Bloomberg News

Harper’s Labor Hardline No Boon for Business

May 24, 2012

Canadian Prime Minister Stephen Harper’s hardline approach to labor disputes may help bring a quick end to a strike at Canadian Pacific Railway Ltd. (CP) It may also keep the company from cutting labor costs.

Lisa Raitt, Harper’s labor minister, said yesterday that while her preference is for a negotiated settlement, she has given notice she may introduce a bill to end the strike when Parliament returns from break on May 28.

Canadian Pacific may become the third company where Raitt, citing concerns about a weak recovery, has intervened in labor disputes since the Conservative Party won a majority last May, a practice labor relations experts say can hamper the corporate restructurings needed to bolster productivity in an economy that has seen unit labor costs in U.S.-dollar terms almost double over the past decade as the Canadian dollar has surged.

The track record of imposed resolutions shows they do not achieve the kind of change that is required, said George Smith, who teaches labor relations at Queen’s University in Kingston, Ontario and was a director of employee relations at Air Canada from 1982 to 1992.

“If they can’t freely negotiate the terms and conditions of their labor agreements in such a way that they can be competitive, then you are going to have a long term competitiveness problem,” Smith said.

Walk Off Job

The Teamsters union, representing 4,800 workers, walked off their jobs yesterday and snarled cargo shipments nationwide in a strike where the major dispute is over pension liabilities. The company said it will lay off more than 2,000 other employees because their work won’t be necessary while the railroad isn’t operating, Canadian Pacific said in an e-mailed statement.

In March, Raitt blocked Air Canada from locking out its pilots, who are working under the terms of their last accord which expired in March 2011. She has also barred the airline’s mechanics and flight attendants from striking.

The governing Conservatives passed legislation last June ending a work stoppage at Canada Post, after the country’s postal agency was unable to reach a contract for about 48,000 letter carriers.

The number of worker days lost to stoppages has averaged an annual 795,101 since Harper first took power in 2006, compared to an average 1.98 million in the previous decade, according to data on the labor department’s website based on disputes involving more than 500 workers. While Harper has governed since 2006, his Conservatives won their first electoral majority only last year.

The opposition New Democratic Party has accused the government of siding with companies in the disputes.

Relieves Employer Pressure

“With back to work legislation threat, it removes a lot of pressure for the employer,” Alexandre Boulerice, the lawmaker for the NDP responsible for labor issues, said in an interview. “What is the incentive to negotiate?”

Ken Georgetti, president of the Canadian Labour Congress, which represents 3.3 million Canadian workers, said the government is “is flagrantly taking away people’s right to strike in an aggressive and biased approach to labour relations.”

Georgetti urged Raitt to allow the Teamsters and Canadian Pacific to come to a negotiated settlement. “Publicly talking about back-to-work legislation only serves to give the employer an advantage and has far reaching negative implications for future labor relations between the parties at CP Rail, and in other federally regulated sectors as it sends a signal to every federally regulated employer that they need not bargain,” he said in a statement.

Labor relations experts say government intervention may not work in companies’ favor.

Direct Connection

The new board at Canadian Pacific “has a mandate to come in and improve costs, of course they will look at all areas, but labor is one of them,” said Anil Verma, a professor of industrial relations at the University of Toronto’s Rotman School of Management. “There’s a direct connection between what happens in collective bargaining and the industry position of CP.”

The labor action complicates CP’s operations as the railroad searches for a new chief executive officer following a months-long proxy fight. The Teamsters contract talks began in October and the union first threatened to strike in April.

The Teamsters resisted what they described as a 40 percent cut in post-retirement benefits, while Canadian Pacific said pensions helped push expense margins higher than those of its peers.

Expense Margins

Those margins were criticized by activist investor William Ackman during his campaign to install new directors and management. That drive culminated last week in the departure of CEO Fred Green and five other board members hours before a shareholder vote.

While the walkout may damp second-quarter volumes at Canadian Pacific, “we believe it’s important for CP to maintain its position and leverage with its unions by taking a strike,” Chris Wetherbee, a Citigroup Inc. analyst, wrote in a note to clients.

“The longer-term payoff of lower pension contributions can be a driver of margin” improvement, said Wetherbee, who has a “buy” rating on the shares.

The government estimates that cargo shipment disruptions could end up costing the Canadian economy C$540 million (527 million) in lost output every week if the strike is prolonged, Raitt told reporters yesterday in Ottawa.

Economic Impact

“We’re putting on notice that we have the ability to introduce legislation should we need to do so,” Raitt said. “We want to make sure that the effect on the economy is being brought to people’s attention and we are keeping it in mind as it proceeds.”

Raitt said there is no immediate risk to the economy because companies can turn to Canadian National Railway Co. (CNR), the country’s largest railway, and trucking as alternatives. She also said the two sides are “very close” to an agreement. Ashley Kelahear, a spokesman for Raitt, said in an e-mail today the two sides are still negotiating and the minister is “optimistic.”

“We want to make sure the parties have some room to freely collective bargain because we believe they should be able to achieve a deal themselves,” Raitt said. “But if they can’t, we will act in the best interests of the economy.”

A decision by the union two days ago to keep operating commuter trains may give the two sides more time before the government steps in, the University of Toronto’s Verma said.

Use Time Wisely

“Because the union has judiciously chosen not to affect passenger rail service, it’s entirely possible that the government may go more slowly on this issue,” Verma said.

Smith at Queen’s University, said the two side should use the next few days wisely.

“If you are on either side of that bargaining table at CP I would think you would want to take advantage of at least 5 days grace that have been given to you to try and sort things out yourself,” he said. “They’ve intervened in virtually every labor dispute that has occurred during their first year in office” as a majority.

To contact the reporters on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net; Natalie Doss in New York at ndoss@bloomberg.net

To contact the editor responsible for this story: David Scanlan at dscanlan@bloomberg.net


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