Organized labour’s advocacy role

How unions put the brakes on the biggest privatization plan in Ontario’s history

While the political dust may have settled, it's interesting to review the recent decision in the case of Payne v. Ontario (Minister of Energy, Science and Technology) 2002 CarswellOnt 2394 (O.S.C.) This case, brought by the Canadian Union of Public Employees (CUPE) and the Communications, Energy and Paperworkers Union of Canada (CEP), held that the Ontario government did not have the power, under recently enacted legislation, to privatize Ontario Hydro. The decision was a surprise to many and effectively stopped what would have been one of the largest securities offerings in Ontario history.

The Ontario government established a complicated corporate structure to govern the Ontario electricity industry following the release of a 1998 government white paper. Part of the structure established the Electricity Act, which gave the cabinet the power to put Ontario’s electrical assets into business corporations. The act then gave cabinet the power to acquire and hold the shares in those corporations. The government created two corporations — Ontario Power Generation and Hydro One — with the ultimate aim of selling the shares in them to the public, thus privatizing much of the province’s electricity industry.

Enter organized labour in the form of the CEP and CUPE. While CUPE represented many of the employees working for Hydro One, the CEP did not have any bargaining or representation rights. The CEP and CUPE sued the Ontario government, arguing the plan to sell shares was illegal. (About 3,000 employees of Hydro One were members of the Power Workers Union (PWU), which, in turn is a CUPE local. Interestingly enough, those employees opposed the CEP/CUPE lawsuit.)

To the surprise of many, the unions were successful in derailing the government's plan.

The government fought hard to stop the lawsuit, claiming the union could not sue it in court over its plans to privatize Ontario Hydro. The government argued:

•the unions had no legal authority to even commence a law suit in court; and

•even if they did, the union had no standing to pursue a lawsuit against the privatization initiative.

On the first argument, the government relied on a somewhat obscure law, the Rights of Labour Act, which was enacted many years ago to, among other things, protect unions from restraint-of-trade suits brought by employers and give them certain limited rights to sue in the courts because unions do not have any legal status, and can’t normally sue in the courts. The government argued the Rights of Labour Act only gave unions the right to sue where the case involved representation rights in which they are directly involved (for example, collective bargaining issues.) Since the privatization of Ontario Hydro did not involve union representation rights, the government argued the unions had no right to sue.

The court rejected this argument, relying in part on a little-known section contained in Ontario’s class-action rules. These rules allow representative individuals of a class to sue a defendant on behalf of all individuals in the class. An example of a recent class-action lawsuit is the action brought by employees of Nortel on behalf of a large number (or “class”) of dismissed employees claiming wrongful dismissal. These rules are very complicated and for a suit to proceed under them, a court must first certify the class, which can be difficult. The sub-rule the court relied on in the Hydro One case (Rule 12.08) was passed in 1999. It specifically allows unions to proceed with lawsuits by authorizing an individual to proceed on their behalf, without needing to go through the onerous class-action rules. Thus, the court permitted the lawsuit to proceed.

The government then argued that, even if the unions had the legal right to commence a lawsuit, they could not proceed with the suit because they didn't have standing. Just because an individual doesn't like something another individual does, it doesn't mean a lawsuit can be launched. A plaintiff must have a legitimate legal interest in the litigation. In the Hydro One case, the government argued the union had no basis, or specific interest, on which to sue to stop the privatization.

The court rejected this argument and, in doing so, made some important statements about the role of organized labour in society. As can be seen from the following excerpts, the court held that unions have a legitimate advocacy role to play beyond simply negotiating better wages and working conditions:

“It has long since been recognized that unions have an interest in matters which transcends the “realm of contract negotiation and administration”… “[T]he interests of labour do not end at some artificial boundary between the economic and political.” Inherent in this proposition is the notion that interests of labour are expansive and are meant to include more than, “mere economic gain for workers.

“While I agree with Counsel for the Minister that the applicants [the unions], except as individual consumers of hydro, may not have a direct personal interest in the IPO [initial public offering] and all that it entails, there is a public interest standing that should be recognized in the circumstances of this case.

“I am also of the view that discretion should be exercised in favour of the applicants in the circumstances of this case, notwithstanding the argument that the applicants are neither experts in the electricity sector nor in the interpretation of the underlying statutes. I do not accept the suggestion that the applicants are mere busy bodies or officious intermeddlers. They are neither.”

It was now time to consider the actual merits of the union’s case — was the government's attempt to privatize Ontario Hydro legal? The court concluded that it was not. In reaching its decision, the court was required to interpret section 48 of the Electricity Act. The relevant text reads as follows:

“The Lieutenant Governor in Council [(i.e.) the Ontario Cabinet] may cause two corporations to be incorporated under the Business Corporations Act and shares in those corporations may be acquired and held in the name of Her Majesty in right of Ontario by a member of the Executive Council designated by the Lieutenant Governor in Council.”

Essentially, the unions argued that for the government to be allowed to privatize Ontario Hydro, section 48 should have included the right to sell shares in addition to the right to acquire and hold them. In other words, because the law didn't specifically say the government could sell the shares in Hydro One, privatization was illegal. The government, on the other hand, argued the right to sell the shares should be implied in the section. In other words, if the Electricity Act allowed the government to create electrical corporations, put Ontario Hydro's assets into them and hold their shares then, surely, the government was entitled to dispose of those shares through privatization.

The court disagreed, holding that if such a significant institution as Ontario Hydro was to be privatized, the Electricity Act should have clearly said so, which, according to the court it did not. The following excerpt from the judgment makes this point:

“However, I would have thought that the notion of privatization should have been set out in clear and unequivocal terms in the “purposes” portion of the Electricity Act, as were a whole range of other important social and economic matters. Privatization of a long-standing important public institution, such as Ontario Hydro, is not something I would have thought would or should occur without addressing the issue head on. The fact that it wasn't set out as a stated purpose is consistent with the conclusion that the Electricity Act, as comprehensive a piece of legislation as it is, is not intended to deal with privatization, as such, let alone any implied ability to alienate personal property as a natural person.”

The court also relied on the statements of the Minister of Energy, Science and Technology, when he introduced the legislation in 1998:

“As a shareholder in Ontario Hydro, we don't talk about privatization because, first of all, that company needs a number of years and the successor companies will need a number of years to get their value back up, to enhance their value. Ontario Hydro is a badly devalued and demoralized entity right now. We do not want a fire sale, so we are not talking about privatization. We are talking about introducing competition and commercializing, making sure that the new successor companies have to, by law, act in a prudent manner and in a business-like manner.”

The government, undaunted, promptly changed the legislation to specifically give it the power to privatize Ontario Hydro. Old section 48 became new section 49, which reads as follows:

“The Minister, on behalf of Her Majesty in right of Ontario, may acquire, hold, dispose of and otherwise deal with securities or debt obligations of, or any other interest in, Hydro-One Inc. or any of its subsidiaries.”

As a result of the passing of this legislation an appeal of the Ontario Superior Court of Justice decision to the Ontario Court of Appeal was declared moot and the appeal court did not consider the appeal on its merits (Payne v. Ontario (Minister of Energy, Science and Technology) 2002 Carswell Ont. 2224 (Ont. C.A.).

It now seems clear the government has the legal authority to privatize Ontario Hydro. Whether it feels it has the political authority remains to be seen.

David T.A. Côté is a partner at Baker & McKenzie in Toronto. He practices primarily in the field of labour and employment law. For more information contact [email protected] or (416) 865-6924.

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