A series of recent decisions involving one contractor working with different clients and different unions provide valuable lessons 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 bargaining unit work in the face of union agreement restrictions needs to be done carefully. This is one area where good labour relations can make a big difference in the outcome.

The Parties

SteriPro Canada LP specializes in medical device sterilization. It constructed a state-of-the-art reprocessing facility near Toronto to service area hospitals. 

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

These unions’ hospital agreements have many similar terms. Their standard hospital agreements  allow the contracting out of union members’ work only if the contractor has agreed to: (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 a similar collective agreement. The hospital/union agreements also contain extensive layoff provisions. These include notice requirements, displacement or “bumping ” rights for affected employees, and generous severance/retirement benefits.

In the cases in question, Credit Valley Hospital and Humber River Regional Hospital both had collective agreements that covered their sterilization technicians. Credit Valley’s was with CUPE; Humber’s was with SEIU. 

SteriPro agreed in both cases to fully comply with the contractor’s obligations under these union agreements.  Both unions were advised of this.

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

The Paths Diverge

At Humber, 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 Humber. The rest were given their same jobs, with SteriPro. Their service, seniority and benefits remained intact. SEIU and SteriPro then began negotiating a collective agreement. 

At Credit Valley, however, CUPE took a very different path. It fought the contracting out.  It alleged that the Hospital was not following the layoff requirements of the collective agreement, including bumping and severance pay.

CUPE took its grievance before Arbitrator Owen Shime, who heard the case in September, 2011.

The Credit Valley Arbitration

Before Arbitrator Shime, the Hospital argued that the contracting out of work to SteriPro did not constitute a layoff because SteriPro was hiring all the affected employees under identical terms and conditions.

Arbitrator Shime disagreed with the Hospital. He ruled that the contracting out clause did not mean, “that the employees usually performing the work [will] be automatically or seamlessly moved to the contractor.” Therefore, Mr. Shime ruled that:

  • The affected technicians could exercise all rights under the layoff provisions of the collective agreement, even though work was available with SteriPro.
  • SteriPro was required to offer jobs to anyone ultimately displaced from Credit Valley as a result of the bumping process, even if they were not the sterilization technicians.

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. In his decision dated February 16, 2012, Arbitrator Kaplan agreed with the Shime decision.

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 court challenge was denied in October, 2012.  The Hospitals’ court challenges were dismissed in December, 2012.

OLRB Upholds SteriPro-SEIU Agreement re Humber

In the meantime, there was a separate challenge to Humber’s contract with SteriPro, not by SEIU but by the Ontario Workers’ Union (“OWU”).  It had applied to displace SEIU as the bargaining agent for Humber’s employees. OWU had not yet been certified as the new bargaining agent when, on September 30, 2011, SteriPro started servicing Humber and hired its former technicians.  But once the OWU was granted bargaining rights for Humber’s employees, it applied to represent SteriPro’s employees. It challenged the legitimacy of SteriPro’s voluntary recognition of SEIU’s bargaining rights.

The Ontario Labour Relations Board (“OLRB”) dismissed the OWU’s challenges in decisions dated August 20, 2012 and November 13, 2012.

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 Humber decision to contract out work of the bargaining unit. That language provided a considerable measure of job security protection to displaced bargaining unit members…

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 Humber to ensure that SteriPro… assumes Humber’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 Unionized Employers and Their Contractors

It is noteworthy that the two situations took very different paths. At Humber, once a certain number of technicians were offered retirement or separation packages or available vacancies, 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. 

From a legal perspective at least, but for the unsuccessful, collateral attack by the OWU, the contracting out of services at Humber proceeded smoothly. SteriPro, Humber and SEIU were able to work cooperatively towards a smooth transition.

The approach taken by CUPE at Credit Valley was more problematic. It resulted in the full range of layoff processes being triggered, even though SteriPro made the same jobs available under the same terms and conditions. And CUPE’s approach had the perverse result that fewer sterilization technicians actually retained work in their chosen field. It also has not yet resulted in a CUPE agreement with SteriPro. But SteriPro was nonetheless able to proceed with providing its services to Credit Valley (and Trillium).  

These cases show that good planning and good cooperation between all of the parties can avoid impractical results arising from even the most restrictive contract language.