Supreme Court of Canada affirms authority of arbitrators to award damages instead of reinstatement

In a decision rendered on April 29, 2004, the Supreme Court of Canada has reaffirmed the broad authority of arbitrators to settle workplace disputes. In The Board of Governors of Lethbridge Community College v. Alberta Union of Provincial Employees, the Court unanimously restored an arbitration decision in which a wrongfully discharged grievor was awarded damages in lieu of reinstatement.

The case involved a grievor who had been fired after two years of service on the grounds that she had failed to complete assignments and meet deadlines. A board of arbitration ruled that the grievor had been discharged without cause, because the college had not met the requirements set out in the 1982 seminal decision, Re Edith Cavell Private Hospital and Hospital Employees Union, Local 180, by failing to make a reasonable effort to find the grievor an alternative position in the workplace or to warn her of the seriousness of the situation.

However, the board declined to order her reinstatement, and instead awarded the grievor four months’ salary as damages. The board decided on this remedy because it found that the grievor’s position no longer existed due to a workplace re-organization, that the grievor was unable to perform the duties of her position satisfactorily and would not have been able to significantly improve her performance even with prior warnings. In substituting the financial award for reinstatement, the board relied on s. 142(2) of the Alberta Labour Relations Code, which provides:

    “If an arbitrator, arbitration board or other body determines that an employee has been discharged or otherwise disciplined by an employer for cause and the collective agreement does not contain a specific penalty for the infraction that is the subject-matter of the arbitration, the arbitrator, arbitration board or other body may substitute some other penalty for the discharge or discipline that to the arbitrator, arbitration board or other body seems just and reasonable in all the circumstances.”

The Union appealed the board’s award, arguing that, having found that the grievor had been dismissed without just cause, the arbitration board could only reinstate the grievor. It asserted that s. 142(2) applied only to cases where the grievor’s conduct had been culpable, and not to non-culpable behaviour. This argument eventually succeeded at the Alberta Court of Appeal, which ordered that the grievor be reinstated. The employer appealed to the Supreme Court of Canada.


A unanimous Supreme Court of Canada restored the arbitration board’s award, holding that arbitrators must be allowed to exercise broad remedial authority to effectively deal with workplace disputes. The Court held that s. 142(2) could reasonably support two interpretations: that it applied only to culpable dismissals, and, as understood by the arbitration board, that it applied to both culpable and non-culpable dismissals. Further, in the Court’s view, the interpretation adopted by the arbitration board was to be preferred, as it better promoted the labour relations objectives of the legislation – to equip arbitrators with the tools required to facilitate the effective and binding resolution of labour disputes.

The Court also held that having to draw a distinction between culpable and non-culpable conduct was an artificial exercise that undercut the objects of the legislation:

    “It must be remembered that the question of whether conduct is culpable or non-culpable is an elusive question directed at drawing inferences as to an employee’s state of mind on the basis of his conduct. In the final analysis it is the conduct and not the state of mind which determines the issue of continued employment. An employee who cannot perform is no better off than an employee who will not perform, if the rights of the employer are to be respected.

    [T]he purpose of the legislation is to facilitate arbitral dispute resolution, and the content of the legislative scheme provides for arbitrators to do so. Given this context, there is no practical reason why arbitrators ought to be stripped of remedial jurisdiction when confronted by labour disputes that turn on a distinction between culpable and non-culpable conduct and a finding of cause thereafter.”

Having found that the arbitration board’s interpretation of the remedial powers conferred by s. 142(2) was reasonable, the Court then considered whether the board had reasonably exercised those powers. At issue here was whether there existed the “extraordinary circumstances” necessary to warrant the awarding of damages in lieu of reinstatement.

The Court accepted that view that only extraordinary circumstances could justify the award of damages as opposed to reinstatement, but again took exception to the assertion that the distinction between culpable and non-culpable conduct was important to the determination that such circumstances existed:

    “While culpable conduct is far more likely to lead to a poisoned or inhospitable work environment than conduct characterized as non-culpable, the consequences of the conduct and not its characterization should be the primary focus of the remedial inquiry. It bears repeating that arbitrators are equipped with broad remedial jurisdiction to secure prompt, final and binding settlement of disputes arising out of the interpretation or application of the collective agreement and disciplinary action taken by employers.

    As a general rule, where a grievor’s collective agreement rights have been violated, reinstatement of the grievor to her previous position will normally be ordered. Departure from this position should only occur where the arbitration board’s findings reflect concerns that the employment relationship is no longer viable. In making this determination, the arbitrator is entitled to consider all of the circumstances relevant to fashioning a lasting and final solution to the parties’ dispute.”

In this case, the Court held, the arbitration board had acted properly in awarding damages to the grievor. It recognized that the grievor had been terminated without cause and was owed compensation, but it had also considered the restructuring of the grievor’s former position, the difficulty of finding her an alternative position, and the likelihood that reinstatement would prolong the ultimate resolution of the issue and present further disputes in implementation. Having reached a reasonable conclusion as to the continued viability of the employment relationship, the Court held that the board’s decision “fell well within the bounds of arbitral jurisprudence requiring a finding of exceptional circumstances prior to substitution of remedy”.

In Our View

Employers should be comforted by the fact that arbitrators should only exercise their discretionary power substitute a discharge with an award of damages, when it has been determined that there no longer exists a viable employment relationship.  Employers should be mindful of this very important component of the test when adducing evidence at the grievance arbitration hearing.

The decision is also noteworthy in that the Court held that the arbitration board’s interpretation of the statute had only to be reasonable in order to be upheld. Previously, courts were more likely to require that an arbitrator’s interpretation of legislation had to meet the more stringent test of “correctness” lest it be reviewed by the court.

For further information, please contact Jacques Emond at (613) 940-2730.

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