Decision Clarifies Contracting Out and Contracting In

Written by Daniel Standing LL.B., Content Editor, First Reference Inc.

The Alberta grievance arbitration decision in 2024 CanLII 38826 (AB GAA) draws a distinction between contracting out and contracting in. The grievance concerned a company’s decision to fill its Tank Farm Project Operator position at its refinery, involving issuing permits for project work, isolations, expansions and tank cleaning. The position typically was filled by a bargaining unit member to promote individual development within the unit.

What happened?

In 2021, the bargaining unit member holding this special assignment left, creating a vacancy. The company had trouble filling the position from within because of the COVID-19 pandemic, so instead of posting it internally, it contracted with another firm to provide a worker to fill the role. The worker performed the duties for about six months and then worked alongside bargaining unit members for approximately two months.

The union filed a grievance arguing that the company had improperly contracted the role into the bargaining unit rather than filling it with a bargaining unit member, as required by the collective agreement. The union cited articles related to union recognition and job postings, arguing the company should have made the position available to bargaining unit members. The company defended itself by citing the challenges posed by the pandemic and claiming that no qualified bargaining unit members were available at the time.

The arbitrator’s decision

The arbitrator’s first point of analysis was to determine if the collective agreement restricted contracting out, requiring an exercise in contract interpretation. The arbitrator explained that generally a restriction on contracting out requires an explicit prohibition in the agreement. In this case, article 9.02 stated: “The Company may use non-bargaining unit employees including contractors to perform work in the Refinery and Chemical Plants, provided it does not result in the layoff of a bargaining unit employee.” This provision was highlighted as specifically restricting contracting out if it led to layoffs within the bargaining unit.

The dispute centered on whether article 9.01 constituted an additional constraint on contracting out beyond what was outlined in 9.02. Article 9.01 stipulated that work for the company by its employees, including union and non-union employees, can be directed by the Company with flexibility to meet business needs.” The arbitrator interpreted article 9.01 as applying solely to “employees,” which was distinct from article 9.02, which encompasses both employees and contractors.

Drawing on the plain meaning of the words used, the arbitrator concluded that article 9.01 did not restrict the company’s right to contract out work, affirming that such restriction would require explicit language in the agreement. In the arbitrator’s view, article 9.01 was aimed more at addressing internal workforce management rather than external contracting practices.

After painting the contractual landscape, the arbitrator determined the employer had improperly contracted the worker into the bargaining unit, despite article 9.01 not restricting the company’s ability to contract out.

Ultimately, the arbitrator determined the worker was brought in to perform bargaining unit work. There were several reasons for this finding: historically, bargaining unit members performed similar tasks; the nature of the work was production-oriented and integral to the refinery’s operations; and the worker’s role was analogous to that of bargaining unit members. The arbitrator emphasized that despite the worker’s temporary status and the involvement of an intermediary, the company exerted significant control over the work, including direction, supervision and integration into daily operations, which aligned the worker closely with a traditional employee rather than an independent contractor. Therefore, the arbitrator found the worker was effectively an employee of the company during his time on the job, constituting impermissible contracting in rather than a valid contracting out scenario under the collective agreement.

As for a remedy, the company was ordered to pay union dues for the period the worker was in the position, reflecting what would have been collected had he been correctly classified. However, the arbitrator declined to grant damages for the company’s failure to consult the union about using a contractor, as article 9.01 did not impose such a duty. Nonetheless, the arbitrator encouraged the company to maintain open dialogue with the union to prevent future disputes and uphold their positive working relationship.

Key takeaway for employers

Bringing workers in to complete bargaining unit work can be a move that is fraught with difficulty, so paying close attention to what is permissible and what isn’t under the collective agreement is a must.

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