Court affirms grievance arbitrator's order for employer to pay damages as per collective agreement

The Ontario Divisional Court has rejected the judicial review application of an employer, finding that the arbitrator in the grievance proceedings did not breach procedural fairness or unreasonably fetter his discretion when applying the collective agreement.

In More Masonry Inc. v. Bricklayers, Masons Independent Union of Canada Local 1, 2021 ONSC 6157, the applicant masonry company and the respondents were unions representing construction employees performing masonry work, and parties to two grievance arbitration proceedings regarding work that the applicant allegedly subcontracted in breach of a multi-employer collective agreement between the respondents and an employer association representing unionized employers in the masonry business.

The collective agreement covered a grievance adjudication and enforcement mechanism that provided an expedited arbitration process through which grievances would be heard by a specialized arbitrator within 10 days of referral, documents would be exchanged before the hearing, and damages would be paid for failure to produce documents on time.

The arbitrator ordered the applicant to pay liquidated damages of $185,000 pursuant to the collective agreement’s formula upon finding that the applicant had violated the collective agreement’s documentary disclosure and production provisions. The applicant sought to quash this order on the basis of unreasonableness and procedural unfairness.

The Ontario Divisional Court, finding a mathematical calculation error of the penalty, remitted the amount of damages to the arbitrator but dismissed the balance of the judicial review application. As a result, the applicant paid costs to the respondents in the agreed amount of $7,500.

The court ruled that the arbitrator’s order, which applied the collective agreement’s terms on penalties for failure to disclose and to produce, was reasonable and bore the hallmarks of justification, transparency, intelligibility and consistency with the specialized labour relations scheme.

The court held that the applicant’s arguments in support of the damages order being unreasonable were collateral attacks on the production order, which was not under review. The court disagreed with the argument regarding the challenges presented by the COVID-19 pandemic because such difficulties applied to both sides and did not affect the obligation to timely produce documents. 

The court also rejected the applicant’s submission that the liquidated damages clause was unlawful and unenforceable for failing to provide a penalty with a genuine pre-estimate of damages because the applicant did not raise this issue before the arbitrator.

The court then said that the common law on penalty clauses was inapplicable in relation to negotiated collective agreements. In this case, the collective agreement provided industry-wide terms and conditions and a joint dispute resolution framework to ensure a level playing field.

The court also found that the arbitrator had not breached procedural fairness because the applicant received appropriate participatory rights. The arbitrator also did not improperly fetter his discretion, given that two articles of the agreement, when taken together, used mandatory language that left the arbitrator without discretion to alter or to refuse to issue the award demanded by the penalty clause, the court concluded.