Outsourcing in an Unionized Workplace: Proving the Case at the Labour Relations Board
By Trevor Lawson
From time to time, many organizations decide to shed some of what they consider to be their non-core operations as a means of increasing efficiencies and reducing costs. An organization may contract out these operations to third party contractors - an act also referred to as outsourcing.
Outsourcing is commonplace in relation to building services such as maintenance, parking, shipping and receiving, cleaning and security. It's also increasingly common in relation to other non-core functions such as information technology, accounting and marketing.
Before an organization decides to outsource, it should carefully consider the potential labour and employment implications of that decision. This is particularly so where the employees whose jobs will be eliminated as a result of that outsourcing are represented by a union.
The first step for an organization that is considering whether to outsource bargaining unit work is to determine whether the applicable collective agreement prohibits outsourcing or contracting out of that work. Absent an express prohibition in a collective agreement against outsourcing, it is commonly accepted that an organization retains a management right to do so.
If a collective agreement does not contain an absolute prohibition against contracting out, it may contain a partial prohibition, allowing contracting out of bargaining unit work only to the extent that it does not result in the lay-off of employees in the bargaining unit.
Even in the absence of an absolute or partial prohibition against outsourcing of bargaining unit work, a collective agreement may require that an organization provide the union with advance notice of the decision to outsource and/or an opportunity to meet and discuss alternatives, or provide enhanced severance to employees permanently laid-off as a result of such outsourcing.
SHOWING GOOD FAITH AND GENUINE INTENTIONS
In the absence of a collective agreement prohibition against outsourcing bargaining unit work, a union may attempt to challenge an outsourcing by filing a policy grievance that alleges that the decision to outsource was made in bad faith and/or that the outsourcing is not genuine.
An arbitrator may conclude that a decision to outsource bargaining unit work was made in bad faith if the union establishes that the organization did so to avoid the union, or to otherwise subvert the provisions of the applicable collective agreement.
In order to rebut such allegations, an organization must establish that the decision to outsource was motivated only by reasonable and bona fide business reasons, wholly unconnected to the union or an intention to subvert the applicable collective agreement. It is recommended that an organization retain all records and documents relevant to the decision to outsource so that it can demonstrate, if necessary, that the decision was made in accordance with its typical business decision-making processes and on the basis of a sound financial analysis which reflects the cost savings and other efficiencies to be achieved by the outsourcing.
An arbitrator may conclude that an outsourcing of bargaining unit work is not genuine if the arbitrator determines that the "real" employer of the employees of the third party contractor to whom the work was outsourced is, in fact, the organization itself. When determining the real employer of the employees of a third party contractor, arbitrators will generally inquire as to which party (the organization that outsourced the work or the third party contractor) is responsible for issues such as hiring, training, discipline, supervision, assignment of duties, remuneration, and the degree of integration into the organization's business, in relation to the employees of the third party contractor.
If the organization retains control over these issues in relation to the employees of the third party contractor, it is more likely that the organization will be found to be the real employer of these employees. An organization's likelihood of success in defending against a policy grievance of this nature will largely depend on the terms of the contract entered into with the third party contractor and the extent to which the parties adhere to the terms of that contract.
In order to minimize the risk of such a finding, the terms of a contract with any third party contractor should expressly provide that the contractor is exclusively responsible for controlling the above-noted issues in relation to employees of the contractor assigned to perform work for the organization. These terms must also be strictly adhered to during the life of the contract.
DISTINGUISHING OUTSOURCING FROM THE SALE OF A BUSINESS
Labour relations legislation applicable in each Canadian province contains provisions that address the sale of a business. Under such legislation, when an organization with unionized employees sells its business, the organization's obligations under its collective agreement flow to the purchaser as a successor employer.
The phrase "sale of a business" has been broadly interpreted and includes a lease, transfer and any other manner of disposition of all or part of a business. Several labour relations board and court decisions have confirmed that a disposition of a business that is framed as an outsourcing or contracting out may constitute a sale of a business.
A union faced with the outsourcing of bargaining unit work to a third party contractor may file an application with the applicable labour relations board seeking a declaration that the outsourcing constitutes a sale of part of the organization's business to that contractor. If the union is successful in such an application, the third party contractor will be considered a successor employer to the organization, and will become bound by all of the terms of the collective agreement to which the organization was bound prior to the outsourcing. Such a result may severely limit the operational flexibility that an organization hopes to achieve by outsourcing work to the third party contractor.
In order to minimize the union's likelihood of success, an organization should ensure that the employees of the organization who performed that work prior to the outsourcing are not hired by the third party contractor to perform the same work for the organization. The organization should also ensure that the contractor performs the work and services provided using its own management, tools, equipment, know-how and, where possible, facilities. All of these terms should be expressly reflected in the contract and adhered to during the life of the contract.
THIRD PARTY CONTRACTOR AS A RELATED EMPLOYER
Labour relations legislation also contains "related employer" provisions. In a "related employer" application, a union seeks a declaration that an organization outsourcing work and the third party contractor to whom the work is outsourced are related employers for the purposes of collective bargaining, such that the union's bargaining rights should be extended to include the employees of the third party contractor performing work for the organization.
There are generally three pre-conditions which must be met before a labour relations board will conclude that two employers are related for labour-relations purposes: (1) there must be more than one entity; (2) these entities must be engaged in associated or related business activities; and (3) there must be common control or direction of the two entities.
In most outsourcing situations, the pre-condition that is of greatest concern is that of common control or direction. The issue of managerial control over the work provided by the contractor through its employees is a key factor labour relations boards will consider in determining whether or not there is common control and direction. Labour relations boards will not permit an organization to avoid its collective agreement obligations simply by substituting the employees of a third party contractor for its own employees without giving up control and direction of those employees.
An organization can minimize the risk of being deemed a related employer to a third party contractor by ensuring that the contractor maintains day-to-day control and direction over its employees who are assigned to perform work for the organization. It is essential that the contractor's responsibilities in this regard be expressly reflected in the terms of the contract and adhered to during the life of the contract.
The decision to outsource work performed by unionized employees is not without risk. However, these risks can be minimized. A relatively small amount of due diligence at the early stages of the process will go a long way towards minimizing the risk that an outsourcing of bargaining unit work will be successfully challenged, either prior to or following its implementation, and will assist an organization in realizing the cost-savings and other efficiencies which it hopes to achieve.
Trevor Lawson is a Partner specializing in labour and employment law at McCarthy TÈtrault LLP.