SPECIAL REPORT: Top court settles pivotal freight forwarding-logistics case

OTTAWA — The Supreme Court of Canada (SCC) has finally ruled on a critical case that could change how some freight forwarders, logistics companies, and hybrid highway carriers are governed under provincial and federal law.

The surprise decision, say labor attorneys for Gowling Lafleur Henderson LLP in their review of the case, has "significant and far reaching effects with respect to the application of labor and employment law" for the Canadian transportation industry generally, and the international and inter-provincial freight forwarding sector, specifically.

The Supreme Court effectively reversed a 1994 decision of the Canada Industrial Relations Board, which deemed that freight forwarders fall under federal employment standards if they physically "handle" interprovincial freight, regardless of the localized structure of their networks or whether or not they transport cargo from one jurisdiction to another.

As such, national and international freight forwarders formerly regarded as subject to federal labor law may now fall under provincial law; and those that already operated under the latter standard may remain that way, including the ability to maintain local union shops without interference from larger, national unions.  

Most transport companies — particularly marine, air, rail and a majority of linehaul carriers — perform interprovincial transportation and thereby fall under Ottawa’s jurisdiction.

The definition of a freight forwarder, though, has been left unsettled until now. As a result, certain firms could be considered provincial if their active role was merely limited to the local organization and distribution of interprovincial freight.

TOUCHY RULING: In a surprise decision, the Supreme
Court of Canada says provincial companies
can ‘handle’ interprovincial freight as
long as they don’t haul it across borders themselves.

Woodbridge, Ont.-based Consolidated Fastfrate (CFF) — which is at the heart of the landmark case — is such a transport company.

It considers itself a provincially regulated freight-forwarding business since it collects customers’ local shipments, consolidates them at its cross-dock terminals in major cities, then arranges for interprovincial transportation with third-party carriers, mainly CP Rail.

When the shipments arrive at a Fastfrate facility at the other end, the company de-consolidates them into LTL loads and hauls them to customers with its own trucks or via contracted drivers.

In 2004, the Calgary Employees Association unionized CFF employees in Calgary. It didn’t take long before The Teamsters swooped in, convincing the Alberta Labour Relations Board (ALRB) to certify the union to collectively bargain for CFF workers nationally under the Canada Labor Code.

The case was ping-ponged back and forth among various courts, until the Alberta Court of Appeal sided with the Teamsters and upheld the original labor board decision that CFF should be federally-regulated.

It reasoned that that the physical transport of cargo was not the main issue, but "whether the functional nature of the operation is to connect the provinces."

Late last month, the Supreme Court dismissed that verdict by a vote of 6-3.

"I am of the view that an undertaking that performs consolidation and deconsolidation and local pickup and delivery services does not become an interprovincial undertaking simply because it has an integrated national corporate structure and contracts with third party interprovincial carriers," wrote Justice Marshall Rothstein.

"While Fastfrate has local operations at both the originating and terminating locations in the several provinces, and with that can provide comprehensive service to its customers, it nonetheless remains only a shipper using cross-border transportation services in the movement of freight.

"Fastfrate does not perform any interprovincial carriage itself."

Although he noted that Fastfrate drivers used to haul freight between their Ottawa and Montreal branches, that practice ended in 2004, in part, because Fastfrate itself recognized that it raised a "contentious issue" for jurisdictional determinations.

"This is their economic raison d’être,” continued Rothstein. “In most cases, Fastfrate and its employees play no role in the operation of CPR’s interprovincial railway system.”

Dissenting, but outnumbered, was Justice William Ian Corneil Binnie, who was concerned that freight movers could avoid federal legal responsibility by masking as intraprovincial companies.

"In an era where contracting out elements of a service business is commonplace, the modalities of how a truly interprovincial transportation operation ‘undertakes’ to move its customers’ freight from one part of Canada and deliver it to another should not contrive to defeat federal jurisdiction,” he wrote. “Checkerboard provincial regulation is antithetical to the coherent operation of a single functionally integrated indivisible national transportation service.”

He described Fastfrate as having integrated terminals at a shipment’s origin and destination. “This is not the case of a company that is simply present in each province with a stand-alone operation — like a chain of clothing stores.

"What Fastfrate does — the service it provides, its ‘undertaking’ — is to move freight from the hands of a customer in one part of the country to the hands of a customer in another part of the country."

Meanwhile, the Fastfrate decision could also have a significant impact on many similar companies, including DHL, which in 1994 was also deemed to be federally regulated by the Canada Industrial Relations Board regardless of the fact employees and transportation equipment operated locally and did not cross borders between the provinces.

"At the present time, there are undoubtedly dozens upon dozens of business enterprises, whether they be called freight forwarders or logistics services, that arrange for the transportation of the freight of their customers inter-provincially and/or internationally," the Gowlings lawyers write.

"With the Fastfrate decision, most of these operators, offering no equipment of their own in the physical movement of freight inter-provincially or internationally will now find that their local provincial operations are subject to provincial labor and employment laws."

Or, as in the case of Fastfrate, will be content to learn they were a provincial outfit all along.

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