Carillon Decorative Products Inc. v. Mellon, 2004 CanLII 1535 (ON SCDC)

Carillon Decorative Products Inc. v. Mellon, Employment Standards Officer et al.

Carillon Decorative Products Inc. v. Mellon, Employment Standards Officer et al. [Indexed as: Carillon Decorative Products Inc. v. Ontario (Employment Standards Officer)]

71 O.R. (3d) 500

[2004] O.J. No. 2880

Court File No. 737/03

Ontario Superior Court of Justice,

Divisional Court,

MacFarland, Jennings and Howland JJ.

June 30, 2004

Employment -- Employment standards -- Judicial review of order of employment standards officer -- Associated or related employer -- Related employer ordered to pay vacation, termination and severance pay -- Related employer not having funds to deposit as required to have order reviewed by Labour Relations Board -- Court exercising discretion to allow judicial review -- Employment Standards Act, 2000, S.O. 2000, c. 41.

Employment -- Employment standards -- Judicial review of order of employment standards officer -- Associated or related employer -- Related employer ordered to pay vacation, termination and severance pay -- No evidence to support conclusion of employment standards officer -- Application for judicial review granted -- Employment Standards Act, 2000, S.O. 2000, c. 41, s. 4.

Alderbrook Industries Ltd. ("Alderbrook") was a family-owned company established by Mr. Rice. Its principal officers and employees were his two sons and his son-in-law. In 2001, Alderbrook suffered a loss of $2 million. Efforts to renew a necessary line-of-credit and efforts to raise financing failed, and Alderbrook made an assignment in bankruptcy. Two weeks later, Mr. Rice's sons and son-in-law incorporated Carillon Decorative Products Inc.

In October 2003, Ms. Mellon, an employment standards officer, found Alderbrook and Carillon to be carrying on related activities. Subsection 4(1) of the Employment Standards Act provides that s. 4(2) applies if "(a) associated or related [page501] activities or businesses are or were carried on by or through an employer and one or more other persons; and (b) the intent or effect of their doing so is or has been to directly or indirectly defeat the intent and purpose of this Act". Under s. 4(2) the employer and the person or persons are treated as one employer for the purposes of the Act. Pursuant to s. 4(2), Ms. Mellon ordered Carillon to pay about $815,000 for vacation, termination and severance pay due to Alderbrook's former employees. The order was subsequently modified to require payment of $529,632.23.

Under the Act, there is a mandatory review by the Ontario Labour Relations Board provided that the amount ordered to be paid is first deposited. Carillon did not have funds or access to funds to pay the deposit. It sought judicial review of the order of the employment standards officer.

Held, the application for judicial review should be granted.

The special circumstance that Carillon did not have funds to pursue the mandatory review warranted the exercise of the court's discretion to permit judicial review.

Assuming that there was sufficient evidence to permit a finding that Carillon's business was associated with that of Alderbrook, Carillon would only be liable if it were established under para. (b) of s. 4(1) that the intent or effect of the business "is or has been to directly or indirectly defeat the intent and purpose of this Act". There was no factual foundation to support the conclusion that para. (b) had been satisfied. While the requirements of para. (b) may be satisfied if the principals of the financially troubled company simply walk away without making reasonable efforts to save the business, the record disclosed that the principals made all reasonable efforts to save Alderbrook. There was no evidence to support the officer's decision. Accordingly, the application for judicial review should be granted.

APPLICATION for a judicial review of an order of an employment standards officer under the Employment Standards Act, 2000, S.O. 2000, c. 41.

Cases referred to Refac Industrial Contractors Inc., [1990] O.E.S.A.D. No. 83, File No. ESB#099004 Statutes referred to Employment Standards Act, 2000, S.O. 2000, c. 41, s. 4 Authorities referred to Employment Standards Act, 2000 -- Policy and Interpretation Manual, Vol. I (Toronto: Carswell, 2001)

Allison Taylor, for applicant. Eric del Junco, for respondent, Director of Employment Standards.

Introduction

1JENNINGS J. (orally): -- Carillon applies for judicial review of an Order to Pay, dated October 30, 2003, issued by the respondent, Ms. Mellon, an employment standards officer. [page502]

2Mellon found Carillon and the bankrupt Alderbrook Industries Limited to be carrying on related activities, pursuant to s. 4(2) of the Employment Standards Act, 2000, S.O. 2000, c. 41. By the order, Carillon was required to pay about $815,000 for vacation, termination and severance pay due to Alderbrook's former employees. The order was subsequently modified to $529,632.23.

3The Act provides Carillon with a mandatory review of the order by the Ontario Labour Relations Board. To avail itself of that right, Carillon must deposit the full amount ordered to be paid. The unchallenged evidence of Carillon, supported not only by the details surrounding its creation, but by the evidence of its principals and of its accountant, is that it does not have funds or access to funds sufficient to meet the deposit required.

4In our opinion, these special circumstances warrant the exercise of our discretion to permit judicial review so as to allow the review to which Carillon is statutorily entitled but only if it can post the required deposit.

Statutory Framework

5Section 4(1) and (2) of the Employment Standards Act, reads as follows:

4(1) Subsection (2) applies if,

(a) associated or related activities or businesses are or were carried on by or through an employer and one or more other persons; and

(b) the intent or effect of their doing so is or has been to directly or indirectly defeat the intent and purpose of this Act.

(2) The employer and the other person or persons described in subsection (1) shall all be treated as one employer for the purposes of this Act.

Analysis

6Assuming without deciding that there was sufficient evidence before Ms. Mellon to permit a finding that Carillon's business was associated with that of Alderbrook, it was necessary for her to go on to find the existence of the intent or effect required by s. 4(1)(b). The extent of Ms. Mellon's consideration of s. 4(1)(b) appears, at pp. 20 and 21 of her lengthy Narrative Report. (See Application Record, Tab 2.) After setting out a long series of verbatim excerpts from Carswell's Employment Standards Act 2000 -- Policy and Interpretation Manual, Vol. I, she baldly asserted, at p. 21:

After reviewing all of the evidence collected by the Ministry of Labour and provided by Goldman Sloan Nash & Haber LLP and Charles Parker, including submissions Mr. Parker made which were received on October 27, 2003, I found that Carillon Decorative Products Inc. is a related employer to Alderbrook Industries Limited.

7What is utterly lacking is reference to any factual foundation to support that conclusion. Admitting that to be so, her counsel [page503] suggests that the rationale "while unstated by the ESO is quite obvious" and in para. 29 of his factum he sets out his view of what the unstated rationale must have been. Having reviewed what he says, Ms. Mellon impliedly found he submits that to meet the requirements of s. 4(1)(b), principals of a financially troubled company cannot simply walk away without making reasonable efforts to save the business. We agree.

8He submits further, that in this case, the record does not disclose that the principals made all reasonable efforts to save Alderbrook. In our opinion, the evidence to the contrary is overwhelming.

9Alderbrook was a family owned company established by Mr. Rice, its controlling shareholder. At the relevant time, its principal officers and employees were his two sons and his son- in-law. The evidence before Ms. Mellon, none of which was challenged, was that:

(i) The company suffered a loss of $2 million in 2001;

(ii) Its bankers would not renew its vitally necessary line-of- credit without a capital injection of $2 million;

(iii) The shareholders could not raise $2 million;

(iv) The company retained a specialist to find alternative financing. It accepted a conditional proposal from National Bank;

(v) One month later the Bank's credit committee declined approval for the loan package;

(vi) At the same time, the mortgagee of the company's property declined to grant a previously anticipated increase in the mortgage principal;

(vii) The company's bankers then demanded payment of $707,000. A forbearance was negotiated in return for the personal guarantees of the principals;

(viii) Continuing efforts to secure financing were made without success;

(ix) A personal direct appeal to a family member for help was rejected;

(x) At the end of the period of forbearance, the company made an assignment in bankruptcy; [page504]

(xi) The principals worked with the trustee to realize on assets. They proposed that they operate an existing subsidiary trading in the Far East for the benefit of the company's creditors but the trustee refused to consent because of the financial requirements;

(xii) Two weeks after the assignment, Mr. Rice's sons and son- in-law incorporated Carillon. They were able to capitalize it by each borrowing $15,000 by way of mortgages on their home. Carillon had no operating line. Carillon operates as a sales agency importing product from abroad. None of Alderbrook's former employees were employed by it;

(xiii) Alderbrook had about 250 employees and at one time enjoyed annual sales of $60 million. Because its business was seasonal, it required a line of credit of about $16 million. A significant aspect of its business was manufacturing product for sale.

10All of that evidence was before the Employment Standards Officer. As has been said, she referred to none of it in support of her decision under s. 4(1)(b). Equally troubling to us is the lack of any evidence that she ever disputed the submissions made by Alderbrook or Carillon, ever asked any clarifying questions or ever called for the production of any documents. In these circumstances and without any cross- examination, it is simply inappropriate for the respondent to take the position that it does, which is, in effect, "Well you haven't done enough to show that you made reasonable efforts to salvage."

11The respondent's counsel relies on the decision of Referee Brown in Refac Industrial Contractors Inc., [1990] O.E.S.A.D. No. 83, File No. ESB #099004. At p. 7 of his decision, the Referee said:

In my opinion, the effect of the decision by Mr. Keller to allow Keller Ltd. to lapse into insolvency and to reinvest his money in Refac, Inc. is to defeat the true intent and purpose of Act (sic) by denying to the respondents termination pay and wages to which they were entitled under the Employment Standards Act. Mr. Keller could have continued to carry on his operations through Keller Ltd. rather than opting to form a new corporation to carry on almost precisely the same business. While he testified that he was unable to find additional investors in Keller Ltd., he did reinvest $125,000 of his own funds in the new corporation and found a partner who was willing to invest a like amount."

12In effect we understand the Referee to have found that if what was done for the successor company had been done for its predecessor, the latter could have been saved. That decision is not applicable to the facts in this case. It cannot for a moment be [page505] suggested that the $45,000 borrowed to create the sales agency could have had the slightest effect on the looming disaster confronting Alderbrook.

13Counsel for the respondent submits that if we are to permit judicial review we should, in effect, step into the shoes of the Labour Relations Board and review all of the evidence to determine if there is support for the officer's decision. We accept that invitation. We find no evidence to support her decision. Her order is quashed.

Costs

14MACFARLAND J.: -- Costs. The endorsement will read: "For reasons orally delivered by Jennings J., the application for judicial review is allowed and the decision of the Employment Standards Officer Mellon, dated 30 October, 2003, is quashed. There was no evidence to support the decision of the E.S.O. under s. 4(1)(b) of the Act, and in such circumstances this case ought never to have required the intervention of this court to rectify a manifest error. The record was voluminous and the applicant has been put to substantial expense. In all the circumstances costs to the applicant fixed in the sum of $15,000 plus GST and disbursements."