Case Name: Timberwest Forest Corp. v. United Steelworkers, Local 1-80 (Woodlands Letter Grievance)

Transcription

1 Page 1 Case Name: Timberwest Forest Corp. v. United Steelworkers, Local 1-80 (Woodlands Letter Grievance) IN THE MATTER OF an Arbitration Between Timberwest Forest Corporation (the "Company"), and United Steelworkers, Local 1-80 (the "Union") (Woodlands Letter Grievance) [2008] B.C.C.A.A.A. No. 101 Award No. A-069/08 British Columbia Collective Agreement Arbitration Vancouver, British Columbia Panel: David C. McPhillips (Arbitrator) Heard: May 7-9, June 2 and 3, Award: July 14, (104 paras.) Labour Arbitration -- The Collective Agreement -- Application -- Successor rights. Labour Arbitration -- The Collective Agreement -- Interpretation -- Ancillary documents. The employer, Timberwest, appealed a decision of the Labour Board that allowed the union's grievance. From 2003 to 2007 the employer and the union were covered by a collective agreement that was government ordered. A letter of understanding (LOU) was appended to the agreement. The employer was able to contract out employees, for at least 5 years. The LOU afforded protection to those employees. The employer contracted out the Woodlands employees to Munns Lumber in In 2007 the parties' bargaining came to an impasse. Munns Lumber went bankrupt. The union argued the LOU protected the Woodlands employees and the employer, Timberwest was the successor employer. HELD: Appeal dismissed. The union's grievance was upheld. Although the LOU ran with the collective agreement which expired in 2007, certain rights and obligations vested that extended beyond the expiry of the agreement. The collective agreement had guaranteed protection for at least five years. The LOU stated that in event of a bankruptcy, Timberwest

2 Page 2 would find a replacement contract for the Woodlands employees who would be deemed to be their successor employer. After Munn's bankruptcy, Timberwest took back the operations and as a result, Woodlands employees reverted back to Timberwest and were covered by the new collective agreement that had been negotiated. Statutes, Regulations and Rules Cited: Appearances: COUNSEL FOR THE EMPLOYER: Gregory J. Heywood and Michael R. Kilgallin. COUNSEL FOR THE UNION: Sandra I. Banister. [Editor's note: A correction was released by the Board August 8, 2008; the change has been made to the text and the correction is appended to this document.] AWARD 1 The parties agree I have the jurisdiction to determine this matter. This dispute involves a determination of the rights of Woodlands employees of TimberWest Forest Corporation ("TimberWest") in its Cowichan operation who were contracted out to Munns Lumber (1956) Ltd. ("Munns Lumber") in December, Munns Lumber went bankrupt in 2007 and the Union is asserting these Woodlands employees have continuing rights against TimberWest. 2 This matter as well as a number of others were referred to the British Columbia Labour Relations Board. Pursuant to a Consent Award issued by the Labour Relations Board ("LRB") on April 28, 2008, a number of the issues have been referred to this arbitration. It was agreed by the parties that these issues will be decided on a without prejudice basis for the industry and shall be binding only on TimberWest, Local 1-80 and Local The parties have also expressly agreed that separate issues of "successorship" and "true employer" are not to be decided in this forum. 3 The issues to be addressed in this decision are identified in the Consent Order as follows: 1. Does the Woodlands Letter of Understanding and/or the Consent Award operate after the strike/lockout? 2. If so, a) what is the impact, in the present circumstances, on the Woodlands employees who were contracted to Munns Lumber (1956) Ltd. ("Munns")? Do they return to TimberWest? b) do they return to TimberWest with the Coast

3 Page 3 Master Agreement? If not, do they return with any collective agreement, if so which one? 3. Did any of the obligations of the Woodlands Letter of Understanding vest or crystallize prior to the expiry of the Coast Master Agreement? If so, which obligations and what is the impact on the Woodlands employees in the present circumstances? 4. If so, a) what is the impact, in the present circumstances, on the Woodlands employees who were contracted to Munns? Do they return to TimberWest? b) do they return to TimberWest with the Coast Master Agreement? If not, do they return with any collective agreement, if so which one? 5. Did the Woodlands employees remain employees of TimberWest by implication of BCLRB No. B233/07? If so are these employees covered by any collective agreement, if so which one? 4 There are two other matters which have also been referred but they will be addressed in a separate hearing. Those two issues relate to the presence of another contractor, T&D Carter Holdings ("Carter"), in the Cowichan Woodlands operations. The Agreed Statement of Facts indicates that in April 2008, Carter commenced falling and hoe chucking for TimberWest in the Cowichan Woodlands operation, utilizing three machines with approximately three employees. Carter, which worked in the Cowichan Woodlands Operation from 1973 to 1988, is currently a party to the Coast Master Agreement as a "me tooer" and, as such, its employees are represented by the United Steelworkers of America, Local Carter obtained a contract with TimberWest to harvest approximately 15,000 m3 by June 30, The issues related to Carter's presence in the Cowichan operations have been identified in the Consent Order as: BACKGROUND 6. The issue of whether Article 25 rights can be lost by a contractor shall be determined by Arbitrator McPhillips. It is agreed that this issue shall be determined on a without prejudice basis for the industry and shall only be binding between TimberWest, Local 1-80 and Carter. 7. The issue of what Article XXV rights, if any, Carter has and whether they were lost shall be dealt with by Arbitrator McPhillips on an expedited basis in a separate hearing. The issue shall be determined on a without prejudice basis and respect to the industry but shall be binding between TimberWest, Local 1-80 and Carter.

4 Page 4 5 The genesis of this dispute lies in the coastal forest industry collective bargaining in 2003 between Forest Industrial Relations ("FIR"), which at the time represented all the major forest companies as well as a number of contractors on the coast, and the IWA-Canada (the predecessor Union to the United Steelworkers) and all its locals on the coast. After the parties failed to reach an agreement in bargaining, a lengthy work stoppage occurred with the result that the provincial government intervened and appointed Donald R. Munroe, Q.C. as a Mediation-Arbitration Commissioner pursuant to the Coastal Forest Industry Dispute Act, SBC 2003, Chapter 103 (the "Act"). 6 Part 2 of the Coastal Forest Industry Dispute states as follows: Part 2 - Mediation-Arbitration Commissioner Appointment of commissioner 6 (1) The minister must appoint a mediation-arbitration commissioner to do the following before May 31, 2004 in accordance with this Act: (a) resolve and decide all matters in dispute between a trade union and an employer; (b) conclude a new or revised collective agreement between the trade union and the employer. (2) With or without the consent of any party, the commissioner may use fact-finding, mediation, conciliation, arbitration or any other procedure that the commissioner considers appropriate for the purposes of subsection (1). (3) Without limiting subsection (2), sections 89, 91, 92 (1) (a) to (d) and 93 of the Code apply for the purposes of a commissioner in the performance of the commissioner's duties. (4) Until a new or revised collective agreement is concluded by the commissioner, the commissioner may (a) make interim orders that the commissioner considers necessary or advisable in the performance of duties or exercise of powers under this section, and

5 Page 5 (b) vary or rescind any interim orders made under this section. (5) Without limiting subsection (4), the commissioner may make interim orders that (a) add, amend or delete, in whole or in part, one or more provisions of the collective agreement referred to in section 3 (1), or (b) are otherwise in respect of or related to that collective agreement or the conclusion of a new or revised collective agreement. (6) Interim orders made or varied are, effective on the date specified by the commissioner in the other, binding on a trade union and an employer and on the employees affected, and the orders may be enforced as terms of the collective agreement. SBC , effective December 16, 2003 (R.A.). Terms of reference 7 In performing duties and exercising powers under section 6, the commissioner must consider the following: (a) (b) (c) the need for terms and conditions of employment that are consistent with the economic viability and competitiveness of the coastal forest industry in both the short and long term; the importance of good labour management relations in the coastal forest industry; the interests of the employees and trade unions. 7 Throughout the early part of 2004, Commissioner Munroe met with the parties and attempted to mediate a new collective agreement. When those efforts proved to be unsuccessful, Mr. Munroe was required by the Act to create the new Collective Agreement for the parties. Part 3 of the Act states: Part 3 - New Coastal Forest Industry Collective Agreement New collective agreement

6 Page 6 11 (1) A new or revised collective agreement that is concluded by the commissioner under section 6 (1) (a) (b) (c) is deemed to be a collective agreement between the parties, takes effect on the date specified in that collective agreement, and is binding on a trade union and an employer and on the employees affected. (2) The collective agreement under subsection (1) may be varied by agreement between a trade union and an employer. 8 Based on information received during numerous meetings with the parties (separately and jointly) as well as written submissions requested of the parties, Commissioner Munroe issued the Report of the Commissioner (the "Report") on May 27, 2004 concluding a new or revised Collective Agreement. 9 In his Report, Mr. Munroe discussed, at page 7, the factors he took into consideration in arriving at his conclusions: The factors listed in section 7 as requiring consideration recognize both the conflicts of interest and the interdependence which concurrently and inherently exist between employers, on the one hand, and their employees and certified bargaining agents, on the other hand. It is clear that the costal forest industry is presently in tough financial shape; that the industry faces serious competitive challenges; that the industry's problems cannot be characterized as ordinary cyclical problems which will resolve themselves in due course. Broadly speaking, a healthy and competitive industry is in the interests of the employees. Steps must be taken toward that end. As the IWA rightly states, a good many of the industry's challenges are external to the collective agreement. But within the frame of the collective agreement, certain flexibilities and cost adjustments must be accepted as inevitable. Some of these will be hard for the employees to accept, but their acceptance is required for the rejuvenation of an industry which, despite its present malaise, remains a predominant (and potentially even more important) employment-provider and economic engine for coastal British Columbia. At the same time, a healthy and competitive industry requires workplaces where the proper value is placed on good labour-management relations, with a high-morale work force whose interests are genuinely taken into account. The legislation also requires that I consider the institutional interests of the IWA as the workers' representative. I will further comment on the operation of Section 7 of the Act while addressing certain of the revisions

7 Page 7 I am making to the parties' collective agreement. 10 Mr. Munroe identified a number of issues which continued to separate the parties including wages, pensions, alternative shifting, vacations, travel time, stump-to-dump contracting (which refers to the contracting out of all the work in the operation as opposed to only a phase of the operation, for example, falling or hauling) and preferential hiring as well as the duration of the new Agreement. The dispute in this arbitration brings into consideration principally the issues of the duration of the Agreement and stump-to-dump contracting. 11 With respect to the duration of the contract, Commissioner Munroe determined that the new Agreement would have a four year term running from June 15, 2003 to June 14, In explaining his decision in that regard, he stated, at pp : In the dispute before me, neither side was initially willing to be pinned down to a particular term for the new or revised collective agreement. More recently, the Industry has said that it believes a six-year agreement commencing this year is required, citing the need for a lengthy period of stability in the parties' collective bargaining relationship. On the other hand, given FIR's present demands and the prospect of significant collective agreement changes to meet current circumstances, the IWA is concerned that the employees' interests will be unduly subordinated by the lack of access to the collective bargaining table for the long period proposed by the Industry. These parties do need a reasonable period of stability. Their collective bargaining relationship is presently strained. The objective of good labour-management relations will not be met if the parties are pushed back into collective bargaining too soon. At the same time, the continuing impact of the various external factors so profoundly affecting the parties' collective bargaining relationship is difficult to predict. As examples only, if the Canadian dollar continues to rise in relation to the U.S. dollar and if the Canada-U.S. softwood lumber dispute remains unresolved in the medium term, the coastal forest industry's economic viability and competitiveness may be threatened by being locked into a six-year collective agreement with fixed wage increases, etc., for such duration. Conversely, if factors external to the parties' relationship result in a substantial improvement in the industry's fortunes over the next few years, the employees' interests may not be given sufficient weight in the latter years of a collective agreement with a six-year term. If one adopts the norm (as I do) of looking at the commencement date of

8 Page 8 the new or revised collective agreement as the day following the expiry of the immediately preceding collective agreement, then whatever the nominal term of the new or revised collective agreement, nearly one year thereof has already gone by (the predecessor collective agreement expired on June 14, 2003 [although revived by the Act in December, 2003]). Thus, a six-year term would have roughly five more years to run, while a three-year term would have only about two years left to run. The parties need a greater period of collective bargaining stability than just a couple of years. On the other hand, a five-year lock-in may actually threaten the coastal forest industry's competitiveness or work unfairly to the employees. My conclusion is that the new or revised collective agreement shall have a four-year term, effective the expiry of the previous collective agreement. That is, the term shall be June 15, 2003 to June 14, In addressing the contracting out of woodlands operations on a stump-to-dump basis, Mr. Munroe made the following comments, at pp : The discussion of the contracting out of a woodlands operation on a stump-to-dump basis arises in the context of Article XXV of the collective agreement. In the course of negotiations, the IWA offered the industry the right to contract out a woodlands operation on a stump-to-dump basis (as distinct from a phase), as an exception to Article XXV, provided the contractors are IWA certified; and provided further that the "1986 snapshot" is not undermined and that the initial and succeeding contractors are deemed to be successor employers. The IWA also said that such contracting out must be on a "long term" basis, to provide reasonable stability to the affected employees. The industry welcomed the union's offer to allow stump-to-dump contracting out as an exception to Article XXV, but sought certain things which the IWA finds unacceptable. The industry agrees that the initial and succeeding contractors must be IWA certified, but would seek by its proposed conditions to effectively undermine the "1986 snapshot" and to avoid automatic successorships for the second generation, etc., of contractors. There is also some disagreement between the parties about what ought to be the minimum duration of a stump-to-dump contract: the IWA arguing for ten years; the industry suggesting five years (and then only for the first generation of contractors). Here again, the benefit of being able to contract out woodlands operations on a stump-to-dump basis will be unevenly felt as between companies. But from an industry perspective, the benefit can be significant. In my view, an acceptance of the major conditions that the industry wants to attach to the union's willingness to go down the

9 Page 9 stump-to-dump path are unjustified in the balance of considerations under Section 7 of the Act. Whatever might be the long term advantages to the industry of its proposed conditions concerning the "1986 snapshot" and no-successorship, they are overwhelmed by the negative impact on the affected employees' interests and by the dilution of the union's ability to maintain cohesive woodlands bargaining units. As will be seen, I have prepared a Woodlands Letter of Understanding, which shall be appended to the new or revised collective agreement, and which I regard as the proper outcome to this issue. 13 Therefore, Commissioner Munroe determined that the industry would be able to contract out Woodlands operations on a stump-to-dump basis to an I.W.A. Certified Contractor. However, he saw fit to impose conditions on that right in order to protect the interests of both the employees and the Union. To that end, Mr. Munroe created the Woodlands Letter of Understanding (Appendix 1 to his Report) which stated as follows: APPENDIX 1 WOODLANDS LETTER OF UNDERSTANDING BETWEEN: FOREST INDUSTRIAL RELATIONS LIMITED Accredited bargaining agent for the member companies set out in Schedule "A" to the Coast Master Agreement ("FIR") AND: I.W.A. CANADA, and Locals 1-80, 1-85, 363, 2171 and thereof and the Council of I.W.A. Locals Certified for Weyerhaeuser Company Limited ("UNION") FIR and the Union agree as follows: 1. Except as provided in this Letter of Understanding, the existing rights and obligations of the Company and the Union under Article XXV of the Coast Master Agreement are not affected.

10 Page As of the date of this Letter of Understanding, but subject to paragraph 4 below, a Company may contract out a woodlands operation to an I.W.A. Certified Contractor on a stump-to-dump basis. The Company will consult with the Union prior to selecting a Contractor. By agreement between the Company and the Local Union, the operation may be sub-divided into two stump-to-dump contracts. 3. The Union and the Company agree, and the Contractor must also agree, that the Contractor will be deemed to be the successor employer under the Labour Relations Code, including recognition of the seniority rights of all employees on the seniority list of the Company; and generally, that Sections 35(1) - (5) of the Labour Relations Code apply. 4. Notice under Section 54 of the Labour Relations Code will be provided to the Union prior to any Woodlands operations being contracted out under this Letter of Understanding. Discussions under Section 54 must include the Contractor(s). 5. In the event there is a surplus of employees created as the result of moving the woodlands operation or subdivision thereof to a Contractor, the Company will offer severance pay (calculated in a manner consistent with Article XXXIII) to the surplus employees. By agreement between the Company and the Union, the severance pay opportunities may be directed towards facilitating the severance of older workers who may volunteer for such severance. 6. In the event a surplus employee accepts the severance pay offered, the surplus employee will lose all seniority rights including preferential hiring rights under the Coast Master Agreement. 7. The commercial contract between the Company and the Contractor(s) will be for a period of not less than five years. In the event a contract is discontinued for any reason prior to its end date (e.g., insolvency of the Contractor or performance issues), a replacement contractor must be an I.W.A. Certified Contractor. The Union and the Company agree, and the replacement Contractor must agree, that the replacement Contractor will be deemed to be the successor employer under the Labour Relations Code, including recognition of the seniority rights of all employees on the seniority list, for the remainder of the period of the contract; and generally, that Sections 35(1) - (5) of the Labour Relations Code apply. 8. If a Contractor is replaced after the initial 5-year period or any extension thereof, the commercial contract between the Company and the replacement Contractor must be for a period of not less than five years. The replacement Contractor must be an I.W.A. Certified Contractor. The Union and the Company agree, and the replacement Contractor must agree, that the replacement Contractor will be deemed to be a successor employer to the initial Contractor under the Labour Relations Code, including recognition

11 Page 11 of seniority rights of employees on the then-existing seniority list; and generally, that Sections 35(1) - (5) of the Labour Relations Code apply. 9. Paragraphs 7 and 8 shall apply to all succeeding replacement Contractors. 10. In the event the operational responsibility for a woodlands operation or subdivision thereof is taken back by the Company, the Company will acknowledge and assume full successorship obligations under the Labour Relations Code, including recognition of seniority rights of employees on the then-existing seniority list. 11. If the Company sells or otherwise transfers its woodlands operations or Licences it will ensure that the purchaser or transferee agrees to assume the obligations of the Company set out in this Letter of Understanding. 12. If any dispute arises with respect to the interpretation or application of this Letter of Understanding, the parties will meet to discuss the dispute and if they are unable to resolve the dispute, the matter will be referred to Don Munroe for final resolution by mediation or arbitration. If Mr. Munroe is unavailable, Stan Lanyon will serve in his place. If Mr. Lanyon is unavailable, David McPhillips will serve in his place. 13. This Letter of Understanding does not apply to stump-to-dump contracts entered into prior to the date hereof. 14 Following the imposition of the new Collective Agreement, TimberWest made a decision to contract out stump-to-dump operations at both its Cowichan Woodland and Honeymoon Bay sites. The employees at both those operations were represented by Local 1-80 of which Bill Routley is the President and Carmen Rocco the 1st Vice-President. On July 2, 2004, TimberWest provided Section 54 notice of its intentions to Mr. Routley. 15 TimberWest openly declared its intent to operate as a land management company. In a number of press releases and in the Company's Annual Reports of 2004, 2005 and 2006, the change of direction or "new business model" has been extensively discussed. TimberWest indicated that it had become a "more focussed land management company" and that it was the first major forest company on the British Columbia coast to completely exit the operating side of the logging business (2004 Annual Report). The Company's focus was described as being on core timberland management functions including timber inventory, strategic silviculture investments, harvest planning and the marketing and sales of timber products (2006 Annual Report). The 2004 Report described the transition in some detail: New Collective Agreement In December 2003, the provincial government appointed Don Munroe as mediation-arbitration commissioner to examine the issues facing the coastal forest industry and issue a binding award for a new collective agreement between industry and the IWA (now USWA). This appointment

12 Page 12 was welcomed by both the IWA and the coastal forest industry's bargaining unit. Munroe's terms of reference called upon him to consider the need for terms and conditions of employment that are "consistent with the economic viability and competitiveness of the coastal forest industry in both the short and long term, the importance of good labour-management relations and the interests of the employees and trade unions." In May, Munroe released his award, which provided employees with wage increases, higher pension contributions, potential bonuses, increases to seniority retention and enhanced severance pay while, at the same time, providing some important modifications to work scheduling, reductions in travel time and the ability to transfer work to full-phase contractors. As a result, TimberWest transformed its business into a more focused forest land management company by restructuring harvesting operations. Previously 50% of TimberWest harvesting had been done by contractors. After the Munroe award, TimberWest moved quickly to contract the remainder of its logging to unionized contractors on a competitive-bid basis. The transition was completed by the end of The 2005 Annual Report stated, at p. 33: The transformation of the Company's logging activities to a contractor model is considered a natural progression of the Company's Operations Excellence strategy, and it is an operating structure more closely aligned with industry norms in the rest of North America. This change is expected to improve the Company's competitiveness over the long term. Going forward, the Company's focus will be on core timberland management functions, including timber inventory, strategic silviculture investments, harvest planning, and the marketing and sales of timber products. 17 In the fall of 2004, it was determined by TimberWest that the Cowichan and Honeymoon Bay operations would be contracted out to Munns Lumber while three of the Company's other operations (Nanaimo Lakes, Shoal Island Log Sort and Ladysmith Dryland Sort) were contracted out to Ted Leroy Trucking. TimberWest then began the process of disposing all of its own logging equipment which had been used in the woodland operations; some was sold to the contractors and the rest was disposed of through auctions). 18 The evidence is that, during the late summer and fall of 2004, there was widespread concern among TimberWest's unionized employees concerning their job security with the new contractors, including what would happen should the contractors go bankrupt. As well,

13 Page 13 many of the non-bargaining unit staff were in the process of being laid off while some of the supervisors would become "contract administrators" to oversee the new contracts and the contractors in the operations. 19 Mr. Rocco testified that the Company held crew meetings in an attempt to address the concerns of the bargaining unit employees. In one meeting, John Quinn, who had been the Manager of the Cowichan Operations, explained to the Woodlands crews that the Company was exiting the logging business as it was felt contractors could be more efficient. Mr. Rocco's uncontradicted testimony was that there was anger and unrest among the employees who expressed the sentiment that TimberWest was abandoning them. Mr. Quinn read the Woodlands Letter of Understanding to the employees. When asked specifically what would happen if the contractor went bankrupt, Mr. Quinn read the paragraph dealing with TimberWest either taking back the employees or finding another contractor. Mr. Rocco testified he supported Mr. Quinn's statements because he (Mr. Rocco) felt that the employees were protected by the Woodlands Letter. 20 Mr. Rocco also testified that similar comments about the employees being protected were made by other supervisors in meetings and discussions over the next couple of months and salaried people often said to him that "at least you have protection". 21 Terry Francis, a former Production Superintendent in the operations who became a contract administrator after the contracting out in 2005, testified he was unaware of any such absolute statements by himself or other supervisors over that period indicating the employees would be taken back although he did agree everyone (supervisors and union executives) was trying to calm the crews down. 22 TimberWest then entered into commercial contracts with Munns Lumber on December 15, 2004 with respect to the transfer of the operations at Cowichan and Honeymoon Bay. Part 17 of the commercial contracts dealt with termination of that agreement: 17.1 Effect of Termination. If this Agreement is terminated: (a) (b) (c) (d) all the rights of the Contractor under it will immediately cease except the Contractor's right to be paid for Work done up to the time of termination; the Contractor will immediately cease performing the Work; the Company will be entitled to possession of any Timber and any roads or other improvements constructed by the Contractor on the Lands; the Contractor will provide all information reasonably required by the Company to continue operations as requested in the Operating Area by the Company in an orderly, timely and professional manner and including but not limited to all planning, production, payroll,

14 Page 14 (e) (f) personnel records and other information; except as otherwise provided in this Agreement, the Contractor will be responsible for any Claim arising from or related to the operations of the Contractor at the Cowichan Woodlands Operation prior to termination and the Company will be responsible for any Claim arising from or related to the operations of the Company at the Cowichan Woodlands Operation after termination; and the Contractor's obligations under paragraph 14.2 in respect of any activity of the Contractor prior to termination will survive termination Completion. Without limiting paragraph 17.1, if this Agreement is terminated by the Company, the Company may hire such persons and equipment as are necessary to complete the Contractor's obligations under this Agreement, and may recover the costs of doing so to the extent to those costs exceed the cost the Company would have incurred under this Agreement. Such termination will be in addition to and without prejudice to any other rights in this Agreement, or remedies at law or in equity that the Company may have for the default of the Contractor or for the recovery of money from the Contractor Equipment Removal. Within 30 days after the termination or expiration of this Agreement, the Contractor will remove all of its equipment and supplies from the Lands, making good any damage caused by such removal. Any equipment or supplies not removed by the Contractor within 30 days, may be removed or consumed by the Company at the Contractor's sole expense. 23 On December 20, TimberWest also entered into a separate agreement with Munns Lumber addressing certain other obligations: Re: Non-Replaceable Timber Harvesting Services Agreement for Cowichan Woodlands (the "Contract") The purpose of this letter is to describe certain obligations of TimberWest Forest Company (TimberWest) and Munns Lumber (1956) Limited (Munns) under the above Contracts. Despite Sections 3.1, 3.2 and of the Contracts, if at any time the

15 Page 15 level of work allocated to Munns under either of the Contracts is such that Employees, as defined in either of the Contracts, are laid off by Munns, or if either of the Contracts ends or is terminated for any reason and Employees, as defined in either of the Contracts, are laid off by Munns: (a) (b) Munns and TimberWest will work together in good faith to minimize any severance obligations to those Employees, and TimberWest will indemnify Munns in respect of any severance payable to any such Employees. 24 When the Woodlands employees returned to work in early 2005 at Cowichan (58 employees) and Honeymoon Bay (55 employees) after the Christmas shutdown, they were employees of Munns Lumber. 25 In early 2005, TimberWest met with the Union and indicated that it wished to keep the 29 Foresters and Engineers in the bargaining unit as employees of TimberWest. The Union objected to that proposal as it wished to keep the bargaining unit intact and that matter became a major source of discontent between the parties. Other issues arose as well, including the Union's objection to TimberWest's inclusion of Clause 3.4 in its commercial contracts with the contractors. That clause stated: "Number of Employees. The Contractor will not increase the number of employees performing the work who have rights under the Woodlands Letter of Understanding without first obtaining the consent of the Company, which consent may be withheld for any reason." There were also disagreements about whether the dumps were included and the degree to which the Company could contract out surplus volume beyond its Article XXV levels. 26 As a result of these disagreements, TimberWest and the Union went back to Commissioner Munroe who worked with the parties to establish "a resolution of matters within an identified framework". In due course the parties concluded a Letter of Understanding on June 27, 2005 which was provided to Commissioner Munroe, who then issued the agreement as a "Consent Award" on June 28, That document states: Preamble: On March 21, 2005, the Parties met before Arbitrator Munroe. The Parties were urged by the Arbitrator to resolve their issues. The following points were circulated among the Parties to be used as a framework for settlement: 1. TimberWest agrees to provide sufficient volume as determined by the Woodland's Contractor to maintain historical employment levels or its Article XXV obligations, whichever is greater. 2. Surplus volumes will be bid to certified Steelworker contractors in good standing with the union.

16 Page TimberWest agrees to remove the clause in its Woodlands contracts which prohibits the Woodland's Contractor from expanding the size of its crew. 4. TimberWest will hold in abeyance any awarding of contracts to any contractor until this matter is resolved. 5. TimberWest agrees to include the Woodland's Contractors in all discussions involving this matter. 6. These principles are a framework only for the development of a full and final resolve to this matter. The parties agree to continue to meet with a goal to have an agreement by Friday, April 1, If no agreement is reached, either party may ask Don Munroe to issue a final and binding decision. The Parties met on several occasions subsequent to March 21, 2005 for the purpose of resolving the issues in dispute. Now therefore the Parties agree as follows: 1. As determined after consultations with the Woodland's Contractor and the Local Union the Company will provide sufficient volumes of harvest to the Woodland's Contractor to maintain the historic (2004) employment levels of the Company crew and satisfy its Article XXV obligations, whichever is greater, prior to contracting out additional volumes. The applicable numbers are as follows: Cowichan Woodlands Honeymoon Bay Nanaimo Lakes Oyster River Article XXV Historic (2004) NA 2. The Company agrees that currently (April 18, 2005) no surplus timber volumes are available in Cowichan Woodlands operation or Honeymoon Bay operation as current crew levels are far below the Company's Article XXV obligations. 3. The parties agree that "stump-to-dump" contractors Munns Lumber (1956) Ltd. and Mt. Sicker Lumber Co. Ltd. worked in the Cowichan/Sooke operations in Munns had a harvest level of

17 Page 17 50,000 to 60,000 cubic metres and Ms. Sicker had a harvest level of 70,000 to 80,000 cubic metres. 4. The Company agrees that should there be a need to adjust the volumes resulting from the process described in paragraph 1 commitments above, it will engage in further consultation with the Woodland's Contractor and the Local Union to ensure the Company's commitments are maintained. 5. The Company will only bid out additional volumes (after the process identified in paragraph 1) to contractors in good standing with the Local Union and whose employees are represented by the Steelworkers (the "Contractor"). To be in good standing, the Contractor must not be behind in its remittance of dues to the Local Union, nor in arrears with respect to employee benefit and pension plan payments. The Company will advise the Local Union when a contract for additional volumes is awarded and the name of the contractor. 6. The Company will advise the Local Union of when it is making final payment to the Contractor. The Local Union is required to advise the Company where it reasonably apprehends that the Contractor has failed to pay dues or plan payments. Where it is so advised, the Company will hold back from the Contractor an amount equivalent to the dues and plan payments owed until either: (a) (b) the Contractor provides third party verification that it is up-to-date on its payments; or the Company receives directions from the Local Union to pay the hold-back amount to the Contractor. Where the Contractor fails to provide the Company with third party verification per (a) above within ninety (90) days of the hold back, the Company will pay these monies directly to the plan(s) as needed or to the Local Union in the case of dues. 7. The Company will remove clause 3.4 from the Non-Replaceable Timber Harvesting Agreement entered into with the Woodland's Contractor to enable the Woodland's Contractor to hire employees as required to meet the historic (2004) crew levels or Article XXV obligations. 8. The Company will meet in good faith with the Local Union and the Woodland's Contractor to discuss and resolve the issues of severance and training. 9. The parties agree that the hourly Engineers and Foresters on the Company's seniority list at the time the operations were contracted

18 Page 18 out will remain with the Company on its seniority list. 10. This agreement will resolve current issues between the Parties regarding the Woodland's Letter of Understanding. 11. This Agreement is made on a without prejudice or precedent basis, except as between these parties at these operations. It does not constitute an interpretation of the Coast Master Agreement and including the Woodland's Letter of Understanding. 12. Any dispute as to the interpretation, application, operation or alleged violation of this Agreement shall be referred to a third party for mediation/arbitration as agreed to by the Parties. 13. This Agreement is subject to final ratification by the Company and the Local Union. DATED at Vancouver, B.C. this 27th day of June, 2005 USWA, LOCAL 1-80 TIMBERWEST FOREST CORP. "Bill Routley" Bill Routley, President per: "G. Young" G. Young, Vice-President, TimberWest Administrative Notes: The Parties have met and acknowledged that there maybe additional volumes to contract out as per Point (1) and Point (5) of the Agreement. The Local Union is concerned that the Company will use its ability to vary the cut to the detriment of the bargaining unit and work year. The Company acknowledges the Local Union's concern and will not act in bad faith to manipulate the work year or the volumes to the detriment of bargaining unit employees. If TimberWest uses contractors and sub-contractors in respect to additional volumes and traditional work (falling, Y&L, hauling, road construction, maintenance and sorting) they will be in good standing with the Local Union per Point (5). 27 Article 9 of the Consent Award indicated that the forester and engineers "will remain with the Company on its seniority list". Mr. Routley testified that in retrospect it was a

19 Page 19 mistake for the Union to agree to do this "in order to help the Company". A year later, TimberWest attempted to separately contract out that work and that dispute (along with others) went before Arbitrator Stan Lanyon. In his decision, TimberWest Forest Co., [2007] B.C.C.A.A.A. No. 96, April 12, 2007, Arbitrator Lanyon considered a significant amount of bargaining evidence material related to whether the Company had assured the Union that it intended to keep the foresters and engineers in the TimberWest bargaining unit. Arbitrator Lanyon concluded that TimberWest had done precisely just that. He stated, at paras : I conclude, therefore, that on the testimony of the Employer's witnesses alone, Article 9 of the Munroe Consent Award was an agreement to have the foresters and engineers "remain with" TimberWest in the bargaining unit, as "hourly employees", under the "same terms and conditions of the Coast Master Agreement"; and indeed, that is what the Employer did for the first year of the agreement. It was, therefore, not simply an agreement to keep these employees on a seniority list, once their positions had been contracted out or transferred to management. However, adding in the testimony of all the Union witnesses, it is clear that the Employer consistently repeated that the foresters and engineers would remain in the bargaining unit under the current terms and condition of the Coast Master Agreement. In each of the negotiations, involving the same parties on the same issues, the Employer's representations remained consistent. These representations were made during the Munroe hearing process and in regard to settlement discussions leading up to the Munroe Consent Award. The other discussions and agreements in regard to Johnstone Strait and Oyster River Operations, though not required, corroborate this conclusion. This is the only reasonable conclusion to draw from both the agreements and the extrinsic evidence. To come to any other conclusion, one would have to determine that the Employer unnecessarily, over a period of one (1) year, negotiated a right which it stated it already had. In fact, the Company raised the issue, and negotiated it, because it was uncertain about whether Munroe would rule at arbitration in its favour under the Woodlands Letter of Understanding. The Woodlands Letter of Understanding was a new contract (less than a month old at the time) that TimberWest decided to contract out under and no one knew what the interpretation would be in regard to the definition of operation, or the configuration of contractors, or the ability of the Employer to retain the foresters and engineers. The Munroe Consent Award was bargained pursuant to the contracting out that was to take place under the Woodlands Letter of Understanding.

20 Page 20 Article 7 of the Woodlands Letter of Understanding states that contracts between the Company, TimberWest in this case, and its contractors, will be for a period of "not less than five (5) years." I conclude that the provisions of the Munroe Consent Award remains in effect for this period of time. At the end of that period the Woodlands Letter of Understanding sets out additional provisions (Article 7-10) as to what are the party's respective rights. 28 In the spring of 2006, another dispute arose when TimberWest send out letters to Woodlands employees indicating their seniority retention with TimberWest was expiring. As a result, Mr. Rocco wrote to Commissioner Munroe on April 7, and stated the following: We believe your language lets the company contract out its crew to a contractor and the crew was transferred over to the contractor with their seniority rights and the contractor is the deemed successor and is obligated to assume all contractual obligations both written and practice. The other puzzling scenario is ex-employees of TimberWest that were transferred to the contractor are now receiving termination letters from TimberWest stating that their seniority retention has run out and they are taken off the TimberWest seniority list. It is our position that these employees were not laid off, they were transferred to the contractor through the Woodlands Letter of Understanding and they are not TimberWest employees, they are now employees of the contractor. The Woodlands Letter states that if TimberWest takes the crew back in the future, then they become TimberWest employees. 29 On May 19, Gerry Young, the Vice-President of TimberWest Operations, responded as follows to the Union: Re: Expiry of Seniority Retention Rights You have asked for clarification as to why TimberWest was sending letters to hourly employees advising them that their seniority retention had expired. As you are aware, a number of hourly employees are members of the TimberWest Employee Stapled Unit Purchase Plan (the "Plan"). Under the terms of the Plan, those employees' participation ends when their employment relationship with TimberWest ends. The letters sent by TimberWest were to clarify the employees' employment status so there

21 Page 21 would be no confusion about the need to end their involvement in the Plan. Further to the recent discussions between the parties, we write to confirm that TimberWest will cease sending letters to hourly employees advising them that their seniority retention has expired. This is being done on the understanding that Local 1-80 agrees that by not sending these letters it does not mean that the seniority rights of employees vis-à-vis TimberWest carries on. Rather, it is agreed that the seniority rights of hourly employees will continue to be extinguished in the normal course (i.e., as specified under the collective agreement). Paragraph 10 of the Woodlands' Letter of Understanding states as follows: In the event the operational responsibility for a woodlands operation or subdivision thereof is taken back by the Company, the Company will acknowledge and assume full successorship obligations under the Labour Relations Code, including recognition of seniority rights of employees on the ten-existing seniority list. TimberWest confirms that paragraph 10 of the Woodlands' Letter applies where the work traditionally performed by the Company crew is taken back. In other words, if the work is taken back, relevant employees would once again become employees of TimberWest, bringing their seniority with them. 30 That exchange of letters resolved the issue between the parties. Mr. Rocco testified the Union considered the dispute as only addressing the employees who had not been transferred to Munns Lumber. 31 Mr. Routley testified there was also a successorship application made by Local of the Union to the Labour Relations Board with respect to TimberWest's similar contracting out of its Oyster River operations. The Union asserted that Oyster River Logging Ltd. was the successor employer to TimberWest. Counsel for the Employer prepared a draft of its submission to the LRB and provided it to the Union. In that draft the Company made a number of statements about the distinction between contracting out and successorship, maintaining that this was a contracting out and not a successorship on the basis that TimberWest remained significantly in control of the operation. Mr. Routley testified these statements satisfied both Local and Local 1-80 that TimberWest maintained an ongoing relationship with the operation and continued to exercise control and would live up to the obligations in the Woodlands Letter. As a result, the successorship application for Oyster River was withdrawn by Local and Local 1-80

22 Page 22 did not make a similar application with respect to Munns Lumber. 32 The relevant sections from TimberWest's submission to the Labour Relations Board are the following: FACTS TimberWest's Business 28 TimberWest operates exclusively in the solid wood segment of the forest industry, and is engaged primarily in the harvesting and sale of logs. It is the largest owner of private forest lands (i.e., it owns the timberland assets in fee simple) in Western Canada. It runs harvesting operations, mostly on Vancouver Island, and sells most of its log production on the open market. 29 TimberWest's business is timberland management, marketing, and the sale of the logs it harvests. In fiscal 2004, the sale of logs accounted for approximately seventy-one percent (71%) of the Company's revenue. 30 TimberWest's timberland is comprised from the following areas: (a) (b) It owns in fee simple four (4) private land logging operations. Cowichan Woodlands, Honeymoon Bay, Nanaimo Lakes, and Oyster River. TimberWest has determined that the amount it can sustainable harvest annual from these four (4) operations is 2.5 million m3. It currently holds renewable long-term public tenures that provide it with the right to harvest 0.7 million m3 of logs per year from Crown lands. This public tenure land consists of Tree Farm Licence 47 and various forest licences and timber licences. * * * 39. With the Oyster River Contract, TimberWest continues to employ nine (9) non-bargaining unit employees in the Oyster River Operation. The maintenance and production supervisor positions have been eliminated because the Contractor's employees now perform this work. 40. As well, with the Oyster River Contract, TimberWest has maintained all of the bargaining unit employees who previously performed engineering and forestry work at Oyster River. In total, nine (9) bargaining unit employees continue to perform this work at

23 Page 23 TimberWest. Attached as Tab C is an organizational chart. Attached as Tab D is a list of bargaining union employees working for TimberWest all of whom report to the Oyster River Engineer John Dirom. The employees who are transferred to the Contractor retained seniority rights with TimberWest. 41. With the Oyster River Contract, several parts of TimberWest's business at the Oyster River Operation has remained unchanged except that the Contractor performs harvesting work that TimberWest's company crew previously performed. Nonetheless, within the overall business, each part of it continues: (a) (b) (c) Forestry and engineering work. TimberWest's employees cruise or evaluate the timber within the Oyster River Operation, and design the cutblock layout, and the silviculture prescriptions. TimberWest determines when, and which timber, gets harvested. Road development. TimberWest's employees design the road layouts and obtain permits and licences required to access the timber. The Contractor builds and deactivates the road while TimberWest's contract administrators and engineers measure up the finished road to ensure it meets quality performance standards and completes periodic site assessments to ensure the road is maintained and subsequently deactivated to an acceptable standard. Falling, bucking and yarding. TimberWest's contract administrators provide a falling and bucking prescription for each timber species to ensure it optimizes log value and meets customer log quality expectations. While the Contractor performs the falling, bucking, and yarding, it adheres to the following check-sheets designed by TimberWest: (i) (ii) (iii) (iv) Manual falling quality check-sheet; Mechanical falling quality check-sheet; Log quality check-sheet (manual bucking or mechanical processing); and Length sort optimization check-sheet. TimberWest contracts with contract scalers, who in turn provide the following reports to TimberWest: (i) (ii) (iii) Falling and log quality field and summary reports; Operations performance report; and Sort separation and value recovery field and summary