Canada: First Contract Arbitration

Last Updated: November 20 2011
Article by Rick Dunlop

Late last week, the Labour Management Review Committee (LMRC), established as a result of changes to the Trade Union Act in 2010, met for a full day discussion on the issue of "Settlement of a First Collective Agreement". This Client Update sets out the issues as we see them and their potential impact.

What is First Contract Arbitration?

First Contract Arbitration (FCA) is a statutory mechanism that allows either party in unsuccessful negotiations to apply to the Labour Board to direct the settlement of a first collective agreement by arbitration. There are four types of FCAs: (1) Automatic (time limits have been exceeded, no evidence of dysfunction necessary); (2) "Some" fault but Minister has to refer to Labour Board (applicant must provide evidence of bad faith bargaining or dysfunctional bargaining); (3) "Some" fault but application direct to Labour Board (evidence parties have bargained to an impasse); and, (4) Mediation Supported (impasse and strike vote has occurred).

Why Introduce First Contract Arbitration to Nova Scotia Workplaces?

The Labour Board currently has broad powers to impose a collective agreement if it is satisfied, as the result of an unfair labour practice complaint, that an employer is not bargaining in good faith. The Department of Labour also provides conciliation and mediation for negotiating parties that have reached an impasse. This system works and the fact that Nova Scotia seldom has strikes in the private sector confirms there is no obvious or immediate "need" to regulate parties negotiating a first contract and FCA is an unnecessary remedy for had employer behaviour.

As it is, the parties must respect the duty to bargain in good faith, as set out in the Trade Union Act. However, they can still resort to economic sanctions (e.g., a strike or lockout) to break a deadlock.

Unfair labour practice remedies can be pursued if either party breaches its statutory duties.

What Does This Mean for Free Collective Bargaining?

Last year, Bill 100 amended the Trade Union Act to include a clear preamble that purportedly recognizes and promotes "free collective bargaining".

An imposed collective agreement through first contract arbitration is anything but free; having an agreement imposed does not develop sound labour-management relations, nor does it promote co-operative efforts to develop good relations and constructive collective bargaining practices.

Instead of being progressive, imposed FCA is contrary to what is set forth in the preamble to the Act. Government provided conciliation services have been effective in encouraging settlement in Nova Scotia; strikes and concerted labour unrest are rare.

A union focused on eventual FCA has little incentive to compromise before arbitration, thinking that the arbitrator will likely split the difference between its demands and the employer's position. For the employer, arbitration is a risky proposition; an outsider with no knowledge of its business is given a mandate to decide what the employer will pay and what the terms and conditions of employment will be.

It's Not Broken and It Doesn't Need to Be Fixed

When introduced in Ontario, the government was reacting to strikes and significant labour unrest. That is not the situation in Nova Scotia.

Further, there is no evidence that FCA promotes stable collective bargaining relationships. One study suggests that in Quebec, only 47 per cent of FCAs are followed by a second collective agreement, and only 24 per cent by a third.

The negotiating process and 'relationship building' required to conclude a collective agreement provides the foundation for effective labour relations. Both parties gain an understanding of how the terms of the agreement will work and expectations are made known through the bargaining process. The parties themselves are best positioned to determine priorities and decide what price each is prepared to pay to achieve them. Government's role is to ensure that the parties play by the rules, not to determine the content of the deal.

What Does This Mean to You?

The harsh reality of first contract arbitration is that unions are able to say that if the union is certified, that there will not be a strike or lockout and that the employees will get a collective agreement.

Approximately 85 per cent of private sector employees in Nova Scotia are not unionized; every one of them (theoretically) are at risk of having their wages and benefits imposed by a third party through FCA.

Nova Scotia is trying to encourage business investment — changing the status quo is an obvious red flag for future investors who will consider other jurisdictions without FCA (e.g. P.E. and N.B.).

Where Do We Go From Here?

Following the September 23 discussion, the LRMC is tasked with making a recommendation to the Minister of Labour on FCA changes to the Trade Union Act.

We expect that when the legislature returns for its fall sitting that a Bill may be brought forward introducing FCA provisions into the Trade Union Act. We will continue monitoring the process of any such Bill and keep you advised.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Rick Dunlop
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