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Employer Funding of Employee Litigation Against Unions: A dark side of third

party funding for litigation

Patrick G. Nugent, Chivers Carpenter Lawyers, Edmonton, Alberta*

INTRODUCTION

Third party funding for litigation is not an uncontroversial concept. Some observers point

out that it can distort priorities and waste valuable judicial and quasi-judicial resources.

However, as a labour law practitioner on the union side, almost everything I do involves

third party funding for litigation. Unions pay me to represent members in respect to

grievances, labour board complaints, human rights complaints, WCB matters, LTD

claims, defamation claims and in other proceedings. With respect to grievances, unions

have a statutory obligation to provide representation for members, but not necessarily

counsel. With respect to other matters, providing representation or funding for

representation may be at the union’s discretion.

Of course not all unions provide funding for counsel with respect to all these

discretionary matters. However, for those that do, there is no obvious harm whatsoever

caused to the administration of justice by this practice. In a way, representation or

funding provided by unions is akin to insurance and, indeed, the union, as the member’s

agent where the matter in issue has obviously arisen in the course of the member’s

employment, is in no way a stranger to the litigation – especially so in grievances, where,

as the party to the collective agreement, the grievance is typically brought by the union

only.

So, in my world, third party funding of litigation is a good thing. It puts food on the table.

However, there is at least one notable and interesting exception to the value of third party

funding of litigation in the world of labour relations. The exception of course does not

* I would like to thank my partners, John Carpenter and Kara O’Halloran, for providing much of the core

argument for this paper. They were both counsel in the Gateway Casinos decision discussed later in the

paper.

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relate to unions, but to employers. There has been a practice in the labour relations

community of employers funding litigation brought in the name of dissident union

members against their union. This usually arises in the context of an effort to decertify a

union or to have its bargaining rights terminated, but has also arisen in the context of

merger proceedings, usually where a resource-poor and ineffectual employees’

association seeks to merge with an active and resourceful trade union.

By funding dissident members’ litigation, employers have attempted to use these

members (who are their employees) in an effort to get rid of a union or avoid a union they

do not want. This practice has been the subject of labour relations board decisions in a

number of jurisdictions, including a recent decision in Alberta. In this paper, several of

these decisions will be reviewed and in doing so, the pernicious effect of this aspect of

third party funding of litigation will be demonstrated.

BACKGROUND

Before reviewing some of the cases that have dealt with employer-funded litigation

against unions, it is important to note the statutory framework within which this activity

occurs. Although this paper will identify the applicable provisions in the Alberta Labour

Relations Code, similar provisions exist in all labour codes across the country.

The Preamble to the Labour Relations Code, R.S.A. 2000 c. L-1 (the “Code”) expressly

recognizes that, “legislation supportive of free collective bargaining is an appropriate

mechanism through which terms and conditions of employment may be established”.

Section 21(1) thus expresses that

An employee has the right

(a) to be a member of a trade union and to participate in its lawful

activities, and

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(b) to bargain collectively with the employee’s employer through a

bargaining agent.

The choice of a bargaining agent is importantly a choice made by employees and matters

of representation are between employees and a union with prohibitions against employer

interference with or support of a trade union. Section 148(1) of the Labour Relations

Code, R.S.A. 2000 c. L-1 (the “Code”) states:

No employer or employers’ organization and no person acting on behalf of

an employer or employers’ organization shall

(a) participate in or interfere with

(i) the formation or administration of a trade union, or

(ii) the representation of employees by a trade union, or

(b) contribute financial or other support to a trade union.

The importance of this no support / no interference position was outlined by the Board in

Certain Employees of Porta-Test Inc., Applicants and International Brotherhood of

Boilermakers, Iron Ship Builders, Blacksmiths, Forgers and Helpers, Lodge146,

Respondent and Porta-Test Inc. Interfenor., [1989] Alta. L.R.B.R. 293 (Canning). There

the Board dismissed an employee’s revocation application because the Employer had

been involved in the organization and promotion of the petition in opposition to the

Union. The Board emphasized that:

Matters of trade union representation of employees are matters

between employees and a trade union. Section 146(1) [now 148(1)] of

the Code emphasizes this as it is prohibited practice for an employer to

participate in or interfere with the formation or administration of trade

union or the representation of employees by a trade union. The selection

or rejection of a trade union by employees should be a decision of the

employees, unfettered by any overt or covert pressures from the

employer (at 2 (QL)). [Emphasis added]

Employee’s rights to choose their own bargaining agent free from Employer interference

is an important statutorily protected right and is fundamental to the associational

protection recognized in section 2(d) of the Canadian Charter of Rights and Freedoms

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(Health Services and Support – Facilities Subsector Bargaining Assn. v. British

Columbia, [2007] S.C.J. No. 27 (“Health Services”)).

The Supreme Court in Health Services described the importance of the right to

collectively bargain as follows:

Human dignity, equality, liberty, respect for the autonomy of the person

and the enhancement of democracy are among the values that underlie the

Charter…All of these values are complemented and indeed, promoted, by

the protection of collective bargaining in s. 2(d) of the Charter (at para.

81).

The right to bargain collectively with an employer enhances the human

dignity, liberty and autonomy of workers by giving them the opportunity

to influence the establishment of workplace rules and thereby gain some

control over a major aspect of their lives, namely their work… (at para

82).

Collective bargaining permits workers to achieve a form of workplace

democracy and to ensure the rule of law in the workplace. Workers gain a

voice to influence the establishment of rules that control a major aspect of

their lives… (at para. 85).

Collective bargaining is a fundamental right of employees, one which is protected by

statute and now the Charter. The values inherent in dignity, liberty and autonomy, the

ability to influence workplace rules and establish workplace democracy can only exist

where employees’ choice of bargaining agent is theirs alone.

In Westfair Foods Ltd. (Re), [2002] Alta. L.R.B.R. 96 (Asbell) the Board emphasized this

point:

The fundamental premise behind the Labour Relations Code is that

employees have the right to bargain collectively with their employer

through an independent bargaining agent that they freely choose: section

21(1). Only then is it feasible to set fair terms of employment through a

free collective agreement that governs the workplace. Unfair practices

aimed at bargaining agents indirectly impair employee rights to have those

bargaining agents represent them effectively (at para. 27).

The New Brunswick Court of Appeal in Fortis Properties Corp. v. United Steelworkers

of America, Local 1-306, [2007] N.B.J. No. 68 (CA) (“Fortis”) reviewed whether an

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employer may be involved in the selection of a bargaining agent, quoting the Ontario

Board in Pigott Motors (1961) Ltd., 63 C.L.L.C. para. 16,264:

… there are still some employers who, through ignorance or design, so

conduct themselves as to deny, abridge or interfere in the rights of their

employees to join trade unions of their own choice and to bargain

collectively with their employer. In view of the responsive nature of his

relationship with his employer, and of his natural desire to want to appear

to identify himself with the interests and wishes of his employer, an

employee is obviously peculiarly vulnerable to influences, obvious or

devious, which may operate to impair or destroy the free exercise of his

rights under the Act (Fortis, at para. 24).

Our Board has likewise adopted this principle, in Energy and Chemical Workers

Union…Sil Silica [et al.], [1989] Alta. L.R.B.R. 184 (Canning) (“Energy and Chemical

Workers”) the Board quoted the Ontario Board in Pigott and United Cement Lime and

Gypsum Workers International Union and Peel Block Ltd., 63 C.L.L.C. 16,227 where the

Ontario Board stated that:

It is a function and duty of this Board to be vigilant and scrupulous in its

concern to protect the fundamental rights of employees to make their own

choice as distinct from the choice of their employer, on the matter of

selection or rejecting a bargaining agent (Energy and Chemical Workers,

at p. 7).

In Securicor Investigation and Security Ltd. and United Steelworkers of America and

United Steelworkers of America Local 7105 (1983), 2 CLRBR (NS) 369 (Burkett)

(“Securicor”) the Employer had hired a security firm. The Ontario Labour Relations

Board (OLRB) found that the employer had violated s. 64 of the Act (similar to s.148)

when its employee “fomented and fostered dissent within the complainant by many of his

comments to striking employees, by publicly challenging the union leadership on

numerous occasions and by lending his active support to the group of employees who

were opposed to the union leadership” (Securicor, at 403-404). The OLRB considered

this conduct along with other related objectionable conduct to have “struck at the heart of

the collective bargaining process, undermining both the arm’s length relationship and the

exclusivity of the union’s bargaining rights” (Securicor, at 404).

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In Banff Centre for Continuing Education (Re), [1997] A.L.R.B.D. No. 84 (Wallace)

(“Banff Centre”) the Board found that the Employer had interfered with the

administration of the union when it sent a letter to employees questioning the motives of

the Association Executive in pursing a merger with the United Mine Workers. The Board

stated:

In our view, efforts by a union to amend its constitution and to dissolve the

organization through merger into another labour organization are internal

workings of the union that are protected by this section. Indeed, it is

difficult to imagine anything that is more profoundly a matter of union

"administration" than a decision whether the union will continue to exist

as an independent entity (Banff Centre, at para. 25).

CASES CONSIDERING EMPLOYER FUNDING OF EMPLOYEE LITIGATION

In Fortis, supra, an employee was challenging the union’s bargaining rights and the

union alleged, among other things, that the employer had paid the employee’s legal fees

incurred in the course of his challenge of the union. Although the payment of legal fees

was not directly relied upon in the outcome of the decision, the New Brunswick Labour

and Employment Board found that the employee withdrawal of support for the union was

involuntary because of employer involvement. This finding was upheld by the New

Brunswick Court of Appeal and, although the question of the payment of the employee’s

legal fees had not been relied upon by the Board, the Court made the following

comments:

It would be remiss of me not to confess my sympathy for the Board’s

concern over whether Ms. Irving’s legal fees were being paid by Fortis

having regard to her personal financial circumstances. Hindsight reveals

that the concern would have not have dissipated had the Board known of

the sheer number of legal proceedings that were subsequently initiated and

in which counsel participated. Let me explain my concern. From the

outset, Ms. Irving has been represented by the same two lawyers. The

hearing before the Board lasted five days and counsel’s representation of

Ms. Irving does not end there. Prior to the hearing of the judicial review

application, both counsel attended before the review judge on the Board’s

motion for intervener status. The same counsel also attended on the

hearing of the judicial review application that lasted two days, plus the day

on which the oral decision was read from the Bench. Following issuance

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of the Notice of Appeal, the Board once again sought intervener status

before this Court. The same counsel appeared on that motion. Finally, the

appeal to this Court lasted the better part of the day. I agree with the

review judge that questions surrounding the terms of the retainer between

Ms. Irving and her counsel are protected by solicitor-client privilege. But

it is unfortunate that the Board did not pose a simple question that is

outside the privilege that was claimed. Were the legal fees being incurred

by Ms. Irving to be paid, in full or in part, directly or indirectly, by Fortis?

After all, New Brunswick is one of the few jurisdictions where the

common law torts of champerty and maintenance have not been abolished:

Desjardin et al. v. Cote et al. (2006), …2006 NBCA 81. Central to this

type of tort case is the understanding that someone other than the litigant

was stirring up litigation by providing the necessary funds (Fortis, at para.

28).

In Desjardin the Court had quoted the following from Remedies in Tort, with respect to

the meaning of maintenance and champerty:

…Maintenance is defined as an officious intermeddling with a lawsuit

which in no way belongs to one, by assisting either party with money, or

otherwise to prosecute or defend a suit. Champerty is maintenance

together with an agreement to give the maintainer a share in the proceeds

or subject-matter of the proceedings, or some other profit….

To constitute maintenance, there must be an officious or improper

intervention in litigation which, in the legal sense, is immoral and into

which there enters, the same sense, a bad motive (Desjardin, at para. 58)

In Employees of Bateman Foods Ltd. v. Amalgamated Meat Cutters & Butcher Workmen

(N.A.), Local No. 312, Alberta Board of Industrial Relations, April 15, 1971(French) the

Board found that even the indirect (and without motive) financing of a lawyer for certain

employees by the employer was enough to taint an application for decertification and

have it dismissed. The Board found that management was not even aware that their

financial contributions, to the social club, would assist the employees but the fact that it

did compromised the application. The Board stated that this approach was in keeping

with the Board’s own policy and was an approach followed in other jurisdictions.

In Joseph Appleman, Applicant, v. Shopmen’s Local Union No. 834 of the International

Association of Bridge, Structural and Ornamental Iron Workers, Respondent, v. Empco-

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Fab Ltd., Intervenor, Decision dated August 17, 1982. (M.G. Picher) (“Empco-Fab”)

Vice- Chairman Picher considered similar sections of the Ontario legislation to our

sections 148 and 149 in considering a termination application. In this case a certain

employee, with the assistance of counsel, had brought a termination application; the

employee had previously brought a successful termination application against another

union using the same counsel. The employee testified that after the successful

termination he had received a bill for legal services, he took it to his employer and was

told that it would be taken care of. The bill was paid directly by the employer. The OLRB

found the current application had to be assessed against that backdrop. However before

dealing with that the OLRB gave the following comments, which we quote at length

given the clear applicability to facts before this Board:

Before turning to the merits of the petition in the instant case, however, the

Board feels compelled to comment on the evidence before it to this point,

if only because counsel for Mr. Appleman seemed not to appreciate the

seriousness of what has been disclosed. He submits that there was no

impropriety in Mr. Appleman submitting Mr. Gordon’s account in the

Steelworkers applications to his employer, nor in the employer paying it

directly to Mr. Appleman’s counsel.

In support of that position counsel for Mr. Appleman stressed that there is

no evidence of any undertaking by the company to pay Mr. Gordon’s fee

prior to his having been retained by Mr. Appleman. While he conceded

that a prior arrangement by an employer to defray the legal costs of

employees seeking to oppose a union’s certification or to terminate its

bargaining rights would constitute unlawful interference with a trade

union, he maintains that there is nothing improper or unlawful where the

payment or undertaking takes place entirely after fact, once the

proceedings before the Board are entirely disposed of. In his submission

there can be nothing objectionable so long as it is not the employer who, in

his words, “lights the fire”. That submission raises some fundamental

questions about the boundary of employer interference under the Act.

It is central to the Labour Relations Act that an employer is not to interfere

with the administration of a trade union or in the matter of representation

of his employees by a union (at paras. 8-10).

The OLRB then cited sections of the Ontario legislation, the equivalent of section 148

and 149 pointing out that “The right of an employee to freely choose or not to be

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represented by a trade union is protected under the Act. It is specifically protected from

interference by the employer, whether by coercion or bribery” (at para. 11). The OLRB

pointed out that:

The act contemplates that apart from the reasonable exercise of his

freedom to lawfully express his views an employer should be uninvolved

in any exercise of rights by employees under the Act. This so whether

his interference takes the form of threats or intimidation aimed at

union’s supporters or favours or financial support given either to union

supporters or to union opponents among his employees (at para. 11).

[Emphasis added]

The OLRB commented that the most common form of employer support is where a union

is dominated by an employer, which is contrary to the legislation that requires that a

union and employer be at arms length and that prohibits “sweetheart” agreements (at

paras. 12-13). The Board goes on to state:

It is no less improper for an employer to support employees opposed

to a union than it is for an employer to support a union itself. The

cases are legion in which the Board has found that granting favours to

employees who oppose a union and the encouragement of such

employees, is contrary to the Act. This so whether his employer

assistance is in the form of a promise to pay the legal fees of

employees opposing a union (e.g. Selinger Wood Ltd., [1979] OLRB

Rep. May 434) or providing employees time and facilities to organize and

conduct anti-union meetings… (at para. 15). [Emphasis added]

The OLRB makes the point that when an employer aligns himself with one side in a

choice of a union it distorts employees’ rights under the act whether his conduct is in the

open or covert; it amounts to interference under the legislation (at para. 16). Legislation

allows employer’s to express their view but they are not to interfere. The OLRB then

asked itself whether interference in the selection or administration of a trade union or

with the rights of employees had been made out, in answering in the affirmative the

OLRB found that Mr. Appleman had succeeded in defeating a previous application for

certification and that it would have been unlawful had the employer given him a

promotion for doing so, just as it would be unlawful to penalize an employee who works

for the union’s cause: “The “hands off” rule knows no time limitation: it binds the

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employer before, during and after an application for certification” (at para. 18). Turning

to the facts of the case the OLRB found that:

The evidence establishes that the employer paid the cost of the employee’s

legal representation at a Board hearing. There is no evidence that the

respondent has paid other legal accounts for this or any other employee or

that it has otherwise made a practice of volunteering financial assistance to

needy workers. The payment of the legal account can only be

characterized as a financial subsidy or reward to an employee related

specifically to his anti-union efforts.

The fact that the payment was not pre-arranged can in no way change the

quality of the employer’s action insofar as the Labour Relations Act is

concerned. It is plainly contrary to the Act for an employer ever to

financially reward an employee, whether is be for starting a union or for

stopping one. The reason for the prohibition is obvious since rewards in

such circumstances poison the workplace in a number of ways (at paras.

18-19).

In considering the question to be decided whether the petition was voluntary the OLRB

questioned how it could be in the circumstances where other employees knew that the

employer had previously paid legal fees. The termination application was dismissed.

The importance of the principle that employee’s choice of bargaining agent should be

free from employer interference was of such significance that the British Columbia Board

found that it warranted the union being allowed to ask certain employees whether the

employer was paying their legal fees:

In the context of litigation before the Board, we do not believe that

requiring Certain Employees to reveal whether they or the Employer is

paying their legal fees for a partial decertification application would

constitute a breach of solicitor-client privilege.

It must be recalled that the context in which the Questions are being asked,

and the purpose for allowing them, is to facilitate the determination of an

allegation of interference by the Employer in Certain Employees’

application for partial decertification of the Union. Section 4(1) of the

Code, which protects the right of every employee to freely choose whether

to belong to a trade union, has been memorably described by the first

Chair of the Board as the “fundamental premise of the whole

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statute”…This fundamental right is protected by Section 6 of the Code

(unfair labour practice). Protection from employer unfair labour practices

is arguably a constitutionally protected right…The rationale for

considering employer payment of employees’ legal fees for partial

decertification applications to be a potential unfair labour practice is in the

Board’s decision in BCLRB No. B120/2002 at para. 52-57.

In this context, we cannot accept that a correct interpretation of solicitor-

client privilege would preclude the Board from discovering whether the

employer is potentially committing an unfair labour practice by paying the

cost of legal advice and representation of the Certain Employees in

relation to their application for partial decertification of the Union

(Starbucks Corp. (Re), [2003] B.C.L.R.B.D. No. 233 (Mullin) at paras. 26-

28).

The reference to the rationale for considering the payment of employees’ legal fees as an

unfair was reviewed in Certain Employees of Starbuck Coffee Co. (Re), [2002]

B.C.L.R.B.D. No. 120 (Fleming):

Section 6(1) of the Code prohibits an employer from participating or

interfering with the formation, selection or administration of a union, or

from contributing financial or other support to it. Similar provisions are

found in virtually every labour relations statue in Canada. Section 2(1) of

the Code sets out the purposes of the Code, one of which is the choice by

employees as to whether they wish to be represented by a union. That

decision must be free from an improper interference on the part of the

employer.

Section 31 of the Code prohibits employer participation in the formation

of a union, and provides that an organization which is dominated or

influenced by an employer, cannot be certified and that any agreement

entered into by that organization is deemed not to be a collective

agreement. …

While recognizing that each case must be decided on its own specific

facts, and without deciding the issue in this case before hearing all the

evidence, we note that labour boards in Canada have generally taken the

view that an employer’s payment of legal fees for certain employees in the

context of a decertification campaign may constitute a violation of the

various labour relations statutes…That is particularly the case if the

payment is part of a more general concerted effort by the employer. …

This board has concluded that the payment of legal fees by an employer of

behalf of certain employees may constitute a violation of the Code (at

paras. 53-56).

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The propriety of an employer paying legal fees was also addressed by the British

Columbia Board in McCallum Motors Ltd. and International Association of Machinists

and Aerospace Workers, Lodge No. 219, and Certain Employees of McCallum Motors

Ltd., [1979] B.C.L.R.B.D. No. 16 (Peck) where the solicitor for certain employees on an

application for reconsideration of the union’s certification, advised the Board that his

retainer was being paid by the employer and his clients believed that the employer would

be paying his other fees. The union asked that the Board dismiss the application. The

Board found:

As a matter of general policy the payment by an employer of lawyer’s fees

incurred by his employees in the above circumstances (or for that matter,

any other related form of assistance or compensation) is at least

imprudent, even from the employer’s point of view, and at most a

violation of the law, specifically, Section 3(1) of the Labour Code. As

labour relations practitioners, common sense tells us that such a course is

fraught with difficulties. An employer will seldom act out of sense of

altruism in these circumstances, as in many instances he may be more

interested in getting rid of the trade-union than are his employees.

Accordingly, in most instances his intervention will so taint the

employees’ position as to leave the Board with no alternative but to reject

the application because there is a serious doubt that it reflects the true

wishes of the employees.

In a purely hypothetical case it is arguable that payment by the employer

of its employees’ legal fees shall not in and of itself constitute a violation

of the Code, thereby vitiating the application (at 3(QL))…

Nevertheless, we have no hesitation in stating that the employer who

ventures into this territory does so at his peril and will in the majority of

cases simply succeed in tainting his employees’ application . . . (at 4

(QL)).

With respect to the British Columbia Board’s statement that an employer will “seldom act

out of a sense of altruism”, this is a question that the Board had earlier considered in

Employees of Imperial Optical Company Limited (the “Employees”), and Imperial

Optical Company limited (the “Employer”), and Association of Commercial and

Technical Employees, Local No. 1717 (the “Trade-union”), [1976] B.C.L.R.B.D. No. 65

(Morrison). There the British Columbia Board dismissed a decertification application

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where there was employer involvement and the suggestion that the employer had paid

employees legal fees. The Board commented:

Now, legal fees. The whole question of legal fees is a tainted one, and, if,

as has been suggested by the evidence, there is to be an indemnification by

the Employer for these legal fees, the employee might do well to ask

themselves just why the Employer is so interested and anxious to get rid of

the Union. When and if the employees vote on the matter of

decertification it should be without any carrots dangled, without any raises

being granted behind the back of the Union and other employees, contrary

to the collective agreement, without any promises of advancement and

without any hint of legal fees being paid surreptitiously. In short, without

any Employer influence (at 13 (QL)).

A RECENT ALBERTA DECISION ON EMPLOYER FUNDING OF EMPLOYEE

LITIGATION

In United Food and Commercial Workers, Local No. 401 v. Gateway Casinos G.P. Inc.

[2010] A.L.R.B.R. 122 (“Gateway Casinos”) the Board dealt with this issue and framed

the question before it as:

Does an employer who pays the legal expenses incurred by an employee

opposing a union merger commit an unfair labour practice?

The case proceeded on an agreed statement of facts and since the facts are central to this

case and an understanding of the significance of the issue they raise about third party

funding, they are reproduced in their entirety below:

Agreed Statement of Facts

1. In 1996 the predecessor to the Palace Casino (Gateway Casinos G.P. Inc.)

(the Employer) voluntarily recognized the Palace Casino Staff Association

(PCSA) a trade union within the meaning of the Labour Relations Code.

The PCSA and the Employer negotiated successive Collective

Agreements, the first with a term commencing in July, 1996. With the

expiry of the Collective Agreement in 2002 the PCSA and the Employer

began negotiations for a renewed agreement.

2. In late 2002, early 2003, during bargaining, the PCSA Executive explored

merger with a mainstream union. After review with its Consultant and

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information meetings with its membership it determined to merge with the

United Food and Commercial Workers, Local 401 (“UFCW”). The PCSA

took steps towards pursuing the merger including notification to its

members of a General Meeting to be held on June 27, 2003.

3. Sean Bennett held the Boxman position within the bargaining unit and

worked as well as an Acting Pit Manager a supervisory out of scope

position. Sean Bennett opposed the merger and after discussion of his

concerns with the Casino Manager was given the options of doing nothing,

going to the Labour Relations Board or seeking legal advice. The Casino

Manager gave Sean Bennett the name of a legal firm where he

subsequently retained counsel.

4. On the June 27, 2003 General Meeting votes were held whereby the PCSA

amended its constitution and merged with the UFCW. Sean Bennett

attended the merger meeting with legal counsel. They questioned the

timing of the merger, the procedure adopted and the absence of a choice

other than UFCW. Votes were tallied and the result was 50 - 43 in favour

of the merger resolution.

5. Shortly after Mr. Bennett was advised by legal counsel that he could no

longer act and was referred to a second law firm which he retained. Mr.

Bennett and a number of other employees continued to oppose the merger.

6. The UFCW brought an application to the Labour Relations Board

(“LRB”) for Trade Union Successorship on July 8, 2003. On the same

day, Mr. Bennett filed an application with the Court of Queens Bench

asking that the merger be declared a nullity. This application was

supported by affidavits from both Mr. Bennett and legal counsel who had

attended the merger meeting on June 27, 2003.

7. On July 9, 2003 the Employer refused the UFCW access to the Casino.

The UFCW filed an unfair labour practice complaint on July 10, 2003. On

July 10, 2003 the LRB ordered that UFCW be given access to the Palace

Casino on an interim basis.

8. A court hearing date was set for November 4, 2003. The UFCW raised

objection to the jurisdiction of the Court and a dispute arose over whether

the matter would proceed on the date set in respect to the UFCW’s

objection alone or on the merits as well. On October 2, 2003 the LRB

directed that hearing dates be set for October 30, 31, November 3, 4,

2003. On October 20, 2003 Mr. Bennett filed an application with the

Court to quash and stay the LRB’s scheduling decision. The Court

declined to grant a stay on October 29, 2003 (unreported). Mr. Bennett

applied to the LRB for reconsideration of the October 2, 2003 decision.

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The LRB dismissed the reconsideration on October 21, 2003 ([2003] Alta.

L.R.B.R. LD-068).

9. The Board hearings on the successorship application took place on

October 30, 31, November 3, 4, 10, 2003. The Employer and certain

employees led by Mr. Bennett opposed the application. Mr. Bennett

attended the hearings and was represented by his own counsel throughout.

The Board issued a decision confirming the successorship on May 10,

2004 ([2004] Alta. L.R.B.R. 213).

10. The Employer and the Union during the successor process had issued

communications to the employees.

11. Mr. Bennett and the Employer both brought separate applications to

judicially review the LRB’s May 10, 2004 decision. The applications

were heard together on November 3, 2004 and the Court dismissed the

applications for judicial review on November 10, 2004 2004 ABQB 809

(CanLII), (2004 ABQB 809).

12. The Employer and Mr. Bennett both appealed the Court’s November 10,

2004 decision. Factums were never filed and the Appeals were struck on

July 28, 2005 and deemed abandoned on February 6, 2006.

13. Mr. Bennett had entered into a retainer letter with his second counsel on

July 25, 2003. Aside from a $100.00 retainer Mr. Bennett paid to his first

counsel and a $250.00 retainer paid by Mr. Bennett to his second counsel

the Employer paid all legal expenses incurred by Mr. Bennett, including:

a) Mr. Bennett’s legal representation at the June 27, 2003 PCSA merger

meeting;

b) Mr. Bennett’s application to the Court of Queen’s Bench seeking a

determination that the merger be declared a nullity (and subsequent related

applications);

c) Mr. Bennett’s representation in respect to the scheduling of the UFCW

successorship application, including his application for reconsideration of

the LRB decision to schedule the UFCW successorship application for

hearing and his application to the Court of Queen’s Bench to quash or stay

the LRB decision to schedule hearing dates on the UFCW successorship

application;

d) Mr. Bennett’s participation in the LRB successorship proceedings;

{350-11-030;00029065;1} 16

e) Mr. Bennett’s application to Court of Queen’s Bench to judicially review

the LRB successorship decision, (including the payment of court costs Mr.

Bennett was required to pay the UFCW);

f) Mr. Bennett’s appeal of the dismissal of his application for judicial review

of the Board’s successorship declaration.

The legal services provided to Mr. Bennett and paid for by the Employer

included preparing and filing the above-noted applications or responses to

the LRB, Court of Queen’s Bench and Court of Appeal, preparation of

Chambers briefs and affidavits, legal arguments, legal representation at

LRB and Court of Queen’s Bench hearings and consultations with and

updates to and from the Employer’s counsel.

14. The total amount of payments made by the Employer to cover legal

expenses incurred by Mr. Bennett in respect of the above-noted matters

was $148,041.40.

15. Subsequent to the issuance of the Board’s Merger Decision and the

following Court decision, the LRB issued a Consent Order on April 8,

2005 in respect to outstanding labour relations issues arising from the

merger.

16. One of those matters deferred to arbitration concerned the employees’

right to wear union pins in the workplace. On July 24, 2003 the UFCW

had requested that employees be entitled to wear union pins at the Palace

Casino and on August 1, 2003 the Employer denied this request. The

UFCW had initially filed an unfair labour practice complaint in respect to

the refusal. The matter now deferred to arbitration was heard by

Arbitrator McFetridge who issued an decision on March 13, 2007, [2007]

A.G.A.A. No. 13, upheld on judicial review, quashed in part on appeal

2009 ABCA 114 (CanLII), 2009 ABCA 114. The parties have reached a

settlement of the outstanding issues referred back to the Arbitration Board

by the Court of Appeal.

17. The Employer had advised UFCW on April 28, 2005 that they were

withdrawing their voluntary recognition of the bargaining agent. The

UFCW applied for certification on July 27, 2005 and was certified on

August 24, 2005 (Board Certificate # 195-2005).

18. The parties began bargaining for a new collective agreement in the fall of

2005 and when bargaining failed a strike commenced on September 9,

2006. Issues arose between the parties during bargaining which resulted

in the LRB issuing a decision on June 13, 2007, [2007] A.L.R.B.D. No.

111. The parties returned to bargaining, agreed on a collective agreement

and the strike ended on July 10, 2007.

{350-11-030;00029065;1} 17

19. During the strike, Mr. Bennett alleged to the UFCW that the Employer had

paid his legal expenses throughout the merger matters. The UFCW

complains that the payment by the Employer of the legal expenses

incurred by Mr. Bennett is a breach of Section 148 of the Code. The

parties agree that the LRB has jurisdiction to determine this issue and that

anti-union animus is not necessary to establish a breach of Section 148 of

the Code.

20. The parties agree that the attached documents may be entered as exhibits

but reserve the right to argue with respect to their relevance, if any, to the

matter before the LRB or what weight should be attached to them or

reasonable inferences taken from them in accordance with law.

21. In the event a breach of the Code is found, the parties have agreed upon an

additional remedy. The LRB will retain jurisdiction to deal with any

issues that arise in implementing the decision and remedy.

In its decision, the Board found that the payment of the employee’s legal fees by the

employer was an unfair labour practice. The Board began by affirming the importance of

employees’ right to freely choose their bargaining agent, free from employer interference

(at paras. 4-11). The Board went on refer to the jurisprudence referred to above with

respect to payment of legal fees as dealt with by other Boards. One interesting

observation the Board made about this jurisprudence was with respect to the British

Columbia authorities’ (McCallum Motors in particular) observation that, hypothetically,

there could be circumstances where employer funding of employee litigation did not

constitute an unfair labour practice. The Alberta Board observed:

While it may be possible to imagine hypothetical cases where such

conduct does not constitute an unfair labour practice, one would expect

that in almost all cases such conduct will constitute impermissible

interference and a violation of section 148(1)(a) of the Code. (at para. 18)

Addressing the payment of legal fees in the case before it, the Board found:

[25] While Sean Bennett was opposed to the merger, this fact does not

provide the Employer with carte blanche to use Sean Bennett as a tool to

further the Employer's opposition to UFCW. Sean Bennett had the right to

oppose the merger with UFCW and the right to take legal proceedings to

challenge the merger but these are rights to be exercised by him personally

and not by the Employer. The fundamental principle in the Code

prohibiting impermissible employer interference applies to employees

{350-11-030;00029065;1} 18

favouring a union, those opposed to the union, and those who might be

"sitting on the fence". Further, the fact that the Employer was prepared to

pay an employee's legal fees in the amount of $148,041.40 would lead any

reasonable employee to conclude that the Employer was strongly

supportive of the employee's anti-UFCW activities and that perhaps such

activities would be rewarded at some future time. The willingness of the

Employer to pay $148,041.40 supported and encouraged Sean Bennett's

opposition to UFCW and his attempts to take legal action to try and stop

the merger. The payment of the legal fees breached the fundamental rule

of “no interference”.

The Board also found that it did not matter how many employees the employer’s conduct

actually influenced, if any:

[30] In the context of payment of legal fees by the Employer, we do not

consider it necessary for UFCW to demonstrate that other employees were

affected in order to establish a breach of section 148(1)(a). Even if the

payment of the legal fees had absolutely no impact on employees other

than Sean Bennett, this does not alter the fundamental fact that the

payment constitutes a financial reward or subsidy for Sean Bennett to

support his anti-UFCW activities. Based on the facts of this case, we have

little difficulty concluding that such conduct constitutes impermissible

interference with the right of the employees to choose their bargaining

agent. We find that that the payment by the Employer of Sean Bennett's

legal expenses constitutes participation in or interference with the

administration of a trade union and the representation of employees by a

trade union thereby breaching section 148(1)(a) of the Labour Relations

Code.

The Alberta Board has therefore made a clear finding that employers who fund employee

litigation of this type are behaving unlawfully. In this case, the parties had agreed on a

remedy to be applied if the Board found an unfair labour practice and so the Board did

not have to address the remedial consequences of this finding.

From a union perspective, this finding is laudatory and is a clear direction to employers

not to engage in this type of conduct. However, from the union perspective, there remains

a concern that far more employer-funded litigation takes place than unions ever know

about and can challenge. The facts of the Gateway Casinos case are illustrative.

{350-11-030;00029065;1} 19

Prior to the case discussed above, the Board was called upon to decide a preliminary

issue about the timeliness of the Union’s complaint. In United Food and Commercial

Workers Union, Local no. 401 v. Gateway Casinos G.P. Inc., 2009 CanLII 50775 (AB

LRB) the Board determined that the complaint was timely and the Board’s decision

discloses how the fact of the employer having paid the employee’s legal fees came to

light. Following the proceedings that are referred to above concerning the merger issue,

the Union ended up going on strike at the Palace Casino. In the course of the strike, the

employee who had challenged the Union and the merger approached Union officials and

indicated that “he wanted to clear his conscience about the role he had played in opposing

the merger in 2003-04” (para. 3). The Board, in the timeliness decision, observed that:

“During the Board’s hearings Mr. Bennett testified and among other matters stated, or led

the Board to believe, he was personally paying the legal fees of the counsel he had

retained.” (at para. 1).

In the timeliness decision the Board summarized the contents of a written statement

provided by the employee to the Union as follows (at para. 4):

(a) the Employer’s games manager, who was aware of his opposition

to the unionization of the workplace, suggested he could take steps to

oppose the planned merger and gave him the name of a lawyer to contact.

When he inquired about paying the lawyer he was told the Employer

would take care of that;

(b) he contacted the lawyer and found he was already aware of the

situation and would provide Mr. Bennett with some material to use in

convincing other employees to join in opposing the merger;

(c) Mr. Bennett and the lawyer attended the meeting at which the

merger was to be discussed and the lawyer spoke in opposition to it. The

votes cast at the meeting favoured the proposed merger and Mr. Bennett

went off to inform Howard Worrell [the Employer’s general manager] of

the result and to provide him with a tape recording of the meeting he had

secretly made;

(d) soon after Mr. Bennett was contacted by his first lawyer and told

that since this lawyer had spoken at the meeting he could no longer

represent Mr. Bennett and he provided the name of another law firm to

contact;

{350-11-030;00029065;1} 20

(e) when Mr. Bennett contacted this other firm he was told they had

transcribed his secret tape recording and sent it to him so he could identify

who was speaking. The lawyer from this other firm also sent him the

format of a petition he was to reword and seek to have other employees

sign. He had a number of contacts with this second lawyer and was asked

to sign a number of different documents;

(f) he had previously paid his first lawyer a nominal retainer of $100

and paid his second lawyer a similar retainer of $200. He later received

from the Employer an envelope containing approximately $300. On

another occasion he received an invoice from his second lawyer for about

$30,000 which he passed on to the Employer and was told not to worry

about it; and,

(g) he attended all the hearings of the Board relating to the Union’s

successorship application and said he received a rate close to his regular

hourly wage for all of this time.

Although the Board was never called upon to determine whether everything this

employee was saying was factual, what is clear is that the only reason the Union ever

discovered that the employer was paying the employee’s legal fees, was because this

employee, in what he claimed to be an attack of conscience, confessed the fact to the

Union. Otherwise, the fact of the Employer having paid $148,141.40 for the legal fees of

this employee would never have been known to the Union. Leaving this to happenstance

is not acceptable.

In jurisdictions like Australia, New Zealand and the United Kingdom, regulatory bodies

are coming to grips with issues around litigation funding in the commercial context. One

of the common recommendations in all these jurisdictions is that certain details about

litigation funding be disclosed to the Court (see, for example, Regulation of Third Party

Litigation Funding in Australia, Law Council of Australia, June 2011 at p. 18 in

particular).

In Canadian jurisdictions, although there are not any blanket rules governing disclosure

of litigation funding arrangements, parties have disclosed the fact of such arrangements to

the courts. However, this disclosure has usually been at the behest of the funder and in

the context of an application to the court to have the terms of the funding arrangement

approved by the court in advance. However, Canadian jurisdictions do require disclosure

{350-11-030;00029065;1} 21

of certain settlement arrangements, which may have a litigation funding component.

These include Pierrenger or Mary Carter agreements or, in Alberta, a variant of the Mary

Carter agreement addressed in the case Margetts v. Timmer Estate (1997), 43 Alta. L.R.

(3d) 283 (QB) aff’d. (2009), 178 D.L.R. (4th

) 577 (CA). Parties entering into these types

of settlement agreements have been required to disclose certain aspects of their existence

to the court and to other parties to the litigation. Among other issues, courts have

expressed concern about the potential for secret settlement agreements that may have a

litigation funding aspect to them to damage the integrity of the court process. The

Queen’s Bench Justice who ruled on the validity of the settlement agreement in the

Margetts v. Timmer Estate case, stated (at para. 20):

Notwithstanding the eloquent recitation of the changes in the relationship

between the settling parties both among themselves and with respect to the

non-settling parties to this litigation I am of the view that the risk to the

court process and its integrity lies not in these changed relationships but in

the risk of the non-settling parties trying to conduct litigation without a full

and complete knowledge of the relevant facts. Once, however, all of the

litigants and the judge know what the arrangements are and are able to see

the true relationships between the various parties the risk of wrongdoing or

unfairness or lack of integrity in the system is resolved.

Although the Alberta Court of Appeal disagreed that disclosure alone would nullify any

concern about the terms of such a settlement agreement, it did agree that disclosure

“minimized” the risk to the court process that such agreements might constitute. As one

commentator on the Margetts case has observed:

14 This requirement of prompt disclosure of a Mary Carter Agreement is

designed to protect the integrity of the court process by ensuring that the

court and all parties to an action are fully aware of the interests being

pursued by each litigant. Armed with a complete understanding of the

relationships between the parties, the Court can take any steps necessary to

ensure that litigation procedures reflect the true relationships and interests

of the parties involved. (Barbara Billingsley, Margetts v. Timmer Estate:

The Continuing Development of Canadian Law Relating to Mary Carter

Agreements (1998), 36 Alta. Law Rev. 1017 at para 14).

Although the concerns of courts that have led to disclosure requirements in the context of

Mary Carter and other settlement agreements are different from those that would arise in

{350-11-030;00029065;1} 22

the context of a labour board proceeding where an employer is funding employee

litigation, there is a common concern about the tribunal being misled about the real

relationships among the parties, about who is really controlling the litigation and about

the true motivations of the various parties.

CONCLUSION

Labour Boards should require employees and employers to disclose whether the

employer is directly or indirectly funding employee litigation. They should do this on the

basis of the concerns identified above and in the interest of the integrity of the board

process. Indeed, the policy reasons requiring such disclosure in the Labour Board context

are even more compelling because the funding arrangement itself has been determined to

be unlawful. As such, the disclosure of such funding arrangements cannot be left to

happenstance and in order to protect the integrity of their process, labour boards must

require this disclosure.