(Adds union statement, CN Rail comment, background details)
By Solarina Ho
TORONTO, March 21 (Reuters) - Leaders of the union representing 3,000 conductors, yard workers, and traffic coordinators at Canadian National Railway Co will meet on Friday to decide whether to strike or take other action after union members narrowly rejected a second tentative contract deal with Canada's biggest railway.
The Teamsters Canada Rail Conference said in a statement that it still has a valid strike mandate and added that its leaders will meet with counsel to decide on its next move.
Canada's labor minister, Kellie Leitch, urged CN Rail and union leaders on Friday to seek voluntary arbitration to avert a strike, which she said would damage the economy.
The Teamsters union said on Thursday that its members had rejected the latest agreement by a 51.1 percent margin. The deal was reached last month after the government said it would use back-to-work legislation if necessary to keep the railway operating.
The dispute comes as CN Rail struggles to move 5,500 cars of grain a week to cope with a massive backlog from a record-shattering harvest in 2013. The backlog has been exacerbated by transport disruptions caused by an extremely cold winter.
Montreal-based CN Rail said it would like to settle unresolved issues through final binding arbitration, a process in which an arbitrator decides the final terms of the contract, and requested a union response by the end of Friday's business day.
"CN hopes the union will accept its offer, given that the company's recovery from an extraordinarily tough winter is in its early stages," said CN spokesman Mark Hallman, calling the offer "reasonable".
The union said that government interference has made it difficult to resolve the conflict.
"CN knows that there is no real fear of a work stoppage because the government will step in, so the outstanding issues never get resolved," the Teamsters said, calling the failed ratification "not overly surprising".
The union had previously said the first vote failed because workers were unhappy that CN was not respecting contractual rest provisions, an issue it called one of worker safety.
Union representatives could not immediately be reached on Friday for comment, but said in the statement that CN had been "violating the collective agreement ... since the first tentative settlement was reached back in October and long before that".
CN's Hallman declined to comment on the charge.
Labour Minister Leitch said she was "disappointed" by the vote result.
"I urge both parties to consider the best interests of all Canadians and avoid a work stoppage by sending their outstanding issues to voluntary arbitration," she said in a statement.
"A work stoppage at CN would have damaging effects on our economy - negatively impacting hardworking Canadians across the country, including grain farmers in the Prairies, auto workers in Ontario, and forestry workers in Quebec."
Additional reporting by Louise Egan in Ottawa; Editing by Sophie Hares; and Peter Galloway