the responsibility to oversee and develop a statutory regime are more likely to be entitled to judicial deference. The Labour Relations Act clearly assigns a general supervisory role to the Ontario Labour Relations Board. In contrast, the arbitrator's role is confined to the resolution of grievances under a collective agreement. The relative expertise of board members and arbitrators must be presumed to be commensurate with the scope of these divergent statutory mandates.

The extent to which the present case turns on questions falling within that area of expertise must be considered. Here, the question to be decided requires consideration of concepts that are analogous to certain common law notions -- "vesting" and accrued contractual rights -- that fall outside the tribunal's sphere of exclusive expertise. Arbitrators can apply common law concepts but in these matters the arbitrator has no exclusive or unique claim to expertise.

The functional analysis of the jurisdiction of the arbitrator in this case indicates that in deciding whether a collective agreement continues to determine the rights and obligations between the parties, the arbitrator is required to be correct.

With respect to the substantive issue in this appeal, the arbitrator correctly found, as a general proposition, that it is possible for a promise of retirement benefits to survive the expiry of the collective agreement in which it is found. Guidance can be found by reference to certain analogous (and perhaps binding) concepts in the common law of contracts such as the common law notion of termination of a contract. A collective agreement is rather like a contract for a fixed term which expires by mutual agreement at the end of the term. It ceases to have prospective application, but the rights that have accrued under it continue to subsist.

Rights that have accrued under a collective agreement can remain enforceable. The new agreement "displaces" the old one, which is no longer in force. But this is with respect to the current employment relationship, and says nothing about the previously accrued rights of the parties. Nothing differentiates the promise to pay retirement health benefits from promises to pay regular wages or vacation pay. All of these can be enforced after the termination of the agreement.

The first step in analyzing the arbitrability of an expired collective agreement is to determine the general question of whether expiry forecloses the ability of parties to grieve matters that arose during the currency of the agreement. The proper focus is to examine when the rights being grieved had accrued, not the time of breach. The term "vested" must be taken to mean only that vested rights are not automatically extinguished by the expiry of the collective agreement. Vesting in this context says nothing of the ultimate indefeasibility or inviolability of the rights. This "weak form" of vesting is sufficient to determine the result in this case. Since the retirement benefits here were not withdrawn by any subsequent agreement...

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