A grain of federal jurisdiction: SCC clarifies declaratory power and derivative federal labour jurisdiction

Labour relations are typically subject to the jurisdiction of the provinces under the Constitution Act, 1867; however, Parliament has the power to declare a work located entirely within one province to be “for the general advantage of Canada.”, which brings it within federal jurisdiction. In Quebec (Attorney General) v. SGS Canada inc.¹, the Supreme Court of Canada clarified when that power can be used to bring the employees of an outside service provider within federal jurisdiction. In a 5-4 decision, the Court held that Québec’s Labour Code² did not apply to employees who worked at grain elevators that had been declared to be “for the general advantage of Canada”.

What you need to know

• Parliament’s declaratory power. Where the declaratory power is engaged, a third-party service provider connected to a work declared to be for the general advantage of Canada may fall within federal jurisdiction. The breadth of the federal jurisdiction will depend on the context of the work at issue.
• Federal labour jurisdiction framework. The majority confirmed a three-step approach to establishing federal labour jurisdiction: (1) identifying the entity and its essential operational nature; (2) determining whether direct jurisdiction applies; and (3) determining whether derivative jurisdiction applies.
• Business units within a larger organization may fall under federal labour jurisdiction. Where a business unit is functionally distinct within a larger organization and provides services tied to a federal work, labour jurisdiction may be assessed at the branch or unit level rather than at the organization-wide level. The analysis turns on the unit’s actual functions and operations, not corporate form alone.
• Going against the grain. The 5-4 split, with all three Québec judges in dissent, may leave room for future disputes. The dissent would have more narrowly limited how far the declaratory power can extend federal jurisdiction.

Background: SGS Canada inc. and the Montréal branch

SGS Canada inc. is a testing, inspection, and certification company that services various industries across Canada. Its Montréal branch employs 14 inspectors and graders who work almost exclusively for six grain elevators along the St. Lawrence River. Those elevators are declared works for the “general advantage of Canada” under section 55(1) of the Canada Grain Act and are therefore subject to federal jurisdiction under the declaratory power (section 92(10)(c) of the Constitution Act, 1867). A union sought certification to represent the 14 employees under Québec’s Labour Code. The case therefore turned on whether the proposed bargaining unit fell under Québec’s provincial labour regime or the federal labour jurisdiction.

The Administrative Labour Tribunal, the Superior Court of Québec, and the Court of Appeal of Québec all held that the Montréal branch’s labour relations were subject to federal jurisdiction, but they reached that conclusion using different reasoning. A majority of the Supreme Court dismissed the appeal and held that the proposed bargaining unit came within “derivative” federal jurisdiction over works declared to be for the general advantage of Canada.

The declaratory power

Section 92(10)(c) of the Constitution Act, 1867 lets Parliament declare works “to be for the general Advantage of Canada”. The majority described this as an “extraordinary” power that allows Parliament to “clothe itself” with jurisdiction over works that would otherwise be provincial³. Federal jurisdiction reaches only the “aspects of the work which make [it] one for the general advantage of Canada”—matters that are not sufficiently connected to a federal work remain under provincial jurisdiction⁴. Both the majority and the dissent agreed that the declaratory power “must be approached with restraint”⁵. In this case, the fact that the grain elevators were federal works did not automatically make SGS federally regulated. Rather, as the majority said, Parliament “declared grain elevators to be federal works. It did not declare all third-party services connected to those elevators to be federal works”⁶.

Federal labour jurisdiction framework

Labour relations are presumptively subject to provincial jurisdiction, but that presumption may be rebutted in limited circumstances. Where the declaratory power is engaged, the majority distinguished between “direct jurisdiction”, which is reserved for entities operating the work, and “derivative jurisdiction”, which may cover employees providing services to the federal work or undertaking. The Court adopted a three-step approach to establishing derivative federal jurisdiction: (1) identify the entity and its essential operational nature; (2) determine whether direct jurisdiction applies; and (3) determine whether derivative jurisdiction applies.

Applying the three-step framework, the Court held that the Montréal branch was a functionally distinct unit whose labour relations fell within derivative federal jurisdiction. The branch had its own manager, finances, infrastructure, and offices; its employees were the only SGS staff inspecting grain at Québec elevators; and it had served its main client, Viterra, for 14 years. Direct jurisdiction did not apply because SGS did not operate the elevators; however, derivative jurisdiction applied because grain could not be moved without the branch’s inspections and certificates, and about 90 percent of the branch’s work was for the six federal elevators.

Going against the grain: the dissent

The dissent would have allowed the appeal and declared that the branch was governed by Québec’s Labour Code. Their central disagreement was with the majority’s interpretation of the scope of the declaratory power: it would have taken a narrower approach. It warned that “the federal declaratory power must be exercised with precision, targeting specific works rather than a broad subject matter” so as not to inappropriately broaden federal jurisdiction in a way that upsets the principle of federalism⁷.

In other words, the dissent argued that the declaratory power should not be used to convert a targeted declaration over a work into broader federal jurisdiction over all activities associated with that work. It cautioned that a targeted declaration “does not grant plenary jurisdiction to Parliament over the industry in which the work operates”⁸.

Implications

The decision provides importance guidance about labour relations jurisdiction for federal undertakings and the businesses that serve them. But at a more general level, this decision arguably broadens the scope of the declaratory power. The declaratory power can have consequences beyond the operator of a declared federal work. As this case illustrates, it can anchor federal labour jurisdiction over employees of a third-party service provider whose services are vital to the federal work and significant to the provider itself.

At the same time, the decision confirms that the declaratory power is not unlimited. The disagreement between the majority and the dissent over the breadth of the declaratory power suggests that there may be future disputes over its scope in years to come.