This is the second in a series of blogs (Read Part 1 Here) examining what university boards can learn from the Ontario Auditor General’s Special Report (“Report”) on Laurentian University (“LU”) (Read the Full Report). This blog also draws from the letter (“Letter”) written by the former LU President to the Ontario government explaining the amount of money needed and the benefits to LU of its decision to effect a restructuring under the Companies’ Creditors Arrangement Act (“CCAA”) proceeding (Read the Letter Here).
This blog wades into contentious waters. Let it be clear that I agree that the many governance failures leading up to the CCAA decision should not have happened. I do not support circumventing collective agreements. The fallout for LU’s stakeholders has been harsh and unfair. This blog focuses specifically on the role that poor labour relations and the existence of a financial exigency clause played in LU’s decision to pursue CCAA protection. What I think the LU situation tells university boards and faculty unions, is that if your university ends up in a financial crisis, you do not want your labour relationships or your collective agreement language to tie the hands of the board and leadership such that the university perceives it is forced to consider more extreme options.
Labour relations and board financial oversight
Since Laurentian filed for CCAA protection in February 2021, many university boards have looked to their presidents and senior leaders for assurance of their institution’s financial sustainability. This is important. However, another key takeaway from the LU situation is that boards need to pay close attention to their labour relations and should understand how university collective agreements (particularly faculty agreements) affect the board’s ability to navigate should a financial crisis hit the university.
As the Report notes, “financial exigency” clauses in faculty collective agreements are common and one thing we now know is that LU’s position was that neither use of the financial exigency clause or working with their faculty union were viable options. The Report is critical of the university for excluding the faculty union in discussions about the financial situation and for avoiding the financial exigency clause. At the same time, the Report doesn’t acknowledge the impact of LU’s poor relationship with its faculty union at the time it made the decision to file under CCAA or examine why LU would seek to avoid the financial exigency provision.
Collective agreement oversight is often the purview of board human resources committees. If your university finance and audit committee hasn’t considered the labour relations environment and the implications of the financial exigency clause in your collective agreement, it should. Could the university work with its unions if it needed to? How would the financial exigency clause in your collective agreement play out in a financial emergency? How does the financial exigency clause represent a barrier to restructuring your university? How does it constrain the board’s exercise of its fiduciary duties? How are you planning for a situation where the clause is called into play? How does the board encourage a labour relations environment that fosters partnership? Your board and leadership should be able to answer these questions.
Why did Laurentian avoid triggering the financial exigency clause?
The Report finds that Laurentian “intentionally delayed providing information [to the faculty union] and did not trigger the [financial exigency] clause” in the collective agreement. The faculty union repeatedly asked the university to trigger the financial exigency clause and the university did not. The Report found (s. 11.0) that,
senior administrators and the Board, guided by external legal counsel, strategically planned and pursued restructuring under the [CCAA] … [r]ather than continue to operate under its collective agreement with the faculty union and employ the financial exigency clause and rather than conduct a joint financial review with the Province ….
The Report clearly disagrees with LU’s decision to seek CCAA protection preferring that Laurentian would have worked with the Laurentian University Faculty Association (“LUFA”) and followed the financial exigency clause in the collective agreement.
The Letter confirms that LU sought to avoid involving LUFA and suggests it was worried about being forced into using the financial exigency clause. It also confirms that the timing for the filing of the CCAA application was in part driven by a pending LUFA labour board application. The Letter stated:
The position with LUFA is tenuous at this time, and there are 97 outstanding grievances that have been filed. We have been formally advised in writing by LUFA that they intend to go to the Labour Board next week asserting that Laurentian University: (i) is not bargaining in good faith, and (ii) has asserted financial distress but has not triggered the financial exigency process under the collective agreement … If certain steps are taken by LUFA (such as a strike, a Labour Board ruling or a process to require that the financial exigency provisions of the collective agreement be invoked) those events are incapable of being reversed at a later date by a CCAA court.
The Letter confirms that the poor labour relations environment was used to justify in part the CCAA decision. Prior to the CCAA filing, and prior to reaching out to the government, LU had planned a significant restructuring and reductions in faculty numbers. Later in the Letter, it states:
We see no scenario in which these reductions would be voluntarily agreed to by LUFA (or by Senate, which Is controlled by faculty who are members of LUFA) or could be achieved in the near term outside of the … CCCA. Even if it could be achieved outside of a CCAA proceeding, it would require years of attrition from voluntary departures (which may not ultimately be the same people who would be deemed most appropriate), and substantial severance obligations.
What is a financial exigency clause?
The purpose of a financial exigency clause is to describe what type of financial emergency might give rise to decisions that affect faculty employment, the process for reaching that decision, and how, if a financially exigent circumstance exists, faculty will be treated. A faculty union’s role is to advance the interests of its members and financial exigency clauses are designed to provide protection to faculty in the event of a financial crisis.
What did the Laurentian financial exigency article require?
Article 10.15 of the former Laurentian University Collective Agreement is found at pages 217 to 224 of the applicable collective agreement. The article narrowly defines financial exigency to include “substantial and recurring deficits, which threaten the long-term solvency of the University as a whole”. The rest of the article deals with getting to a declaration of financial exigency and defining what happens if there is a financial emergency.
A Precondition – cutting costs outside the bargaining unit: The article makes sure that if the university perceives that there is a financially exigent circumstance, it must take all other steps to address the situation including cutting costs and employees outside the faculty bargaining unit. The Article states that:
[r]eductions in staff … shall occur only in extraordinary circumstances, and only then after efforts to alleviate the financial crisis by economies in all other segments of the budget have been taken and after all reasonable means of improving the University’s revenues have been exhausted.
The Steps: 1) Notice – After the university reaches the conclusion that it is facing financially exigent circumstances, it must give notice to the union 2) Documentation – and forward “all financial documentation relevant to the alleged state of financial exigency”. 3) Financial Commission – this step triggers a process for the selection of a third-party Financial Commission (akin to a board of arbitration) “which may concur that there is a financial exigency or reject it”. 4) 60-day decision period – The Financial Commission has sixty days from the date of its first meeting to decide if it agrees that there are financially exigent circumstances. 5) Decision – If the Financial Commission decides there is no financially exigent circumstance, no academic staff can be laid off. If the Commission agrees there’s a financially exigent circumstance, then it can specify the amount of the reduction permitted to be taken in the salary and benefits for bargaining unit members. 6) Layoff process – There is then a process to be followed for allocating the reductions among the Faculties, Library, and other units. 7) Criteria – There are then criteria to be applied such as “a tenured Member shall not be terminated in preference to a non-tenured Member” and other requirements such as providing reasons to those who are laid off. 8) Obligation to employ laid off Member elsewhere – After lay-off decisions are made the University must see if it can employ the Member elsewhere. 9) Right to grieve the lay-off – Members may grieve their lay-off. 10) Termination package – Those laid off are entitled to be paid one month of full salary and benefits per year of service (with a minimum of twelve months of pay).
The costs of this process are borne by the university. This is a long process that in the end could result in no or few layoffs should the Financial Commission disagree that there is a financial emergency, or should those laid off members grieve and succeed. Financial exigency provisions in other collective agreements are similar but should be examined carefully as no two collective agreements are alike.
Laurentian could circumvent its unions by proceeding under the CCAA
The CCAA permitted LU freedom of action to restructure unconstrained by its current obligations, not just its legal obligations to its faculty and staff, but also to its other stakeholders including its affiliated universities and partners. Specifically, by avoiding the collective agreements, it could pursue restructuring without waiting for a bilateral Financial Commission to decide whether there was a financial crisis to begin with. The Letter goes into detail about the protection afforded to the Board and senior leadership, the lack of transparency/confidentiality of the CCAA process, among other things. As the Report notes,
By triggering the CCAA, the University administration circumvented contractual obligations to employees; and it was permitted to terminate more-senior, fully-tenured professors and avoid paying them full severance entitlements … Choosing CCAA also quickly cleared a large number of union grievances.
What Next? Both boards and faculty unions need to re-examine financial exigency clauses
Boards, senior leaders, government, and faculty union leaders need to think carefully about what happens next. I anticipate that this situation will inform bargaining mandates. The answer isn’t to just seek to restrict universities from using the CCAA. University finances will continue to be challenging. Faculty salaries are increasing in many universities at rates higher than forecast revenue increases forcing universities to look for alternate sources of income. Financial crises can be caused by global events like COVID or those caused by climate change. Boards need to ensure that they can fulfil their fiduciary duty and are able to navigate through financial crises. At the same time as faculty unions seek to be involved in these conversations, faculty unions need to rethink the potential unintended consequences of unduly rigid or unworkable clauses. It isn’t a good idea to have an opponent feel cornered as it forces them to look for more extreme ways out.
