What is a Sunset Clause?
A sunset clause is a common term found in many collective agreements. Generally, a sunset clause has the effect of automatically terminating, after a given time, a provision in a collective agreement or other document . Sometimes, it may be difficult to determine whether a term in a collective agreement is a "sunset clause" or otherwise, but the following statement is a good description of one: After January 1, 1995, this collective agreement shall cease to apply to the employer in respect of its factory unit in the City of Moncton and shall cease to have any effect whatever upon the relationship between the employer and factory unit employees.
Significance in Collective Agreements
In collective agreements, sunset clauses may appear at the beginning and/or end of an agreement, and they may apply to one or multiple articles of the agreement. While some clauses only apply to one article (often allowing for provisions to become inoperative after two years), others may apply to the entire agreement. The latter type of clause are occasionally referred to as "sunset clauses." An example of a somewhat common sunset clause in a collective agreement is where there is a clause that permits ratification of a collective agreement by a certain number of affected employees or union members, or alternatively, a defined "representative" set of employees or union members. In that situation, the sunset clause is one that applies to the entire agreement. In the construction industry, long term collective agreements often have a clause that states that if notice to bargain is not given by a certain date (e.g. December 31 of each year), the agreement remains in force for a further term. This provision has frequently been interpreted as an automatic rollover of the agreement for a further term, but this automatic rollover is not a situation where the usual rules on sunset clauses apply.
The use of sunset clauses in collective agreements generally suggests two things: 1) there is uncertainty about the future and parties wish to contract-out the issue of whether certain provisions should remain operative after a certain time, and 2) if a party does not consider the sunset clause to be in their interests, they wish to carefully negotiate a clause as opposed to just letting it operate in the future without their consent.
Pros and Cons
The advantages of having a sunset clause in a collective agreement usually include the parties’ satisfaction with being able to review provisions of their collective agreement more frequently than would be the case without a sunset clause and, for the employer, the ability to weather economic or labour stability issues in contract terms. When have stability issues, they are usually minor in nature. This is because a party may have agreed to a minor concession in exchange for maintaining the current provisions in the collective agreement. The parties are not trading on present economic conditions for a longer time period but are engaging in an exchange which includes consideration by the employer of whether it can live with a minor concession if other contract provisions are preserved. On the other hand, a sunset clause can increase uncertainty about the direction of the relationship the parties are building through provisions of the collective agreement. A party who is preparing to expire a collective agreement may be reluctant to achieve minor concessions which could amount to a concessionary set-back and could easily cause the other party to make a major concession for the future. A minor concession could cost the union a two-year wage freeze, for example. Such a wage freeze might not have been suggested by the union at all if the collective agreement was to last three years. And so the settlement becomes skewed in favour of the employer such that the relationship the union party is negotiating for in the next negotiation could be jeopardized. Another disadvantage is that the parties may be obliged to renegotiate the collective agreement sooner than the life of the collective agreement warrants. In the prior example, a wage freeze is a minor concession. Unless the parties require the contract clause to survive a work stoppage, the provision has virtually no chance of being preserved through the life of the collective agreement. The union must then decide whether it wants to negotiate or requests an interim agreement or an extension. The employment relationship and work productivity could be impacted if the parties are preoccupied with contract provisions which may not have otherwise been required to be discussed.
Examples and Case Studies
Examples of Collective Agreements Featuring Sunset Clauses
While unique and unusual, the concept of a sunset clause and does have applications in the world of employment agreements. A sunset clause, sometimes called "cessation clauses" have been found in collective agreements. For example, in 2008, Unemployment Insurance Act (Protecting Contracted Employees) – Amendment Regulations were enacted in concert with the Canada Labour Code (the "CLC") and Exclusions from Hours of Work/Special Rule(s) regulations under the Canada Labour Standards Regulations ("CLSR") to allow the designation of certain periods under the CLSA as a sunset period for the application of the CLSA to certain collective agreements entered into after that date. Through the sunset clause, employers and unionized employees who had agreed to their own alternative agreements would have those terms valid through to the end of the term of that agreement. In short, the sunset clauses had the intention of allowing federally regulated employers and unionized employees to agree among themselves on terms which met the needs of the employer, the employees and the workplace in terms of hours of work. This was particularly well received with employers who often felt that the book rule was unnecessarily prohibitive in terms of hours of work. Although less common, sunset clauses may also be contained in individual employment contracts where an employer may desire a term limiting the application of their company policy to a specific time period. While they have been utilized, generally speaking, the petition in Ryerson Canadian University Faculty Association v Ryerson University (2008 CanLII 9162 (ON CA) demonstrates the limitations in their application. Although not referring to them explicitly as "sunset clauses", the Supreme Court of Canada discussed the concern with their use in that case, illustrating the difficulties they may present. In Ryerson, the Supreme Court of Canada considered the legality of a successful challenge to the terms of an academic collective agreement negotiated successfully by Ryerson University and its faculty association (the "FC Agreement"). The FC Agreement featured a 2-year sunset clause (the "Sunset Clause") which provided "notwithstanding any provision of the Collective Agreement to the contrary, after the Anniversary date or such subsequent day or days as may be mutually agreed in writing between the Association and the Employer, this Collective Agreement shall cease in its entirety to be in force and effect." More specifically, any provision in the Collective Agreement had been deemed to have limited effect only until the earlier of the 3rd anniversary of the FC Agreement. Once the 3rd anniversary was reached, the FC Agreement would cease to have any force or effect whatsoever. After the 3rd anniversary of the FC Agreement, there would be no contract between the faculty and the university. The Court also reviewed the concept of collective bargaining in reaching their conclusion as to the appropriateness of limiting the application of a collective agreement using a sunset clause: The idea behind collective bargaining is that it is a set of processes by means of which workers and employers try to resolve their conflicting interests. It is the parties’ right to establish and add to their interests that makes the process of negotiation work. From a legal standpoint the parties can add to those interests by entering into a contractual agreement that has a specified duration. In other words, a collective agreement may provide for a term, and that term may be an indefinite or indefinite one. It was held that the operation of the Sunset Clause had the effect of unilaterally limiting the operation of provisions in a collective agreement, which is inconsistent with the CLC because this provision negated the right to collective bargaining while undermining the intent of the CLC. While sunset clauses may be appropriate under certain circumstances, they can create the potential for a number of uncertainties during the period in which they are in effect. That said, when a sunset clause expires, referring back to the pre-sunset position in employment standards legislation may leave an employer at risk for liability going back to the date of the sunset clause’s expiry.
Creating Effective Sunset Clauses
Good practice for the drafting of a sunset clause is to set a specific end date, where feasible. Generally speaking, adding an end date will be more effective than providing language to the effect that the provision will terminate after a specified period of time. On the other hand, if the parties set an end date in their collective agreement when they cannot reach agreement on the actual terms, that will likely result in an open end to dealing with a complicated issue rather than putting it to bed once and for all. Therefore, the parties must balance the desire for finality against the potential need for flexibility in the future.
It is also preferable to ensure that the clause is clear about its intended time period of application. If the clause is intended to apply to only those employees in the bargaining unit on a specified date, then say so. If the clause is intended to be applied to future hires, the language should reflect that intention. Ambiguous language will invite grist for the arbitration mill, as the union or employer argues over whether or not new hires are entitled to the benefit .
The purpose of a sunset clause is precisely what its name suggests: a requirement that the parties periodically renew the clause if they intend for it to remain in effect. Indeed, a sunset clause should be thought of as an opportunity for renewal rather than a termination. It presents the parties with an opportunity to either review, amend, or terminate a particular clause, which may be structured into the clause itself. Depending on the issue, this review mechanism can be embedded into the language of the clause, or can be added to the language of the clause itself. For example, it is entirely possible to state within the sunset provision that "At expiry of this clause, the parties hereby confirm that both the employer and union agree to meet to discuss either re-instatement or amendment to this clause." Or, such a mechanism can simply be added to the end of the sunset clause, which states that "Parties hereto will meet to discuss options of re-visiting this clause prior to expiry on [insert date here]." For maximum clarity, it is often best to use both, as a simple statement at the end of the clause is easily missed.
Legal Considerations and Compliance
When considering the insertion of a sunset clause in a collective agreement, an employer must be cognizant of the statutory and common law principles applicable to the issue. Although entirely lawful in principle, sunset clauses may have compliance issues in a number contexts.
Labour Board Considerations If the bargaining for a collective agreement does not follow a legal process as required by the relevant contemporary labour relations code, the employer might face a claim for unfair labour practices by the trade union. A trade union may claim that an unfair labour practice has occurred if an employer, for example, has failed to bargain in good faith when it fails to deal fairly with the issues raised by a sunset clause during collective bargaining.
The timing of the tabling of the sunset clause by an employer may also be problematic. If, for example, the employer has waited until almost the close of the bargaining process to table the sunset clause, the effect of the clause may be to avoid addressing the issue during the life of the agreement, and simply postponing the matter until the next round of bargaining. The rub is that the issue may require resolution now. Delaying the resolution of the issue may be considered a lack of good faith bargaining.
Non-Labour Board Considerations Sunset clauses do not necessarily fall under the jurisdiction of labour boards. Thus, a breach of the sunset clause typically would likely have to be addressed in court. The employer must be careful that the clause is properly drafted and unequivocal. The difficulty in these cases is that a court will almost always refer the matter back to the collective agreement’s grievance and arbitration process. Compliance with a sunset clause cannot be determined arbitrarily or at the whim of the court. The application of the sunset clause would be governed by the grievance and arbitration scheme established in the collective agreement. Because the parties to a collective agreement are effectively bound by the provisions in the agreement, whether a sunset clause is enforced in the appropriate manner remains with the collective agreement.
If the application of a sunset clause has a direct impact on the general public (e.g., health and safety issues), there is a greater likelihood that a court will exercise its jurisdictional discretion. In this regard, there is a relatively open issue regarding the ability of a court to restrain the application of the sunset clause in certain limited situations.
Employment Standards Considerations The insertion of a sunset clause in a collective agreement should not undermine the legislated protections contained in the relevant employment standards legislation. For example, a sunset clause that attempts to deny the application of minimum notice or severance provisions set out in employment standards legislation would clearly be unenforceable.
Depending upon the jurisdiction, the labour relations and employment standards legislation may interface with one another. Where this is the case, a sunset clause may have no effect as it would be trumped by the minimum standards set out in the legislation. The better approach in this situation is for the employer and employee group to meet with the Ministry of Labour inspectorate to informally modify the requirements of the legislation.
Judgements The British Columbia Court of Appeal determined in Safeway Gainer Inc. v Retail Wholesale and Department Store Union, Local 580, that a clause in a collective agreement requiring the consideration of any possible sale of the employer’s assets and business did not oust the arbitrator’s jurisdiction to deal with the issues arising from the application of the clause.
In Northern Lights College v BC Government and Service Employees Union, the British Columbia Supreme Court also upheld a sunset clause that dealt with the issue of retiring allowances. In order to determine the amount of such retirement allowances during the term of the collective agreement, an arbitrator was required to determine the natural fluctuations over the course of the entire calendar year in the absence of better collective agreement data. While the language could have been clearer and more detailed, the inconsistency of the language of the sunset clause did not prevent its enforcement.
In Métis Settlements General Council v Government of Alberta, the Alberta Court of Appeal turned its mind to a sunset clause that purported to rescind the authority of Alberta to alter any statutory rights of a Métis settlement after 1 January 2016. The Court of Appeal held that it was three years too early to determine the effect of the sunset clause. In addition, the Court held that there was no impairment of the residual legislative jurisdiction of the Métis Settlement.
Future Trends in Labor Agreements
The role of sunset clauses in ensuring flexibility for both employer and employees has become increasingly relevant. As the workforce is changing, an increasing number of employers are embracing sunset clauses that allow them to stay agile. Future labour agreements are likely to contain sunset clauses to provide greater flexibility to employers at the collective bargaining table and in their workplace planning, regarding the types of work and the types of employees who will perform them .
As new ways of working and learning emerge, there is likely to be a gradual move towards these types of clauses. Unions may run the risk of undervaluing what they have to offer their members and their goals if they do not embrace the increasing flexibility that sunset clauses provide. The trend will likely be an increasing use of collective agreements with sunset clauses that temporarily hire a flexible workforce to achieve specific goals. In short, sunset clauses may be the new norm.