Teamsters Canada Rail Conference

Ottawa is threatening to table back-to-work legislation Monday to end the CN Rail (TSX:CNR) strike if the two sides haven't reached an agreement, a senior government official said late Sunday.

The official, who declined to be named, said the government would prefer the company and the locomotive engineers represented by the Teamsters union negotiate.

But he said to protect the Canadian economy they could not let the strike which began after talks broke down on Friday to continue.

"The strike at CN could basically jeopardize the progress we've made on the economy and inflict significant damage to the Canadian economy during the busy Christmas season," the official told The Canadian Press.

He said the legislation would order an end to the strike and all outstanding issues would go to binding arbitration.

Some 1,700 locomotive engineers are now on the picket lines and qualified engineers from the management are attempting to keep trains running.

"We're focused on running our trains the best that we can, as efficiently and safely as we can and any back-to-work legislation is a government decision and not ours," said CN Rail spokesman Mark Hallman, after hearing the news.

The two sides were at a standstill Sunday, after CN rejected the latest proposal by Teamsters Canada Rail Conference to get negotiations back on track.

It's unclear how much effect, if any, the strike is having on CN operations.

Through federal mediators, the union offered late Saturday night to submit the wage portion of the dispute to binding arbitration upon the resolution of other outstanding issues.

But a company spokesman said Sunday the railway reviewed the offer and found it unreasonable.

"This proposal would not end the strike," said Hallman.

"Rather, it would continue the negotiations for an undefined period of time over the same work rules we've been discussing for 14 months."

Management is demanding the union submit all outstanding issues to binding arbitration, not just wage matters.

Union president Daniel Shewchuk said late Sunday they were working to break the log jam without undermining collective bargaining rights.

"We're trying to get the company to negotiate with us on the balance of the issues," he said.

"We want to negotiate. We don't simply just want to say: 'This is it. We can't agree. Let's go to binding arbitration.' That doesn't solve anybody's problem and all it does is affect long term labour relations."

Canada's largest railway wants to imposed a 1.5 per cent wage increase and raise the maximum distance engineers can travel in one month by 800 kilometres to 6,900 kilometres.

The union argues the hike in the mileage cap would require some workers to work seven days a week, with no time off, and cause layoffs.

Canada's labour minister has also urged the union to accept binding arbitration and offered to appoint an arbitrator as soon as it gave the OK.

Rona Ambrose also vowed not to support the labour disruption at a time when Canada's economy is still recovering.

Shewchuk said he understands Ottawa's position and weighed the economic concerns before deciding to strike. Instead he blamed the company for its decision last week to alter the terms of the collective agreement.

"(It) basically forced our hand," he said.

Liberal Leader Michael Ignatieff criticized the federal government for the handling of the strike and urged them to get negotiations back on track.

In a statement Sunday, Ignatieff said the Conservatives needed to protect businesses and shippers who rely on the cross-country rail network from suffering economic losses.

Ignatieff said Canadians need a fully functioning transportation system - which means they need their government to get this dispute resolved.