An arbitrator has ruled that Canadian Pacific Kansas City Railway cannot impose a $200,000 lifetime prescription drug cap on newer employees based on claims of a verbal agreement during 2018 collective bargaining, finding that no binding deal ever existed.
Arbitrator Graham Clarke determined that while CPKC and the Teamsters Canada Rail Conference discussed the proposed cap during emergency negotiations in May 2018, the union never agreed to the terms and the employer failed to provide requested details about how the restriction would work.
“The parties clearly discussed this new issue. But the TCRC wanted more information about the ‘soft cap’ that CPKC had mentioned. CPKC never provided that information,” Clarke wrote in his Nov. 7 decision.
The case highlights the risks employers face when attempting to implement significant benefit changes without clear written agreements — particularly changes that create two-tier benefit structures for current versus future employees.
Dispute arose during strike deadline
CPKC first proposed the lifetime cap during last-minute bargaining sessions on May 29-30, 2018, as the parties worked to avoid a strike set to begin at 10 p.m. The negotiations ran from 7:25 p.m. until 1:20 a.m.
The employer’s chief negotiator testified that the union agreed to the cap provided it would be a “soft cap” allowing discretionary exceptions in exceptional circumstances. He claimed the union’s president asked that the cap be excluded from written documentation to avoid harming ratification chances.
Union witnesses told a different story. The union’s president stated in an affidavit: “In respect to the Company’s proposed lifetime benefit cap I said we could consider the Company’s position, but we needed the Company to provide a letter detailing the soft cap.”
He added: “At no point did the Company provide a letter or clarify the comments related to a purported cap or soft cap.”
The memorandum of settlement signed May 30, 2018, made no mention of any drug cap.
Employer implemented cap unilaterally
Two months after bargaining concluded, CPKC sent a July 31, 2018 letter to the union stating that negotiations had produced a “verbal understanding” to implement the cap for employees hired after July 20, 2018.
The letter said the cap was “unintentionally omitted and missed in error by the parties prior to signing the document” and advised that CPKC had “placed into effect” the restriction.
The union did not respond to the letter. Benefits documentation provided to employees in December 2018 contained no reference to any cap.
In July 2019, when CPKC switched benefit carriers from Manulife to Sun Life, the company sent a transition letter emphasizing it would be “maintaining the benefit coverage conferred by the Collective Agreement.” That letter also made no mention of the cap.
The dispute surfaced publicly in November 2019 when CPKC provided draft benefit booklets that included the cap for newer employees. Union representatives immediately objected.
“There is no error or omission in said regards. There was no need for discussion as the item no longer existed,” the union wrote in a December 2019 email.
Grievances filed after benefit books issued
The union filed grievances in January 2020 after CPKC issued separate group benefits booklets for employees hired before and after July 20, 2018.
CPKC argued the grievances were untimely because they came more than 17 months after the July 31, 2018 letter. The arbitrator rejected that position, finding the union had no reason to grieve until actual benefit documentation showed the cap would apply.
Clarke found both parties held “genuinely held but diametrically opposed understandings” of their cap discussions during the 2018 negotiations.
The arbitrator placed weight on contemporaneous notes from bargaining committee members. One union member’s notes stated “write up soft cap deep in file,” which the witness explained meant the employer would provide a letter about the soft cap that would not be part of the collective agreement.
Another union witness testified the notes meant “nothing is decided until they have something in writing.”
CPKC’s negotiator acknowledged his notes were not comprehensive and confirmed no other company representatives took notes during negotiations.
Written agreement required for benefit changes
Clarke emphasized that the parties had signed a joint letter stating “any errors or omissions are unintentional, and will be corrected by mutual agreement between the parties.”
“They never addressed the Cap within that mutually agreed process,” the arbitrator wrote.
The decision applied the legal principle that absent a formal written amendment, arbitrators require “positive statements of acceptance by both parties” before finding an oral agreement changed a collective agreement.
Clarke found the evidence fell short of that standard, noting the July 31, 2018 letter made no mention of the soft cap concept that CPKC’s negotiator said was part of the deal.
“The arbitrator cannot conclude that the TCRC agreed orally to the Cap,” the decision stated, adding that the cap issue “must be addressed in future negotiations.”
The ruling leaves CPKC unable to enforce different drug benefit limits for employees hired after July 2018.
