Is Your Company Federally Regulated or Not? A Primer on the Derivative Jurisdiction Test
In this post, we'll talk about Ontario cases, Court of Appeal and Supreme Court decisions as to when will Ontario’s Presumptive Labour Jurisdiction be Displaced by Federal Labour law pursuant to the doctrine of derivative jurisdiction. Continue reading to learn more.
Topics Will be Covered in This Post:
In Ontario, the Employment Standards Act governs non-union workers and the Labour Relations Act governs union workers. Employment Relationship in Ontario are also governed by numerous other Ontario employment law and labour relations related acts such as the Occupational Health and Safety Act, the Human Rights Code, and Ontario Common Law jurisprudence.
Click here to see the list of federally regulated business and a brief explanation of the Canada Labour Code.
There are several significant differences between the two sets of labour laws. For instance the termination pay and severance pay under the Ontario Employment Standards Act (ESA) is significantly more than the termination pay and severance pay under the Canada labour Code (CLC).
Both federal regulated employees and Ontario non-Union workers can sue for wrongful dismissal. Yet unjust dismissal is ONLY available to federally regulated employees which grants them quasi-union status if certain conditions are met.
Unfortunately, it is not always straightforward whether provincial or federal jurisdiction will apply in a given scenario.
An airport is a federally regulated company, but what about the subcontractors that undertake airport construction and build the runways?
A cable company, such as Rogers or Bell, is regulated by the federal government, but what about the subcontractors who install the cable connection in people's homes?
A financial institution is a federally regulated employer, but what about the service provider who handles the bank's janitorial and cleaning needs?
In situations like these, the doctrine of derivative jurisdiction will be applied to establish whether provincial or federal rules apply.
2. Doctrine of Derivative Jurisdiction
Ontario has presumptive constitutional jurisdiction over labour relations within its boundaries. However, this constitutional jurisdiction may be displaced through the operation of “derivative jurisdiction” such that federal labour laws would apply.
The Supreme Court had held in Tessier Ltée v. Quebec (Commission de la santé et de la sécurité du travail), 2012 SCC 23, at para. 11, that legislation respecting labour relations is presumptively a provincial matter since it engages the provinces’ authority over property and civil rights under s. 92(13) of the Constitution Act, 1867.
Under the doctrine of Derivative Jurisdiction, the federal government has jurisdiction to regulate labour relations in two circumstances: 1) when the employment relates to a work, undertaking, or business within the legislative authority of Parliament; or 2) when it is an integral part of a federally regulated undertaking, sometimes referred to as derivative jurisdiction (Tessier, at para. 17).
In the case of derivative jurisdiction, the essential operational nature of a work, business or undertaking is assessed to determine if that ongoing nature renders the work integral to a federal undertaking. The focus of the analysis is on the relationship between the activity, the particular employees under scrutiny, and the federal operation that is said to benefit from the work of those employees. The relationship is to be considered from the perspective both of the federal undertaking and that of the work said to be integrally related, assessing the extent to which the effective performance of the federal undertaking is dependent on the services provided by the related operation, and how important those services were to the related work itself. The exceptional aspects of an enterprise do not determine its ongoing character.
For instance, in Construction Montcalm Inc. v. Quebec (Minimum Wage Commission),  1 S.C.R. 754, the Supreme Court of Canada held that provincial minimum wage legislation and related labour legislation applied to a contractor building a runway at an airport, a federally regulated undertaking.
The Supreme Court in Montcalm held that labour relations of construction industry employers are subject to provincial jurisdiction, even when the employees are constructing a federally regulated undertaking. The Supreme Court explained that the construction of an airport is not in every respect an integral part of aeronautics and that the construction of runways is a matter so far removed from aerial navigation or from the operation of an airport that it cannot be said that the power to regulate this matter forms an integral part of federal jurisdiction over aeronautics.
The Supreme Court in Montcalm reasoned that simply building a federal undertaking is not vital or integral to the operation of a federal undertaking; building, constructing, repairing (and even connecting to) the federal undertaking is not equivalent to operating the federal undertaking.
In the recent decision, Ramkey Communications Inc. v Labourers’ International Union of North America, 2019 ONCA 859, the Court of Appeal for Ontario decided that provincial jurisdiction was not displaced by federal derivative jurisdiction because it could not be said in the absence of dependency that Ramkey’s construction technicians were vital or integral to the operations of Rogers as a federal telecommunications undertaking when the construction work for Rogers only accounted for 10-13% of Ramkey’s revenues, and that Rogers always had more than one contractor in the geographic areas where it operates.
3. Relevant Derivative Jurisdiction Cases
a. When the Employment Pertains to a Labour, Enterprise, or Company under Parliament's Legislative Jurisdiction
i. The Stevedores' Reference
Reference re: Industrial Relations and Disputes Investigation Act (Canada),  S.C.R. 529
The Eastern Canada Stevedoring Co. Ltd., which was incorporated under The Companies Act of Canada, 1934, c. 33, furnishes stevedoring and terminal services for certain shipping companies in the ports of Halifax, St. John, Montreal, Mont Louis, Rimouski and Toronto. Its operations consisted exclusively of services rendered in connection with the loading and unloading of ships, pursuant to contracts with numerous shipping companies to handle all loading and unloading of their ships arriving and departing during that season. All these ships were operated on regular schedules between ports in Canada and ports outside of Canada.
In Stevedores' Reference, eight of nine judges concluded that federal labour law applied to the stevedores in question because their work was integral to the federally regulated shipping companies that used them. The majority reasoned that the core federal undertaking was dependent to a significant degree on the workers in question and that the employees devoted all their time to the shipping companies and that those companies relied on them exclusively to load and unload all of their cargo.
The Supreme Court held, at p. 568 of S.C.R, that "[i]f . . . the work of stevedoring, as performed under the foregoing contracts, is an integral part or necessarily incidental to the effective operation of these lines of steam ships, legislation in relation thereto can only be competently enacted by the Parliament of Canada".
ii. Letter Carriers'
Letter Carrier’s Union of Canada v. Canadian Union of Postal Workers et al.,  1 S.C.R. 178
M & B Ltd. held a number of contracts with the Canada Post Office for the delivery and collection of mail and the work that was thereby involved constituted approximately 90 per cent of the company’s business. The company also held an “A” licence under which it did certain furniture hauling and this accounted for the remaining part of its business.
The Supreme Court held, at pp. 185-86 S.C.R., that the company's employees performing work under contracts with the Post Office were subject to federal jurisdiction as the local operation is "an integral part or necessarily incidental to the effective operation" of the federal undertaking. The post office is dependent upon its subcontractors for mail delivery.
b. When the Employment is an Integral Part of a Federally Regulated Undertaking
Two similar cases involving the same group of employees of Telecom was brought in front of Supreme Court of Canada.
One of the key issue at hand is whether a subset of Northern Telecom's employees who worked in its installation department were subject to federal labour laws. The installation department installed telecommunications equipment in the federally regulated telephone network of Northern Telecom's parent corporation, Bell Canada.
The Supreme Court held, at p. 774 S.C.R, that the labour relations of Northern Telecom should be federally regulated.
The Supreme Court reasoned that Northern Telecom was a subsidiary of Bell. Bell acquired 90 per cent of its switching and transmission equipment from Northern Telecom and 95 per cent of all such equipment was installed by Northern Telecom.
Northern Telecom's installers had no contact with the other Northern Telecom employees engaged in manufacturing, but instead worked closely with Bell employees, spending "the great bulk of their time" on Bell's premises (at p. 767 S.C.R.) and never working on Telecom's premises (at p. 770 S.C.R.). The work for Bell consumed a very high percentage of the work done by the installers (at p. 767 S.C.R.).
Key factors weighing in favour of federal jurisdiction included "[t]he almost complete integration of the installers' daily work routines with the task of establishing and operating [Bell's] telecommunications network" (at pp. 766-67 S.C.R.) and the interprovincial scope of the work of the employees, which extended into at least five provinces (at p. 768 S.C.R.).
c. When Provincial Jurisdiction is Not Displayed by Federal Employment Laws
i. United Transportation Union v. Central Western Railway Corp.
United Transportation Union v. Central Western Railway Corp.,  3 SCR 1112
In United Transportation, the Supreme Court declined to find derivative jurisdiction over a local railway's employees. United Transportation arose out of the sale of a 105-mile railway line in Alberta from Canadian National Railway, a federally regulated railway company, to a provincial railway company, Central Western Railway Corporation.
There was no daily or simultaneous connection between Canadian National Railway and Central Western Railway Corporation. Each company operated independently within its own sphere. The employees of Central Western Railway Corporation were located wholly within Alberta. (United Transportation, at p. 1141 S.C.R.)
The Supreme Court held that federal labour legislation no longer applies to the employees working on the railway line after the sale.
The Supreme Court held, at p. 1142 S.C.R., that:
It cannot be said that Canadian National Railway is in any way dependent on the services of Central Western Railway Corporation. Since 1963, Canadian National Railway has consistently wanted to abandon the Central Western rail line, indicating that the line is not vital or essential to its operations. The effective performance of Canadian National Railway's obligations as a national railway is not contingent upon the services of Central Western Railway Corporation. The core federal undertaking would not be severely disadvantaged if Central Western Railway Corporation’s employees failed to perform their usual tasks. These factors point strongly, almost decisively, against a finding of federal jurisdiction over the employees in question.
ii. Tessier Ltée v. Quebec (Commission de la santé et de la sécurité du travail)
Tessier Ltée v. Quebec (Commission de la santé et de la sécurité du travail), 2012 SCC 23
In Tessier, the Supreme Court declined to find derivative jurisdiction yet again.
Tessier is a heavy equipment rental company that rents out cranes and heavy equipment. It also engages in intra‑provincial road transportation and maintenance and repair of equipment. In 2005‑2006, some of its cranes were used for stevedoring (loading and unloading ships). This activity represented 14 percent of its overall revenue and 20 percent of the salaries paid to employees. Tessie’s stevedoring services were not performed by a discrete unit of employees; the employees were fully integrated into Tessier’s workforce and worked interchangeably across the different sectors of the organization. At the relevant time, all of Tessier’s activities took place within the province of Quebec.
In 2006, Tessier’s parent company sought a declaration from Quebec’s Commission de la santé et de la sécurité du travail (“CSST”) that Tessier’s stevedoring activities fell under federal jurisdiction over shipping, with the result that its employees should not be governed by provincial occupational health and safety legislation. The case went all the way to the Supreme Court of Canada.
The Supreme Court held that Tessier devoted the majority of its efforts to provincially regulated activities. Its essential operational nature is local, and its stevedoring activities, which are integrated with its overall operations, form a relatively minor part of its overall operation. As a result, Tessier’s employees are governed by provincial occupational health and safety legislation.
The Supreme Court stated that the derivative jurisdiction test for labour relations is applied in three contexts:
1. Federal labour regulation may be justified when the services provided to the federal undertaking form the exclusive or principal part of the related work’s activities (Stevedores Reference; Letter Carriers’). (Tessier, para. 48)
2. Federal labour regulation may be justified when the services provided to the federal undertaking are performed by employees who form a functionally discrete unit that can be constitutionally characterized separately from the rest of the related operation (Telecom). (Tessier, para. 49)
3. In cases where “the employees performing the work do not form a discrete unit and are fully integrated into the related operation", the Court is to consider whether the employment is an integral part of a federally regulated undertaking. (Tessier, para. 50)
The Supreme Court reasoned, at para. 50, that dependency alone may not be sufficient to transfer a work or undertaking to federal jurisdiction and that “even if the work of those employees is vital to the functioning of a federal undertaking, it will not render federal an operation that is otherwise local if the work represents an insignificant part of the employees’ time or is a minor aspect of the essential ongoing nature of the operation”.
The decision in Tessier was in line with United Transportation mentioned above.
iii. Ramkey Communications Inc. v Labourers’ International Union
Ramkey Communications Inc. v Labourers’ International Union of North America, 2019 ONCA 859
In this case, the Federal Derivative Jurisdiction test was effectively demonstrated.
One of the issue in the case is whether Ramkey Communications Inc. is a federally regulated business or is it subject to Ontario employment laws.
Ramkey, the employer, argued that its construction technicians performed essential work for federally regulated telecommunications companies which meant that their labour relations should be federally regulated.
At all material time, Rogers was Ramkey’s main client, with the construction work for Rogers accounting for 10-13% of Ramkey’s revenues. For the construction technicians, the work with Rogers represented the bulk of their work. However, despite being Ramkey’s main client, Rogers always had more than one contractor in the geographic areas where it operates.
The case went all the way to the Ontario Court of Appeal. The Court of Appeal agreed with the Union and held that it would not impose exceptional federal jurisdiction over Ramkey’s construction technicians citing the doctrine of derivative jurisdiction, as shown in Tessier, 2012 SCC 23 above, in making it’s decision (Ramkey, at para. 30, 32).
The Court of Appeal stated that, under the doctrine of derivative jurisdiction, presumptive constitutional jurisdiction of the provincial government will not be displaced unless an otherwise provincial function (i) relates to a work, undertaking, or business within the legislative authority of the federal government; or (ii) is an integral part of a federally regulated undertaking.
i) whether the employment relates to a work, undertaking, or business within the legislative authority of Parliament
The Court of Appeal held: “The first circumstance is not applicable here: Ramkey is a local work and does not itself own or operate a federally regulated telecommunications network. This appeal concerns the second circumstance.” (Ramkey, at para. 33).
ii) Whether the employment is an integral part of a federally regulated undertaking
The Court of Appeal held that the issue was one of the second circumstance as to whether the telecommunications network operated by Rogers was dependent on the construction technicians and that the employment of Ramkey’s construction technicians was an integral part of a telecommunications network such that Parliament has jurisdiction over it.
The Court of Appeal decided that Ramkey’s construction technicians were not vital or integral to the operations of Rogers or any other federal telecommunications undertaking, and as such Ontario’s jurisdiction isn’t displaced by the test for derivative federal jurisdiction.
The Court of Appeal held that the the evidence is clear that “Rogers was not dependent on Ramkey's construction technicians. The effective performance of Rogers' telecommunications network was not contingent upon the services of Ramkey's construction technicians. The controls Rogers had over Ramkey were no greater than any owner / client or general contractor in the construction industry might exercise over any subcontractor. Rogers only began using Ramkey's construction technicians in 2014. It had no long- term commitment to use Ramkey's construction technicians. It never relied exclusively on Ramkey's construction technicians. In 2016, in the course of the hearing before the Ontario Labour Relations Board, Rogers "pulled back" all the construction work it had given to Ramkey's construction technicians. Ramkey's competitors performed the construction work Ramkey used to do for Rogers.” (Ramkey, at para. 64).
Non-union workers in Ontario are governed by the Employment Standards Act.
The Canada Labour Code, on the other hand, governs federally regulated businesses.
The two sets of labour legislation differ significantly in various ways.
The federal government has jurisdiction to displace provincial jurisdiction to regulate labour relations 1) when the employment relates to a work, undertaking, or business within Parliament's legislative authority; or 2) when it is an integral part of a federally regulated undertaking, a concept known as derivative jurisdiction.
When you have been terminated wrongfully or you have been constructively dismissed or that you are a victim of workplace harassment or workplace discrimination, you should consults with an employment lawyer or you risk waiving your legal rights under Common law, the Human Rights Code or your rights in suing for wrongful dismissal, constructive dismissal or workplace discrimination.
If you are a federally regulated employee, and you think you have been unjustly dismissed, or if you are an employer being served with a claim of unjust dismissal, you are highly recommended to seek legal advice immediately from an experienced employment lawyer. Canada Labour Code is highly complex and an unjust dismissal claim is technical. In some cases, you have a VERY LIMITED amount of time to act on it, or be forever hold your peace.
Don't Wait, Act Now before it's too late. Call us now at 647-849-6582 or Contact Us Now if you have any questions or concerns in related to employment contract, termination, discrimination , federally regulated employee, or severance package or you want to book an appointment for a legal consultation.