Alberta Court of Appeal Clarifies Limits of “Contracting-In” in Labour Disputes

Earlier this year, the Alberta Court of Appeal allowed an appeal by Alberta Health Services in a decision with substantial implications for unionized workplaces. In United Nurses of Alberta v. Alberta Health Services, the Court addressed the fine line between lawful “contracting-out” and impermissible “contracting-in” of bargaining unit work.

This ruling reaffirms key legal principles around the true employer test, the scope of management rights, and the appropriate application of the reasonableness standard when reviewing arbitration awards. For Alberta employers operating in unionized environments, the decision provides essential guidance on maintaining operational flexibility without breaching collective agreements.

Dispute Caused by Staffing Challenges in a Remote Facility

The case arose from staffing challenges at the Breton Continuing Care Centre, a small 24-bed facility in rural Alberta. During 2018 and 2019, the facility faced serious nurse shortages, with up to seven vacancies and no full-time nursing staff on-site. Alberta Health Services (AHS) struggled to attract applicants despite repeated postings.

In response, AHS contracted with an external agency, Select Medical Connections, to provide temporary nurses. Four agency nurses were placed on temporary assignments between May 2018 and March 2019. Notably, none of these assignments displaced existing bargaining unit members. The facility continued to rely on unionized staff, but used the agency nurses to meet legislated care obligations and ease burdens on overworked employees.

Grievance Based on Alleged Breach of Collective Agreement

On November 8, 2018, the United Nurses of Alberta (UNA) filed a group grievance alleging that AHS had unlawfully “contracted out” bargaining unit work to agency nurses without the union’s consent, in violation of the collective agreement.

The collective agreement between UNA and AHS, which was in effect from April 1, 2017 to March 31, 2020, did not contain any explicit restrictions on the use of agency staff or define bargaining unit work in a way that would preclude such arrangements. However, the grievance alleged a misapplication and contravention of the agreement.

Arbitration Board Decision: Contracting-Out Permissible

In a 2021 award, the arbitration board dismissed the grievance. It held that the agency nurses were brought in as a good-faith, temporary solution to a staffing crisis and that their use did not undermine the integrity of the bargaining unit.

The board relied on several prior arbitration decisions that addressed similar uses of external nursing staff. It adopted the “true employer” test, which examines factors like control, remuneration, discipline, hiring authority, and worker perception to determine the real employer in such arrangements.

Applying those factors, the board found that six of seven criteria pointed to the agency as the true employer, not AHS. It concluded that AHS had not “contracted-in” bargaining unit work and had acted within its residual management rights.

Labour Relations Board Review Focused on Duration of Service

UNA sought judicial review from the Alberta Labour Relations Board (the Board), which overturned the arbitration decision in June 2023. The Board held that the arbitration board failed to give sufficient weight to the duration of the agency nurses’ assignments (some of which lasted several months) and thus did not correctly apply the “true employer” test.

The Board emphasized that prolonged service periods increased the integration of the agency nurses into the workplace, raising the likelihood that they should be considered AHS employees for collective agreement purposes. It remitted the matter for a new hearing before a differently constituted arbitration board.

Court of Appeal Reinstates Arbitration Award

AHS appealed to the Alberta Court of Appeal, which granted leave on two key legal issues:

1. Whether the Board erred in applying the reasonableness standard of review to the arbitration board’s decision; and
2. Whether the Board erred in treating duration of service as a critically important factor in the true employer test.

The Court ultimately allowed the appeal and reinstated the arbitration decision, finding that the Board had erred in both respects.

Standard of Review: Reaffirming Reasonableness

The Court confirmed that the Board correctly applied a reasonableness standard when reviewing the arbitration decision. The Court emphasized that an arbitration award need not be perfect; it must simply be justified, transparent, and intelligible in light of the law and facts.

The Court rejected UNA’s suggestion that a correctness standard should apply to legal questions within the Board’s expertise, reaffirming the deferential approach adopted in similar cases.

The True Employer Test: Duration is One Factor, Not the Decisive One

The heart of the appeal turned on how to interpret and apply the “true employer” test in determining whether an employer has contracted-out or unlawfully contracted-in bargaining unit work. The Court agreed that duration of service is a relevant factor in assessing the level of integration of a worker into the business, but cautioned against overemphasizing it.

The Court acknowledged that longer-term assignments may contribute to a perception of integration, but rejected the Board’s conclusion that duration was “critically important” or determinative. The true employer test remains a holistic, contextual, and flexible inquiry.

The Court found that the arbitration board had properly considered the duration of the agency nurses’ assignments and was entitled to weigh that factor as it did. Its conclusion (that the agency was the true employer) was reasonable in light of the evidence and relevant case law.

Respecting the Collective Bargaining Framework

In reinstating the arbitration award, the Court endorsed the board’s practical approach to labour relations. The arbitration board had expressly stated that its goal was to reach a result that “makes labour relations sense,” particularly given the operational realities of staffing a small, remote healthcare facility.

Significantly, the agency nurses did not displace existing bargaining unit members, and their use helped meet care obligations while protecting the well-being of permanent staff. The Court’s decision reflects a balanced view of employer flexibility and union rights, which acknowledges the necessity of temporary staffing solutions in constrained environments.

Principles of Note for Alberta Employers and Unions

This case reaffirms several vital principles for parties to a collective agreement:

• Employers retain a general right to contract out work unless expressly restricted by the collective agreement.
• The use of agency staff may be lawful contracting-out if done in good faith and without undermining the bargaining unit.
• The “true employer” test requires a holistic and contextual analysis; no single factor, including duration of service, is determinative.
• Arbitration awards are entitled to deference if they are reasonable, meaning justified, transparent, and intelligible.

A Caution Against Oversimplification

The Alberta Court of Appeal’s decision in United Nurses of Alberta v. Alberta Health Services reminds us that labour disputes involving complex factual contexts should be approached with flexibility and a full appreciation of the operational environment. Courts and tribunals must avoid rigid applications of legal tests that elevate one factor (such as duration) above all others.

DBB Law: Calgary Labour Lawyers Advising on Contracting-In Disputes

If your organization is navigating similar staffing challenges or facing a contracting-in grievance, DBB Law can help ensure your practices align with evolving legal standards and withstand scrutiny from arbitrators and tribunals. Our knowledgeable labour lawyers provide dynamic legal solutions to employers across Alberta. To book a consultation, please call us at 403-265-7777 or reach out online.