An arbitrator will issue a binding agreement in about two weeks on the contract with flight attendants under federal labour laws that prevent a strike or lock out during that period.
Labour Minister Lisa Raitt applauded the news Friday that the national carrier and the Canadian Union of Public Employees negotiated a resolution that won't have an impact on the travelling public and the national economy.
"If there was a work stoppage, that would have not been a great place or time to find the ability to go to a table and negotiate it out. So this was the right process and this was something that worked out," she said outside the House of Commons.
Arbitration hearings are to begin Oct. 28 and a binding award is to be made by Nov. 7. The labour board will appoint an arbitrator if the two sides can't agree on one.
Both parties also agreed to withdraw unfair labour practice complaints filed by Air Canada on Oct. 12 and by CUPE on Sept 19.
The minister spoke as some 200 boisterous demonstrators showed up at the steps in front of Parliament Hill's centre block. They carried signs berating Raitt and lamenting what they see as the impending demise of labour relations in Canada.
CUPE president Paul Moist assured flight attendants their work is important and they are entitled to free collective bargaining. He said third-party arbitration is "not what we chose but, in the circumstances we're in, the right decision, in my view."
And to Raitt, he said: "You say you believe in the free-market economy. Stop interrupting in our free collective bargaining rights."
Air Canada didn't respond to requests for comment on Friday. Its chief operating officer, Duncan Dee, said Thursday that the airline was pleased to have a process that avoids disruption of service and eliminate uncertainty for customers.
Wages, working conditions and pension changes are issues, along with Air Canada's (TSX:AC.B) plans to launch a discount carrier.
The 6,800 Air Canada flight attendants rejected two tentative agreements that the union negotiated this year. They had threatened to strike last month and complained loudly that the airline has forced them to swallow too many concessions over the years.
The flight attendants were forced to withdraw the strike threat when the federal government referred the bitter dispute to the Canada Industrial Relations Board.
Unlike the case with customer service agents, the flight attendants arbitrator will have the latitude to craft a decision without being restricted to a choice of either proposal presented by each side.
In the earlier dispute, the CAW arbitrator sided with the union's proposal for a hybrid pension plan. New employees will have defined contribution plans, while existing workers will remain in defined benefit plans.
Union sources say its proposal will reflect the concerns of members that led them to twice reject tentative deals the union had proposed they ratify.
Industry observers believe both arbitration rulings will establish a framework for resolving common issues in upcoming talks with pilots, mechanics and dispatchers.
Unique issues like scope clauses that protect who can fly Air Canada planes would still have to be hammered out.
"If you are the machinists or the pilots you've got to be looking at this third option, which is if you can't settle and you're not being allowed to strike, that you're going to go to interest arbitration," said George Smith, currently a fellow at Queen's University's School of Policy Studies.
The former director of employee relations for Air Canada said interest arbitration generally favours unions because arbitrators prefer gradualism over endorsing radical change.
That results in a "conservative award" which doesn't dramatically alter the status quo, added David Dorrey, associate professor of labour and employment law at York University's School of Human Resource Management.
As a result, Air Canada won't likely make much headway in dramatic reforms and the workers are unlikely to get huge wage gains.
"The fact that the employees so adamantly rejected the employer's earlier offers may work to the advantage of the union because arbitrators attempt to 'replicate' what would likely have occurred if the parties had been permitted to engage in a work stoppage," he said in an email.
Air Canada will likely try to have the arbitrator endorse something close to the tentative agreements that were recommended by the union executive, Smith said.
But, he added, the arbitrator may be unwilling to give the airline the conditions it wants if they couldn't be reached through a bargained deal that was ratified by members.
The desire to establish a low-cost carrier will come under scrutiny. Flight attendants are concerned about job protection as more flights are transferred to the discount brand.
Air Canada has said it would only launch the low-cost carrier if it has the economic conditions that make it financially feasible.
Meanwhile, Raitt refuted suggestions that the government plans a radical overhaul of the Canada Labour Code to prevent strikes in transportation and telecommunications sectors.
"They found a process that worked so I'm very content with the Labour Code that it's working as the way it should so it’s not priority for me at all," she told reporters.
Ian Lee of Carleton University said the government has won a big victory without having to order an end to a strike or igniting a firestorm by trying to change the labour code.
Raitt also comes out of the process with her reputation substantially enhanced, he said.
"I would not be surprised to see her promoted in the next cabinet shuffle because she's been seen to be so effective and astute."
Smith fears, however, that her interventions may harm Canadian industrial relations in the long-term. Workers may increasingly threaten strikes hoping that an arbitrator will endorse a more moderate path than is sought by employers.
"You're going to see in some cases significant erosion of the competitiveness of Canadian businesses as a result of this."
The resolution to Air Canada's dispute with flight attendants comes as at least one analyst downgraded the airline Friday over the impact of a prolonged period of slow economic growth.
Tasneem Azim-Khan of UBS cut her share price target in half to $1.50 because of pressure on costs from more moderate capacity growth and liquidity pressures.
On the Toronto Stock Exchange, Air Canada shares lost one cent at $1.36 in afternoon trading.
— With files from Stephen Thorne in Ottawa.