Arbitrators’ Authority to Rectify Collective Agreements Affirmed by Ontario Court of Appeal
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A recent decision of the Ontario Court of Appeal confirms that, under the appropriate circumstances, arbitrators have the power to rectify collective agreements (Public Service Alliance of Canada and NAV Canada, April 19, 2002). “Rectification” occurs where an arbitrator “corrects” the text of a collective agreement so that it conforms
to the common intention of the parties and the true agreement arrived at through their negotiations. The Court of Appeal’s decision conclusively overturns prior case law which prevented arbitrators from rectifying collective agreements where they were called upon to do so.
The initial dispute between PSAC and the Employer concerned the proper amount of retroactive pay owing to employees as a result of the wage and hours of work provisions of a newly-negotiated collective agreement. During negotiations, the parties agreed that hours of work would be reduced from 40 hours per week to 37.5 hours per week.
They also agreed that this reduction in hours would be offset by an increase to the employees’ hourly rates of pay to ensure that employee compensation remained the same. The Union and the Employer did not come to any explicit agreement on the formula by which this measure would be implemented, and the matter was not addressed in the Memorandum of Settlement setting
out the parties’ negotiated agreement on wage increases. When it came time to pay retroactive wages to its employees based upon the new wage rates, the Employer discovered that the wage rates set out in the Memorandum of Settlement did not properly reflect the offset agreed to by the parties. By paying the increases set out in the Memorandum, the Employer would, in
effect, have been paying the employees more than the parties had agreed to. The Employer adjusted the rates accordingly and paid retroactive pay based on the corrected rates. The Union grieved, taking the position that the employees should have been paid based on the rates as scheduled in the collective agreement.
At arbitration, the arbitrator granted the employer’s request for rectification (ie. that the collective agreement be rectified to include the adjusted pay rates) and dismissed the union’s grievance. In reaching his decision, the arbitrator rejected the long-standing view that arbitrators lacked jurisdiction to rectify collective
agreements. Significantly, the arbitrator concluded that rectification was appropriate, regardless of whether the mistaken belief (that the agreement as signed contained the proper rates) was mutual or held only by the Employer.
The Court of Appeal, noting the fact that the remedial powers of arbitrators had been greatly expanded in recent years, found that among the powers now being conceded to arbitrators was the power to rectify collective agreements, where rectification was necessary to give proper effect to the an agreement. Such rectification would not
amount to “altering, modifying, amending or supplementing a collective agreement” which would be beyond the authority of the arbitrator.
The Court of Appeal agreed with the arbitrator that he had authority to rectify the agreement where the mistaken belief as to its contents was held by only one of the parties (a unilateral mistake). There are four requirements for rectification. The party seeking rectification must:
1. Show the existence and content of the inconsistent prior oral agreement.
2. Show that the written agreement does not correspond with the prior oral agreement, and that permitting the other party to take advantage of the mistake in the written agreement would be fraud or equivalent to fraud.
3. Show the precise form in which the written agreement can be made to express the prior intention.
4. Show the above requirements on a standard of “convincing proof”.
This decision removes any lingering doubts about arbitrators’ authority to rectify collective agreements. Rectification is now clearly available where it is necessary to give effect to the agreement made by the parties or to prevent what would amount to fraud by one of the parties.
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