(Corrects final paragraph to clarify that rail safety, not CN Rail, is under heavy regulatory scrutiny)
* Workers vote 891 to 852 against, union says
* Second time workers vote against company-union agreement
* CN Rail seeks arbitration
By Solarina Ho and Susan Taylor
TORONTO, March 20 (Reuters) - Railway staff of Canadian National Railway Co (CN Rail) have narrowly voted against a strike-busting labor agreement tentatively agreed upon by the company and workers' union.
Canada's biggest railroad and the Teamsters Canada Rail Conference - Conductors, Trainpersons and Yardpersons (TCRC-CTY) regularly negotiate pay, hours and other provisions but a three-year proposal in October drew threats of a strike earlier this year.
The pair came to a new agreement last month after the Conservative government said it would use back-to-work legislation if necessary to keep the railway operating.
The union on Thursday said 64.2 percent of union workers voted 891 to 852 against the new agreement, in a letter to members that was seen by Reuters.
The TCRC-CTY - which represents some 3,000 conductors, train and yard workers, and traffic coordinators - also said CN Rail had originally proposed a final offer selection process if workers voted the agreement down. This is a process whereby a third party chooses the proposal of one side or the other.
CN Rail, in a statement after the vote, said it would propose binding arbitration to reach a settlement and requested a union response by the end of Friday, March 21.
Montreal-based CN Rail operates a cross-country network that moves goods ranging from lumber and crude oil to grains and automobiles. To prevent disruption, the government in recent years has been quick to intervene in labor disputes.
The latest 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, exacerbated by disruptions brought about by an extremely cold winter.
Railways and rail safety have come under heavy scrutiny in Canada and the United States following a series of fiery derailments, including a runaway train carrying crude oil that exploded and killed 47 people last summer in Lac Megantic, Quebec. (Editing by Christopher Cushing)