An interesting series of recent labour tribunal decisions provide lessons for hospitals and their service providers about the application of contracting out clauses in union agreements.  These cases demonstrate how virtually the same collective agreement requirements can be handled quite differently, with dramatically different outcomes.  They also demonstrate that contracting out work may be more feasible than is often thought.

The Service Provider

SteriPro Canada LP specializes in medical device sterilization, involving the pre-cleaning, decontamination, packaging and sterilization of reusable medical devices, instruments and equipment.  It has constructed a state-of-the-art reprocessing facility near Pearson Airport in Mississauga.  SteriPro typically provides sterilization services that have previously been provided by hospital employees.  Some of the services may continue to be done on site at the client hospital for various periods; some are carried out at SteriPro’s facility.

The Hospitals, Their Employees and Their Unions

Sterile Processing Technicians at many hospitals are covered by union agreements.  Most commonly in Ontario, they are represented by the Canadian Union of Public Employees (“CUPE”) or the Service Employees International Union (“SEIU”).

These unions’ hospital agreements have many common or similar terms.  The standard CUPE and SEIU hospital agreements both allow the contracting out of work usually performed by their members; but only if the hospital’s commercial arrangement provides that the contractor will (1) employ the displaced employees; and (2) stand in the shoes of the hospital for purposes of the collective agreement and agree to enter into such an agreement with the union.  The agreements also contain extensive layoff provisions.  These include notice requirements, displacement or “bumping” rights for affected employees, as well as generous severance and retirement benefit options.

In the cases in question, the former Credit Valley Hospital and Humber River Regional Hospital (“HRRH”) both had collective agreements that cover their sterilization technicians.  Credit Valley’s was with CUPE; HRRH’s was with SEIU. 

SteriPro entered into Letters of Intent with both hospitals. It agreed in both cases to fully comply with the contractor’s obligations under the hospitals’ union agreements.  It would employ the displaced employees and adopt the agreements.  Both unions were advised of the Letters of Intent and of SteriPro’s commitments in this regard.

SteriPro started to provide its services to HRRH on September 30, 2011.  It started providing its services at Credit Valley on January 2, 2012.

The Paths Diverge

At HRRH, some of the displaced sterilization technicians chose to voluntarily leave or retire, accepting monetary incentives to do so. Others were able to apply for vacant positions at HRRH.  The rest were given their same jobs, with SteriPro.  All service, seniority and benefits remained intact so that the transfer was seamless for the employees.  The SEIU and SteriPro then began negotiating a collective agreement similar to the hospital collective agreement.  It was to cover the employees both at the HRRH site and those doing the contracted-out work at SteriPro’s central facility.

At Credit Valley, however, CUPE took a very different path.  It fought the contracting out.  It did so after meeting with the Hospital about the contract in their joint Redeployment Committee, and after the Hospital made offers of early retirement allowances to nine of the affected technicians. While the Union was prepared to assume that the contracting out provision of the collective agreement would be followed by SteriPro, it alleged that the Hospital:

  • had not given the required notice of layoff to the employees or Union;
  • was not allowing employees to exercise their seniority (“bumping”) rights;
  • was not adhering to the other provisions of the collective agreement that take effect when notice of layoff is issued; and
  • was not entitled to offer early retirement packages to employees in circumstances where it did not intend there to be a layoff.

CUPE took its grievance before Arbitrator Owen Shime, who heard the case in September, 2011. SteriPro was not involved in the hearing.  No negotiations took place between SteriPro and CUPE.

The Credit Valley Arbitration

Before Arbitrator Shime, the Hospital argued as follows:

  • Regarding the early retirement packages, it had the right to offer such packages even if there would be no layoff; and
  • The contracting out of work to SteriPro, in circumstances where SteriPro would hire the remaining employees who do the work and recognize the Union, does not constitute a layoff within the meaning of the collective agreement, and all of the layoff provisions therefore do not apply.

Arbitrator Shime (PDF) agreed with Hospital on the first point, but disagreed on the second. 

On the first issue, the arbitrator ruled that, “…the Hospital has a general right to offer early retirement allowances or packages or a voluntary exit option to employees pursuant to the management rights provision…”  There need not be an intended layoff.

Regarding the second, main issue, Mr. Shime ruled that the layoff provisions of the collective agreement apply when work is contracted out.  Those provisions did not mean, “that the employees usually performing the work [will] be automatically or seamlessly moved to the contractor.”  There was no indication in the collective agreement, in his view, that the parties intended that the employees be transferred “and that their layoff rights be extinguished”.  Therefore, Mr. Shime ruled as follows:

  • The affected sterilization technicians could exercise all rights under the layoff provisions of the collective agreement, including bumping rights and severance benefits, even though work was available with SteriPro.
  • The contractor was required to hire anyone ultimately displaced from Credit Valley as a result of the bumping process, even if they were not the sterilization technicians. There was, however, no obligation on any Credit Valley employee to accept such employment.

Shime Decision Upheld

The Shime decision was challenged in a number of ways.  First, when SteriPro entered into a similar arrangement with Trillium Health Centre (which soon after merged with Credit Valley), CUPE and Trillium went before a different arbitrator, William Kaplan, on basically the same issues. This time, SteriPro participated in the hearing.  In his decision dated February 16, 2012, Arbitrator Kaplan agreed with the Shime decision (PDF).

Then SteriPro challenged the Shime decision in court, on the basis that it was not given proper notice of and chance to participate in that case.  Credit Valley and Trillium brought other challenges against both Mr. Shime’s and Mr. Kaplan’s interpretations of the collective agreement.  SteriPro’s challenge was denied by the Divisional Court in October, 2012 (PDF).  The Hospitals’ challenges were dismissed by the Divisional Court in December, 2012 (PDF).

OLRB Upholds SteriPro-SEIU Agreement re HRRH

In the meantime, there was a separate challenge to HRRH’s contract with SteriPro, mounted not by SEIU, but rather by the Ontario Workers’ Union (“OWU”).  It had applied to displace SEIU as the bargaining agent for HRRH’s employees.  OWU had not yet been certified as the new bargaining agent when, on September 30, 2011, SteriPro started servicing HRRH and hired its former technicians.  SteriPro and SEIU started bargaining a new collective agreement and went into Conciliation with the Ministry of Labour. 

When the OWU was later granted bargaining rights for the HRRH employees, it also applied to represent SteriPro’s employees.  SteriPro and SEIU objected, on the basis that SEIU already held bargaining rights.  OWU responded by challenging the legitimacy of SteriPro’s voluntary recognition of SEIU’s bargaining rights and the validity of the Conciliation Officer’s appointment.

The Ontario Labour Relations Board (“OLRB”) dismissed the OWU’s challenges to SteriPro’s recognition of SEIU.  In its first decision on the issue, dated August 20, 2012 (PDF), it ruled that there was a legitimate voluntary recognition agreement.  In its second decision, dated November 12, 2012 (PDF), the OLRB further ruled that SEIU was entitled to represent SteriPro’s newly-acquired employees at the time the voluntary recognition agreement was entered into, despite OWU’s ultimately successful application at HRRH.

Importantly, in approving the conduct of SteriPro and SEIU, the OLRB commented on how the contracting out language of the collective agreement operates.  It stated:

The SEIU had enforceable language in both collective agreements governing any HRRH decision to contract out work of the bargaining unit.  That language provided a considerable measure of job security protection to displaced bargaining unit members.  A prudent trade union would act to enforce that protection on behalf of its members at the earliest opportunity…. It happened to occur when SEIU knew that, sooner or later, it would be displaced by the OWU.  Nevertheless, the SEIU was still under an obligation to represent the HRRH employees, including the displaced SPD Department employees, in their employment with HRRH. 

On its face, article 12.02 contemplates that “the Union” (i.e. SEIU) has the right to represent the employees in their employment relations with the contractor (SteriPro).  It requires HRRH to ensure that SteriPro… assumes HRRH’s role in the collective agreement with the SEIU and agrees to execute an agreement with the SEIU to that effect. 

….

SteriPro and SEIU took all of the required steps pursuant to article 12.02 to establish a bargaining relationship necessary to withstand OWU’s challenge to their VRA [voluntary recognition agreement]. 

Lessons for Hospitals and Their Contractors

It is noteworthy that the two situations took very different paths.  At HRRH, once a certain number of sterilization technicians were offered retirement or separation packages or available vacancies at HRRH, the balance were given jobs with SteriPro.  SEIU did not insist that the technicians be allowed to exercise bumping rights, and that SteriPro was required to hire unqualified employees displaced from the hospital at the end of the bumping process. 

It is also noteworthy that the OLRB commented, in respect of the HRRH situation, that the collective agreement “provided a considerable measure of job security protection to displaced bargaining unit members.”  It further commented that in immediately pursuing a collective agreement with SteriPro, SEIU was acting in the manner that, “a prudent trade union would act to enforce that protection on behalf of its members…”

From a legal perspective at least, but for the unsuccessful, collateral attack by the OWU, the contracting out of services at HRRH proceeded smoothly.  The technicians’ “considerable measure of job security protection” was recognized.  This was done through a combination of voluntary severance/early retirement packages and continuing work with the contractor.  SteriPro and HRRH’s management were thus able to work in a coordinated fashion to ensure a smooth transition.

The approach taken by CUPE at Credit Valley (and Trillium) is certainly more problematic for hospitals and contractors.  It results in the full range of layoff processes being triggered when work is contracted out, even though the contractor makes the same jobs available under the same terms and conditions.  This approach seems to have had the perverse result that fewer sterilization technicians actually retained work in their chosen field (and no CUPE agreement with SteriPro, as of the time of writing).  Meanwhile, SteriPro was able to proceed with providing its services to these hospitals.

There may be, however, a number of measures that could be undertaken by the parties to ameliorate the potential damage from CUPE’s approach and the Shime and Kaplan awards: 

  1. It should be noted that job re-assignments do not constitute layoffs, under either the CUPE or SEIU agreements.  Thus, if hospital employees who might otherwise be displaced can be re-assigned, perhaps at various stages of the implementation of the new service, the expense and disruption of the layoff procedures may be avoided. 
  2. Employees should be advised of:
    • the strong protection they have under the contracting out provisions, which guarantee continuation of their terms and conditions of employment with the contractor; and
    • the “Transformation in Health Care” provisions contained in many hospital collective agreements, including most CUPE agreements, which give employees who are transferred to another employer, seniority and service retention at their original Hospital for a 48 month period.
  3. It is important for employees to understand that if they opt for severance or retirement packages, they give up their rights to claim work with either the hospital or the contractor.

Another important point is a question not answered by the Shime or Kaplan decisions.  That is, precisely what does the collective agreement mean when it provides that the contractor shall, “stand, with respect to that work, in the place of the hospital…”?  How is this to be applied to employees ultimately displaced from the hospital as a result of the bumping process who are not qualified to do the contracted out work, in this case sterilization procedures? 

Since, in a layoff situation, a hospital is not required to retain redundant, unqualified employees who are bumped from their positions, can the contractor be in any worse position?  Surely it was not intended that contractors be forced to retain unqualified staff.  And surely there need not be two layoff processes: one by the hospital and a second round by the contractor. 

It may well be that good planning and properly worded, initial layoff notices can avoid such an impractical result.

Implications for Ontario’s Action Plan For Health Care

As we have previously reported in these Bulletins, the Minister of Health and Long Term Care released an ambitious “Action Plan” in January, 2012.  It includes a number of proposals to move procedures out of hospitals and into specialized clinics.  This series of SteriPro contracting-out cases, and earlier cases dealing with program transfers, serve to highlight the importance of carefully considering and planning for labour implications when proceeding with such initiatives.