The Canadian Auto Workers this week ‘won’ the interest arbitration that arose form the brief strike this past summer at Air Canada.
Here is the interest arbitration award.
In June, the workers engaged in a brief strike. The employer hired replacement workers, and the airline continued to operate a normal schedule. However, the Tories nevertheless stepped in and introduced back-to-work legislation. This was a highly unusual and controversial move, since governments never intervene in private sector bargaining, especially when there is no evidence at all that the public interest is being harmed.
The back-to-work legislation became a model for the Tories, and is tilted towards the interests of Air Canada. It directs “final offer arbitration” by an arbitrator selected by the Tories, and directs the chosen one to be guided by:
.. the need for terms and conditions of employment that are consistent with those in comparable airlines and that will provide the necessary degree of flexibility to ensure the short- and long-term economic viability and competitiveness of Air Canada and the sustainability of its pension plan.
Note that the legislation does not direct the arbtitrator to consider also whether the result provides a fair and livable pension plan to the workers.
This marked the beginning of the Tories new wave towards trampling on collective bargaining rights that has continued, first with the back-to-work legislation in Canada Post and then with its new threat this week to pass back-to-work legislation the second that Air Canada flight attendants strike.
The Interest Arbitration Award
The CAW and Air Canada reached a settlement before the back-to-work legislation was passed in Parliament. The settlement included an agreement to refer one issue to an interest arbitrator: the issue of the pension rights of new hires by Air Canada.
The settlement provided for the parties to select the arbitrator and one additional nominee each. They agreed on probably the most respected arbitrator in Canada, Kevin Burkett. They also agreed to use the “final offer selection” process that the government had included in the legislation. That process requires the arbitrator to select either the union’s position or the employer’s position — winner takes all.
The union won.
The dispute basically boiled down to whether the new hires should be covered by a Defined Benefit pension plan (like existing employees), a Defined Contribution plan, or some combination both. A DB plan guarantees retires a set amount of pension, and it is the responsibility of the employer to ensure there is enough money in the pension plan to pay that amount. A DC plan simply requires the employer to put a fixed amount of money into a plan, and the amount paid out at retirement depends upon how much money is in the pot when the employee retires. The employer has no risk.
Air Canada argued that the arbitrator should be guided by the financial sustainability of the pension plan, and the situation in other comparable airlines. That’s sounds a lot like what the Tories had said were the guiding factors in their legislation. Guided by these factors, Air Canada argued the only solution is to adopt a DC plan for new hirers.
The union argued that while financial sustainability of the pension plan was obviously important, that had to be balanced against the need to provide a “dignified retirement” for workers considering also all the concessions already made by the existing union members. The Union argued the best solution was a ‘hybrid model’, that provided the new hires with a reduced DB plan (that would guarantee a base amount of pension) combined with a partial DC plan.
The Arbitration Board ruled that both proposals adequately addressed the concern about the financial sustainability of the pension plan. Therefore, the Board needed to decide which proposal was “best”. It said that because this was an interest arbitration, the usual processes applied by interest arbitrators apply.
Interest arbitrators are guided by the principals of Replication, Gradualism, and Demonstrated Need.
Replication means that arbitrators try to replicate “the settlement that the parties would have reached had the dispute been allowed to run its full course.” (p. 45) That requires looking at what happened in the bargaining process and also what has happened at bargaining in other similar workplaces. Here, the Union had steadfastly refused to budge on moving towards a pure DB plan, although it had shown significant flexibility on other matters. It is unlikely the union would have suddenly changed this position had a strike been permitted.
Moreover, although DB plans are not used at other airlines, they are very common at other large private sector Canadian corporations. This is important. The arbitration board used large private sector corporations as the comparator, not other Canadian airlines. Note that the Tories’ legislation in both the Air Canada situation and the Canada Post situation directs the arbitrator to be guided by the situation in other “comparable airlines” [and other “comparable postal industries”]. This is an attempt by the government to narrow comparators to direct competitors in the industry, who do not tend to have good pension plans. The intent is to move towards the lowest common denominator within an industry.
Gradualism means that interest arbitrators do not usually award “breakthrough” clauses. They are conservative by nature: “absent compelling evidence, an interest arbitrator will be loathe to award ‘breakthrough’ items” (p. 46). A sudden shift to a pure DB pension plan would amount to a breakthrough win for Air Canada, given that it has tried for years to bargain such a change without success. An arbitrator will not award a clause that a party itself would not be able to bargain in a normal strike/lockout situation. This principle can work in favour or against both sides, depending on the situation.
Finally, demonstrated need creates an exception to the principal of gradualism. A breakthrough change can be awarded when a party can demonstrate that the circumstances are such that a radical change is needed. Air Canada was unable to prove this, since the Union’s proposal did substantially address the company’s financial concerns over the pension plan.
In the end, the arbitration board preferred the Union’s proposal to the Employers’. The new hirers will be covered by a hybrid pension plan that is part DB and part DC.
We will never know if the same result would have been the outcome of an interest arbitration under the government’s rules as set out in the legislation. It is clear that the arbitration board did not feel constrained by comparisons to the “airline industry” only, whereas under the legislation, they may have been more constrained to do so.
Also, Kevin Burkett is a skilled, respected labour arbitrator with a firm grasp on labour relations issues and the process of interest arbitration. The judge appointed by the Tories in the Canada Post situation is not. We will have to see if that judge feels guided by the norms of interest arbitration, including the principals of replication and gradualism.