A court-ordered arbitration panel has sided with the union Unifor that represents 3,600 workers in the Fort McMurray area and which had filed a grievance against the policy.
The majority of panel members ruled there is no evidence that there is an out-of-control drinking or drug culture at Suncor (TSX:SU).
The ruling said the random testing policy is an unreasonable exercise of Suncor's management rights.
"The 2012 policy is proposed without any time limits to review its effectiveness, is not targeted as narrowly as possible, does not use the least intrusive or most accurate testing measures available and does not contain provisions for communicating with employees around false-positive results," reads the panel report released Wednesday.
Suncor said it was disappointed and indicated it will ask the Alberta Court of Queen's Bench for a judicial review of the ruling.
The company noted one of the three panel members had a dissenting view.
"In our view, and based on the evidence we presented, this is an unreasonable outcome," Suncor spokeswoman Sneh Seetal said.
"In fact, one arbitrator, David Laird, expressed that he had never seen stronger evidence in support of random drug and alcohol testing."
Roland Lefort, head of Unifor Local 707a, hailed the ruling. He said the policy would violate workers' fundamental rights to privacy, respect and dignity in the workplace.
Lefort said it's obvious that workers and the union want the Suncor worksite to be safe for everyone, but there are better ways to achieve that goal.
"We will work with Suncor to achieve the highest levels of workplace safety with education and prevention, not invasive medical procedures."
The panel ruling follows court decisions in 2012 that granted the union an injunction against the Suncor policy and then ruled against the company's challenge of the injunction.
An Alberta Court of Appeal judge sent the case to arbitration.
Suncor had hoped to start testing union workers in safety-sensitive jobs in October 2012.
The company said three of seven deaths at its oilsands operations near Fort McMurray since 2000 involved workers under the influence of drugs or alcohol.
The company can already test job applicants and people suspected of being impaired for drugs and alcohol. Suncor offers counselling programs to help employees with substance abuse issues.
"The driver behind the inclusion of random testing in our already comprehensive safety program is so our workers go home safely to their loved ones at the end of each day," Seetal said.
In a similar case, the Supreme Court of Canada ruled last June that an employer who wants to impose random alcohol testing on union workers in a dangerous work environment must show the move is reasonable.
The case involved Irving Pulp and Paper Ltd. in New Brunswick. The high court ruled that mandatory random testing imposed at a mill in 2006 was unreasonable and was properly rejected by a labour arbitration board.
In a 6-3 decision, the justices sided with the Communications, Energy and Paperworkers Union of Canada, which had filed a grievance against the Irving policy.
The case attracted a number of interveners, including manufacturers and mining associations.
— By John Cotter in Edmonton
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