The union is seeking to block arbitrator Guy Dufort from hearing the case because of his previous work for Canada Post and history as a Tory candidate in Quebec.
The Canadian Union of Postal Workers has asked Dufort to step down, but he has so far refused. The Federal Court will now hold a hearing in July to review Dufort's appointment.
CUPW national president Denis Lemelin said Monday the Federal Court decision was another legal victory for the union.
"However the real solution lies in a negotiated settlement not an imposed arbitration," Lemelin said in an update to workers.
"Going the arbitration route is likely to take many months and cost hundreds of thousands of dollars. Since the party that loses will likely try to regain what they have lost in the next round of negotiations, the whole arbitration process will solve nothing."
Labour Minister Lisa Raitt named Dufort to hear the case after retired judge Coulter Osborne quit the job amid concerns that he was not bilingual.
Canada Post said it was extremely frustrated by the union's efforts to prevent the arbitration process from moving forward.
"After eight months of negotiations and a damaging work disruption, arbitration remains the best way to address rising labour costs and begin to address the long-term viability of the postal system," Canada Post spokesman Jon Hamilton said in a statement.
"The latest delay in the arbitration process is particularly galling given that the challenge of Mr. Dufort is a reversal by the union. CUPW had recommended the bilingual retired labour lawyer be the arbitrator in this matter."
Though he was on a CUPW-approved list of potential arbitrators, the union said they were unaware of the depth of his ties to the Conservatives and Canada Post and objected to his appointment as soon as they learned of the links.
Canada Post locked out some 50,000 of its employees last year after a series of rotating strikes by the union. The dispute ended with federal back-to-work legislation that forced workers to accept wages that amounted to less than Canada Post's last offer.
On other issues, the law imposed a form of winner-take-all arbitration in which both the union and the post office make a final offer, one of which would be accepted.
Canada Post Corp. reported a loss of $188 million on $7.48 billion for 2011 compared with a profit of $314 million on $7.45 billion in revenue in 2010.
The Crown corporation also said mail volumes fell 4.6 per cent in 2011, bringing the total decline over the last five years to 20 per cent.
The Canada Post Group of Companies is made up of Canada Post and the logistics company Purolator, SCI computer systems, the group of supply chain solutions for companies and society and information Innovapost.Suggest a correction