On November 6, 2026, the Supreme Court of Canada (the “Court”) released its decision in Québec (Attorney General) v. SGS Canada Inc., 2026 SCC 37, a landmark ruling on the constitutional division of powers in the context of labour relations. In a five-judge majority decision, the Court dismissed the appeal brought by the Attorney General of Québec (“AGQ”) and held that the fourteen employees at issue fall under federal jurisdiction and are subject to the Canada Labour Code.
SGS Canada Inc. (“SGS”) was represented by Claudia Desjardins Bélisle, Philippe Larochelle and Sophie Ouahbi Garcia.
Facts and procedural history
SGS is a global leader in testing, inspection, and certification. In 2019, the Syndicat des travailleuses et travailleurs des industries manufacturières – CSN (“CSN”) filed an application for certification with the Administrative Labour Tribunal (“ALT”) under the Québec Labour Code. The application sought to have the CSN certified as the bargaining agent for fourteen grain inspectors and graders employed by SGS, who work primarily at six grain elevators located along the St. Lawrence River.
SGS challenged the ALT’s jurisdiction on the basis that the labour relations of the employees concerned fell under federal jurisdiction because the grain elevators at issue are works declared to be for the general advantage of Canada under the Canada Grain Act. The ALT dismissed the CSN’s application, finding that the employees concerned were subject to the Canada Labour Code under the doctrine of derivative federal jurisdiction. On an application for judicial review brought by the AGQ, the Québec Superior Court, like the ALT, concluded that the labour relations at issue fell under derivative federal jurisdiction. The Québec Court of Appeal subsequently dismissed the AGQ’s appeal and confirmed that federal jurisdiction applied, this time on the basis of direct federal jurisdiction.
The AGQ then appealed to the Supreme Court, which, after nearly a year under reserve, once again ruled in SGS’s favour.
Key takeaways
In majority reasons written by Justice Andromache Karakatsanis, the Court clarifies the constitutional test for determining whether an entity’s labour relations fall under federal jurisdiction. In particular, the Court provides important guidance on the distinction between direct and derivative federal jurisdiction.
The Court clarifies the test governing the division of powers over labour relations
The Court summarizes the analysis as a three-step process. First, the entity at issue and its essential functional nature must be identified. This determination must be made by examining the entity’s functions as an active business. Where the entity identified is a unit within a larger organization, it must be capable of being characterized as a distinct functional unit separate from the organization of which it forms part.
The second step is to determine whether direct federal jurisdiction applies. This requires that the entity itself own, control, manage or operate a federal work or undertaking.
Finally, where the entity is considered a third party in relation to the federal work or undertaking, derivative federal jurisdiction applies if the services provided by the entity are integral, essential or vital to the core operations of the federal work or undertaking, while also being important to the entity itself.
Direct federal jurisdiction applies only to an entity that itself manages, controls, or operates a federal work or undertaking
The Court does not adopt the Québec Court of Appeal’s analysis of direct federal jurisdiction. It states that direct federal jurisdiction can apply only where the entity under consideration directly manages, controls, or operates a federal work or undertaking.
Where an entity operates both a federal and a provincial work or undertaking, the entity’s essential functional nature, or its “normal or habitual activities,” must relate primarily to the federal work or undertaking for direct federal jurisdiction to apply.
The Court clarifies the test for derivative federal jurisdiction and rejects the approach adopted in Madysta
An entity may also fall under federal jurisdiction on a derivative basis. In such circumstances, the Court reiterates that the entity must provide services that are “integral, essential or vital” to the core operations of the federal work or undertaking. Those services must also be important to the entity itself. In other words, the federal work or undertaking must depend on the entity’s services and be unable to carry on its operations without them.
In this respect, the Court provides important clarification regarding Madysta Télécom ltée v. Commission des normes, de l’équité, de la santé et de la sécurité du travail, 2020 QCCA 183 [Madysta]. In that decision, the Québec Court of Appeal held that an entity had to be functionally integrated into a federal work or undertaking in order to fall under derivative federal jurisdiction.
The Supreme Court expressly rejects this requirement and concludes that, to the extent Madysta stands for the proposition that an entity must necessarily be integrated into a single federal work or undertaking for derivative federal jurisdiction to apply, it is incorrect in law.
Conclusion
At the conclusion of its analysis, the Court holds that direct federal jurisdiction does not apply in this case because SGS does not itself manage, control, or operate the grain elevators. The Court nevertheless concludes that derivative federal jurisdiction applies because the services provided by SGS’s Montréal branch, where the employees concerned work, are essential to the operations of the grain elevators and account for 90% of the branch’s activities. The decision thus confirms that the labour relations of the fourteen employees concerned fall under federal jurisdiction.
This landmark decision clarifies and stabilizes the law governing the constitutional division of powers over labour relations, while providing a detailed analysis of the concepts of direct and derivative federal jurisdiction.
How Miller Thomson can help
The SGS decision redefines when federal labour jurisdiction applies, and the implications extend well beyond grain elevators. If your organization provides services to a federally regulated work or undertaking, the constitutional framework governing your employees’ labour relations may need to be reassessed. Miller Thomson’s Labour & Employment lawyers advise employers on jurisdictional questions, collective bargaining obligations, and compliance with both federal and provincial labour standards. Contact Claudia Desjardins Bélisle or a member of our team to discuss how this decision may affect your workforce.
