The Canadian Auto Workers and the Communications, Energy and Paperworkers, which have a total of more than 320,000 members, said Tuesday they have been holding preliminary discussions for weeks.
CAW president Ken Lewenza said the move comes as a response to the "incredibly hostile economic environment" its members face and will give the unions a better stance against a "confident employer base" and Canada's majority Conservative government.
"We have to think outside the box and this is one way of doing so," Lewenza said in an interview after the announcement.
"It's really about saying to employers and governments alike that we're going to strengthen the movement, we're not going to stand pat, we're not going to continue to see membership decline at the expense of our existing members."
Lewenza said the Canadian Labour Congress — a national umbrella group based in Ottawa — has held conversations about how to strengthen the positions of its 50 affiliated unions.
"There's been strategic discussions and CAW and CEP decided to take that a step further and go beyond discussions and see if we can actually make this Canadian union work."
He said the two unions have the most in common among members of the CLC as both were born out of and left international unions. Both also have good reputations at the bargaining table and politically, he added.
"When you go to an employer and indicate to them that you've expanded and strengthened your union through growing the union and you have access to 320,000 members to support one another ... it's a very strong statement and it's a very strong position to be in."
He said he hopes the potential mega-union will convince unorganized workers to join up and "also allows other affiliates to consider whether strengthening their members' desire means joining a Canadian national union that combines its resources."
Lewenza said he sees other affiliates joining "somewhere down the road."
Dave Coles, president of the CEP, said a larger union is necessary because workers are taking a "pounding" in Canada's current economic and political environment.
"We want to have more influence at the bargaining table, we want to have more political strength more, economic strength," Coles said.
He added that if the unions "get it right" he hopes that other CLC affiliates will look at joining.
The unions said they've been galvanized by events like a lockout of employees at a locomotive manufacturing plant in southwestern Ontario. The CAW said management of the Caterpillar-owned Electron-Motive plant in London, Ont., want employees to agree to have their pay cut in half.
"Quite frankly I've had enough, our union's had enough and we're heading into a period of significant labour turmoil," Coles said, adding that 2012 is going to be a tough negotiating year for both the CEP and CAW.
The CAW was also pressured by the federal government last summer while negotiating for its members at Air Canada (TSX:AC. A). The airline and union did reach a negotiated settlement in June, but only after Labour Minister Lisa Raitt began the steps required to introduce back-to-work legislation.
Lewenza said the merger proposal has the approval of the national executive committees of both union and a small committee will now concentrate on forming a constitution, that is expected to be voted on by delegates at a CAW convention in August and at the CEP convention in October.
The Canadian Auto Workers has been the country's largest private-sector labour union, representing employees in a wide variety of industries from manufacturing to mining to transportation.
The CAW has seen its influence and membership diminished by pressures on Canada's manufacturing sector, particularly in the auto industry where it represents employees at General Motors, Chrysler and Ford (NYSE:F) among others.
The CEP is also active in numerous industries that are under economic pressure, including forestry and media.
Lewenza took the reins at the union at one of the worst times in its history and had to negotiate contracts with the big three automakers that meant big concessions for workers.
The CAW represents about 200,000 people across Canada — at its height in 2006, it had as many as 265,000. The CEP's website says it has 130,000 members.
Former CAW president Buzz Hargrove, who oversaw more than 30 smaller mergers during his time, said Tuesday the merger would be a win for both unions.
"There's way too many small unions in the Canadian labour movement," he said.
"The lesson to them should be if two big unions see the necessity for a merger then they should be looking at themselves and see who they can come together with."