Arbitration Keys to Success

Getting the Most Out of Interest Arbitrations: Keys to Success

Donald B. Shanks, LL.M. and Rachael M. Paquette, J.D.


This paper focuses on maximizing efficiency and positive outcomes in interest arbitration.  We will review the process and legal principles of interest arbitration, relevant federal and provincial legislation as well as analyze the 2012 and 2016 Treaty Three Police Service (“T3PS”) and Public Service Alliance Canada (“PSAC”) Interest Arbitration Awards.  


I.     Interest Arbitration


Arbitration is a dispute resolution process[1] in which the parties to the dispute agree on an impartial third party (arbitrator) who will hear and make a final determination on the matters in dispute. Interest arbitration is a process whose value lies in its power to “objectively resolve the terms and conditions of a collective agreement.”[2]  Before setting out the process of interest arbitration one must understand the difference between interest arbitration (interest-based arbitration) and rights arbitration (rights-based arbitration). Interest arbitration is a process used to resolve collective-negotiation impasses between an employer and union during collective bargaining in order to renew, revise or enter into a new collective agreement.[3]  On mutual consent, the parties appoint an interest arbitrator in accordance with the Canada Labour Code or applicable provincial legislation and the relevant collective agreement. An arbitrator has jurisdiction either by statute (Canada Labour Code or relevant provincial labour relations act) or in virtue of a collective agreement to establish or impose terms of the collective agreement where the parties have been unable to do so.[4]

Rights arbitration involves the interpretation, application or administration of a collective agreement already determined by the parties,[5] in other words, a collective agreement already in operation.  Unlike an interest arbitrator, a rights arbitrator is required to make a decision within the framework of that collective agreement.[6]   In essence, the interest arbitrator will rely on extrinsic evidence, arbitral jurisprudence, and past practice to renew, revise or create a new agreement; whereas, a rights arbitrator is constrained by the “four corners of the agreed upon collective agreement” in addition to arbitral decisions and past practice.


II.      Interest Arbitration Process


Once the parties have agreed to arbitration and an arbitrator, hearing date(s), times and location are set.  An interest arbitration is a quasi-judicial process and is often less formal than a court proceeding. Parties prepare written briefs with exhibits for submission to the arbitrator and exchange these with one another. The legal representative of the employer and the union representative orally present evidence during a hearing.  Both parties will have an opportunity to reply to questions arising from evidence. The arbitrator will ask for clarification to assist in resolving definitively issues in dispute and then apply legal principles of interest arbitration. If the interest arbitrator believes a conciliatory approach may be effective in resolving outstanding issues then the arbitrator may “assist the parties in resolving the difference at issue without prejudice to the power of the arbitrator…to continue the arbitration with respect to the issues that have not been resolved.”[7]  Since jurisdiction of the interest arbitrator is derived from the parties’ mutual consent, arbitral awards are not usually subject to judicial review unless there is an error in law.


III.     First Nation Police Services within varying jurisdictional contexts


* Readers interested in more detail about the jurisdiction contexts of First Nation police services in Canada and provincial Police Services Acts should refer to Appendix A.   

First Nation Police Services under federal jurisdiction are subject to section 79 of Canada Labour Code:

79(1) “…employer and a bargaining agent may agree in writing, as part of collective agreement or otherwise, to refer any matter respecting the renewal or revision of a collective agreement or the entering into of a new collective agreement to a person or body for final and binding arbitration.” 

79(2) “The agreement suspends the right to strike or lockout and constitutes an undertaking to implement the determination.”[8]

On April 7, 2016 the Supreme Court of Canada (“SCC”) dismissed the Public Service Alliance of Canada v Nishnawbe Aski Police Service Board application for leave to appeal the October 2, 2015 Federal Court of Appeal (“FCA”) decision in Nishnawbe Aski Police Service v Public Service Alliance of Canada declaring Ontario has jurisdiction over First Nations policing labour relations.[9] 

On December 9, 2015 the OLRB issued a certificate to PSAC as the bargaining agent for all Nishnawbe Aski Police Service (“NAPS”) employees (with certain exclusions).[10]  NAPS’ labour relations are now governed by the Ontario Labour Relations Act (“OLRA”) and fall outside the scope of the Canada Labour Code.  It remains to be seen whether the Canada Industrial Relations Board (“CIRB”) will reconsider jurisdiction of First Nations police services remaining in the federal sphere.

One might ask what the SCC decision to uphold the FCA means to NAPS and similar police services that opt into provincial jurisdiction prior to their negotiating new collective agreements and in the absence of legislation limiting the right to strike.  For example, the OLRA expressly excludes members of a police force,[11] but the Ontario Police Services Act excludes First Nation Constables.[12]  First Nation police services that are under an existing collective agreement[13] and Federal labour relations jurisdiction (CLC) are generally accepted as an essential service by both the union and employer.  Based on the language of the OLRA and the Ontario PSA, officers of First Nation police services governed by the OLRA might be in legal strike position.  


IV.     Overview of Legal Principles of Interest Arbitration


The legal principles of interest arbitration include replication, an examination of proper comparators, ability-to-pay or affordability, and demonstrated need.

The principle of replication is well-established in arbitral jurisprudence, “when settling a Collective Agreement the task of the arbitrator is to come as close as possible to what the parties would have agreed, had bargaining been successful.”[14]  In other words, the arbitrator will attempt to “replicate” what the parties would have agreed to without third party intervention. When considering replication the interest arbitrator must examine proper comparators in similar employment situations. In Bethany Lodge the board provided that, “… comparators requires a comparison, as between the employees and other comparable employees in the public and private sectors, of the terms and conditions of employment and the nature of the work performed.[15]


Of significant interest is the 2011 decision of the Board in N.B.U.P.P.E. v New Brunswick (Board of Management) (“New Brunswick”) in which Arbitrator Venoit followed a 2001 decision where Arbitrator Ashley stated:


“While a Government has considerable scope in the political choices it can make in determining what to fund and to what extent it will be funded, it must be seen to exercise those choices responsibly, fairly and on the basis of some rationally based criteria.”

The Board in New Brunswick agreed that, “ability to pay or affordability argument has to be one of the criteria considered by an interest arbitrator.”

This decision marks a departure from arbitral decisions that place little to no weight on ability to pay and affordability and emphasizes that ability to pay or affordability argument has to be one of the criteria considered by an interest arbitrator.  

Finally, it is incumbent upon the party requesting a change to the collective agreement to demonstrate a need for the proposed article or amendment.  This principle of demonstrated need “directs an interest arbitrator to give effect to those suggested amendments that address real problems in the relationship or in the administration of the collective agreement. Conversely, the principle inhibits an interest arbitrator from amending the agreement where the demand is not reflective of a real issue that exists between the parties.”[16]


V.     First Nations Police Services and Funding Considerations in PSAC v T3PS 2012 and 2016


Without prejudice to a long and painful funding and other history recently emphasized in First Nations Child and Family Caring Society of Canada et al. v Attorney General of Canada (for the Minster of Indian and Northern Affairs Canada), 2016 CHRT 2 (CanLII), which simply cannot be examined here, First Nation Police Services have consistently been grossly underfunded.  Unlike provincial or municipal police services, First Nations have no taxation base or revenue source (in most cases) beyond the federal (52%) and provincial (48%) funding provided for in the Police Service Funding Agreements.

For decades arbitrators have continued to increase employer wages and benefits beyond employers’ ability to pay, placing services at risk of closure. Recently, in Nishnawbe Aski Police Service Board and PSAC Interest Arbitration Award of 2015 the Arbitrator ordered OPP First Nation Officer rates as of January 1, 2014 to be implemented (this included a 4.1 percent increase) in addition to matching any OPP First Nation Officer increases to the end of that collective agreement.[17]  On the other hand, the Police Service Board of the Treaty Three Police Service v PSAC 2016 award signals that arbitrators will weigh exceptional revenue and staffing-floor limitation (with resultant inability to use staffing cuts to offset revenue cuts/wage increases) challenges faced by First Nation police services in determining wages.[18]


VI.     Police Services Board of the T3PS v PSAC and Ontario Provincial Police (“OPP”) Parity


Before reviewing the application of the Treaty Three Police Service v PSAC 2012 and 2016 arbitral decisions, then, one needs to understand that both the employer and union agree parity with OPP is the desirable goal.  Arbitrator Slotnick echoes the shared position on this issue as follows:   


“Parity between the Treaty Three Police Service officers and those of the Ontario Provincial Police has long been a goal of the union.” 




“The employer has also explicitly agreed that this is a desirable goal.”[19]  


First Nation Police Services continue to be viewed as an enhancement to provincial police services while in effect they are delivering essential services but are not being funded accordingly.   The employer and union share a common interest in adequate and appropriate funding for police services.  It is worth mentioning that both the federal and provincial governments were made aware of the earlier interest arbitration award but refused any increase in funding to allow compliance.


VII.     Police Services Board of the T3PS v Public Service Alliance of Canada, 2012 Interest Arbitration Award


A brief summary of the key facts are provided here.   The employer had offered parity with OPP but the bargaining unit narrowly rejected this offer when it was put to a vote because no retention incentive was offered.[20]  The offer of OPP parity was expressly made in the 2012 round of bargaining[21] and the OPP salary scale had been incorporated into the parties’ previous Collective Agreement albeit with a provision allowing the rates to remain unchanged if funding was not secured.[22]  The issue before the arbitrator was whether wage parity with OPP was appropriate in the circumstances.[23]  The Employer argued inability to pay, relying on historical and current underfunding of their First Nation service[24] (like that of many other similar First Nations police services), no taxation base[25], and First Nation impoverishment.[26]  The Employer sought a salary based on the highest rate for first-class constables among First Nation Police Service (specifically NAPS) plus small inflation in Northwestern Ontario.[27]  The Union pursued OPP parity as offered by the employer, the OPP 8.5% increase effective 2014, the OPP’s retention incentive, as well as retroactive pay.[28]

In support of their claim of inability to pay the employer relied upon financial statements submitted at the hearing and oral testimony of their financial controller[29].  The employer argued that the offer of parity with the OPP was a mistake due to a misunderstanding with their funder.[30]

Ultimately the arbitrator concluded there had been no change to the budget from the time the employer “offered OPP rates to the time that offer was retracted.”[31] Unfortunately the employer made the offer, only to find days later no “new money” would be made available to cover the cost of parity with the OPP.

In considering ability to pay Arbitrator Slotnick accepted underfunding of policing services including T3PS,[32] but relied on decades of arbitral jurisprudence in which ability to pay arguments had been rejected where employers faced similar inability to raise sufficient funding being solely dependent on government.[33]  Arbitrator Slotnick stated, “governments cannot “hide behind their own skirts” as the source of funds” to do so, “…is to ask public sector employees to subsidize the rest of the community.”[34]

Arbitrator Slotnick ordered the collective agreement to contain OPP rates and include the retention incentive.[35] No retroactivity was awarded because the employer had not offered it.[36]  He did not accord a four-year agreement nor did he grant the OPP 8.5% increase of 2014; rather, he guaranteed OPP parity for only one year in a three-year collective agreement.[37]


VIII.     “Breath of Fresh Air”: Police Services Board of the T3PS v Public Service Alliance of Canada, 2016 Interest Arbitration Award


Once again, T3PS and PSAC reached an impasse with respect to wages and several other terms of the collective agreement.  In 2012 T3PS was ordered to “implement OPP rates effective the first full pay period in 2013.”[38]  The service paid those OPP rates for three months, until March 31, 201.[39]  Due to severe financial constraints the service unilaterally rolled back salaries, first in April 2013, and then in June, to the pre-December 2012 Interest Arbitration Award wages.[40]  The employer “simply could not afford the increases ordered.”[41]   Funding sources “refused additional money beyond the 1.5% increases committed” in the 2014 to 2018 funding agreement.[42]

The issues considered by the arbitrator were first, whether OPP rates and benefits continue from March 31, 2014 (expiration of current CA) to the date of this interest arbitration decision and, second, whether wage rates should be for the remainder of the term of the new Collective Agreement.

T3PS sought a four-year agreement with an increase of 1.5% for each year of the Funding Agreement 2014 to 2018.[43]  The Union sought a three-year agreement with OPP parity (thus incorporating a 2014 rate increase of 8.5%) in addition to rates as yet-to-be-determined for April 2015 and 2016.[44]  

On the principle of replication, Arbitrator Slotnick stated that he “cannot accept that the employer would ever agree to a wage scale that would lead to its own demise, nor can I accept that the union, acting rationally, would press for wage increases that would destroy all its members’ jobs.”[45]

While Arbitrator Slotnick agreed with case law on ability to pay he recognized the situation at T3PS as an “exceptional challenge.”[46]  He relied on a comprehensive Will-Say-Statement of the T3PS Financial Controller[47] in which an in-depth financial analysis of the various comparators, including the 2012 arbitrated rate of pay, 2014 OPP rates (8.5% increase), the OPP First Nation Constable (“OFNPA”) rate awarded in the PSAC v NAPS 2015 arbitral decision, the 1.5% increases provided in each year of 2014-2018 Police Service Funding Agreement and pre-2012 interest arbitration rates.   On review of the restrictions placed on the police service by funding agreement, Arbitrator Slotnick stated,


“Unlike in many comparable situations where pay increases are ordered but funding is frozen, layoffs cannot be used here to absorb the increases.  Fewer officers will simply mean less funding, sparking a death spiral that would soon render the employer unable to provide its services.”[48] 


Arbitrator Slotnick concluded, “the employer cannot expect to sustain the unilateral rollback of wages it undertook”[49] and ordered the rates in the previous collective agreement (that is, parity with OPP 2013 rates) be paid, effective April 1, 2014, and those rates will continue for the duration of a four-year agreement.[50]   In effect the member’s salaries are frozen for the duration of the agreement.


IX.     Keys to Success


In summary, the keys to success in this type of Interest Arbitration are advanced negotiations to resolve as many contentious issues as possible prior to the commencement of interest arbitration. In the T3PS 2016 case, the legal representatives, Chief of Police and the financial controller, who had extensive financial knowledge of the police service, worked closely to gather and analyze pertinent information. Preparation of detailed financial information in a Will Say Statement that set out the financial history of the police service, funding projections for each comparator, review of all funding agreements to present, potential financial and service viability interaction(s), and identified the consequences of layoffs (in this instance layoffs did not offer a solution because they would have led to a death spiral of the service itself) and any correspondence from funders. All of this information, clearly and concisely presented, provides the interest arbitrator with a thorough understanding of the services financial position that enhances the probability of the best possible outcome under the circumstances.


The information provided in this Newsletter is not intended to be professional advice, and should not be relied on by any reader in this context. For advice on any specific matter, you should contact legal counsel, or contact Rachael Paquette. Paquette & Associates Lawyers disclaims all responsibility for all consequences of any person acting on or refraining from acting in reliance on information contained herein.


[1] Department of Justice, Dispute Resolution Reference Guide, online: Government of Canada <>.

[2] Durham Regional Police Assn. v. Durham Regional Police Services Board, [2007] O.L.A.A. No. 525, 91 C.L.A.S. 270 at para 5.

[3] Canada Labour Code, RSC., 1985, c. L-2 s 79.

[4] Air Canada v Canadian Union of Public Employees, Air Canada Component, 2013 CanLII 48962 at page 4 (ON LA).

[5] Ibid.

[6] Ibid.

[7] Canada Labour Code, RSC., 1985, c. L-2 s 60(1).

[8] Ibid at s 79(1) and 79(2).

[9] Nishnawbe-Aski Police Service Board v Public Service Alliance of Canada, 2015 FCA 211, leave to appeal to SCC refused, 36742 (April 7, 2016).

[10] Public Service Alliance of Canada v Treaty Three Police Service, 2015 CanLII 83610 at paras 26 and 27 (ON LRB). 

[11] Labour Relations Act, 1995, S.O. 1995, c. 1, Sched. A, s 3. 

[12] Police Services Act, R.S.O. 1990, c P-15, s 2(1).  

[13] Canada Labour Code, RSC., 1985, c. L-2 s 79.2

[14] Police Services Board of the Treaty Three Police Service v PSAC, 126 C.L.A.S. 8, 2016 CarswellOnt 2172 at para 14 [T3PS 2016].

[15] Bethany Lodge Manor v Canadian Union of Public Employees, Local 3268, 2011 CanLII 80982 (ON LA)) at page 2.

[16] Clarington (Municipality) v. Clarington Fire Fighters' Assn., [2010] O.L.A.A. No. 481, 103 C.L.A.S. 131 at para 5.

[17] Nishnawbe-Aski Police Service Board v Public Service Alliance Canada, 123 C.L.A.S. 301, 2015 CarswellOnt 10856 at para 26.

[18] T3PS, 2016 supra note 14 at 26.   

[19] Ibid at 8.

[20] Treaty Three Police Service and Public Service Alliance Canada, 113 C.L.A.S. 131, 2012 CarswellNat 4888 at paras 23 and 48.

[21] Ibid at 53.

[22] Ibid at 47.

[23] Ibid at 4.

[24] Ibid at 37.

[25] Ibid at 45.

[26] Ibid.

[27] Ibid at 27.

[28] Ibid at 25.

[29] Ibid at 43.

[30] Ibid at 41.

[31] Ibid at 50.

[32] Ibid at 54.

[33] Ibid.

[34] Ibid.

[35] Ibid at 56.

[36] Ibid at 57.

[37] Ibid at 58.

[38] T3PS, 2016 supra note 14 at 10.

[39] Ibid at 11.

[40] Ibid.

[41] Ibid.

[42] Ibid.

[43] Ibid at 18.

[44] Ibid at 21 and 22.

[45] Ibid at 27.

[46] Ibid at 26.

[47] Ibid at 26.

[48] Ibid.

[49] Ibid at 29.

[50] Ibid at 30.