The Ironworkers' District Council of Ontario v. William A. Squire et al.
Citation: [1980] OLRB Rep. July 945 File No.: 2271-79-R Date: July 16, 1980
Applicant: The Ironworkers' District Council of Ontario, and The International Association of Bridge, Structural and Ornamental Ironworkers, Local Unions 700, 721, 736, 759, 765 and 786 Respondent: William A. Squire, Roy Squire and William Munro, carrying on business as Brant Erecting and Hoisting, Beverley Munro, carrying on business as Provincial Steel and Beverley Munro Inc., carrying on business as Provincial Steel
Before: R. O. MacDowell, Vice-Chairman, and Board Members C. A. Ballentine and C. G. Bourne.
Appearances: S. Wahl J. Harrower and K. Childs for the applicant; Marc Lefebvre and William Munro for the respondent.
DECISION OF R. O. MACDOWELL, VICE-CHAIRMAN AND BOARD MEMBER C. A. BALLENTINE; July 16, 1980
This is an application under sections 55 and 1(4) of The Labour Relations Act. The applicant union contends that there has been a "transfer of a business" within the meaning of section 55 from William A. Squire, Roy Squire, and William Munro, a partnership carrying on business as Brant Erecting and Hoisting, to Beverley Munro Inc. carrying on business as Provincial Steel. In addition, and or in the alternative, the applicant argues that Brant Erecting and Hoisting, and Provincial Steel should be treated as one employer pursuant to section 1(4) of the Act.
In or about March, 1976 Roy Squire, Bill Squire and Bill Munro formed a partnership known as Brant Erecting and Hoisting for the purpose of carrying on a steel erecting, building, and fabricating business. The three partners had formerly been employed by Steel's Erecting and Hoisting and, when Steel's went out of business, they decided that there was "room in the market" for them. Munro had been the defunct firm's estimator, and the Squire brothers worked in the field. No capital was needed to start the new business. The enterprise was small and the necessary equipment could be borrowed or rented. The three partners already possessed such experience or expertise as was necessary.
B rant Erecting and Hoisting carried on business primarily in Western Ontario; but occasionally performed work as far east as Ottawa. Most of the projects were quire small; although from time to time, the business would employ as many as 50 ironworkers. The firm was "unionized" in all its aspects (i.e. in all sectors in which it operated). In accordance with the relevant collective agreements, ironworkers were hired, as needed, from the Union hiring hall.
In the initial stages of its existence the firm was moderately successful. Profits were retained and used to purchase equipment. The business acquired as shop facility, housed in a building costing approximately $30,000.00 and constructed on an Indian reserve near Brantford. Title to the real property was vested in Bill and Roy Squire's father. The business used the premises rent free. The firm's equipment included two pick-up trucks, cutting torches, welding machines, compressors and a variety of small tools. Its offices were located in Bill Munro's basement. Munro's residence was the firm's business address and Munro's phone number was used for business purposes.
Bill Munro was the key figure in the enterprise supplying virtually all of the business expertise and entrepreneurial initiative. Munro had worked in the industry for many years and had useful contacts and a good business reputation. It was Munro who solicited business, did the estimating and bidding for jobs, prepared price and man-hour projections to establish the work force which would be required, did the take-offs from the drawings, kept the books, prepared the payroll, and did the invoicing and other documentation associated with the business. It was Munro who signed the collective agreement on behalf of the partnership. The Squire brothers were "working foremen" who, together with the hired labour force, actually did the work on site.
In or about April, 1978 the firm bid on a project near the City of Windsor referred to by Munro as the "Unimade project". Munro testified that this contract "went sour" and a number of companies, including Brant Erecting and Hoisting, suffered substantial losses. Brant's loss amounted to approximately $40,000.00. In January, 1979 Munro negotiated a short term arrangement which permitted Brant Erecting and Hoisting to continue working on the site until April 20, 1979; but thereafter, the firm did not carry on any further business activities. Munro himself terminated his relationship with Brant Erecting and Hoisting on or about April 1, 1979 and within two weeks the company had become inactive. The Squire brothers made some attempts to carry on business but without Munro they were unable to do so. After a further unsuccessful attempt to establish a new business of their own, and a period of unemployment, they found work as "working foremen" for Dominion Bridge in Toronto. Bill Squire testified that the functions he is currently performing as an employee for Dominion Bridge are identical to those which he performed for Brant Erecting and Hoisting (except of course, he was a partner in the latter business).
When the partnership ceased to carry on an active business there were substantial outstanding debts. Bill Munro retained the books for the purpose of winding up the partnership and also retained some $1500.00 worth of office equipment which was located in his basement. Munro continued to record various financial transaction in the books until early in 1980; although all of these transactions involved the settling of accounts for work completed prior to April 20, 1979. There was no new business after that date.
The Squire brothers disposed of the vehicles, tools and equipment formerly used by the partnership. The funds realized from these sales may have been used to pay certain creditors, but in any event, these funds did not accrue to the benefit of Munro or the alleged related/successor employer. The shop premises remain in existence, but being on an Indian reserve are immune from execution or attachment. Bill and Roy Squire made an assignment in bankruptcy on January 29, 1980. On February 6, 1980 there was a formal dissolution of the partnership; however in accordance with section 33 of The Partnerships Act, R.S.O. 1970, c. 339 there was probably a "deemed dissolution" in April, 1979 when the firm's debts exceeded its revenues, and it was unable to meet its financial commitments as they came due. To date, Bill Munro has not declared bankruptcy and he advised the Board that there were a number of outstanding writs and judgements against him.
Beverley Munro Inc. was incorporated on May 8, 1979. The articles of incorporation indicate that the purpose of the company, inter alia, is to carry on the business of steel erecting, building and fabricating. The business actually commenced in late March of 1979 and was carried on as a sole proprietorship until the creation of the corporate vehicle. The name "Provincial Steel" was registered on May 22, 1979.
Beverley Munro, the wife of Bill Munro is the sole owner of the company by virtue of her ownership of one outstanding common share with a nominal value of one dollar. No capital was needed to start the business, save a small amount for incorporation fees. Mrs. Munro is the only director and officer of the company; however she candidly admitted that she knows nothing about the steel erecting business, takes no active part in the business, and relies on her husband to manage the company's ongoing business activities. The Munros both testified that the company was created so that Bill Munro could remain employed in the business with which he was familiar. Because Munro had substantial outstanding liabilities, he did not believe he could incorporate a company himself.
Munro is an employee of Beverley Munro Inc. and performs the same role for Provincial Steel as he performed for Brant Erecting and Hoisting; except that, for Provincial Steel, he also occasionally works on the site as a working foreman. The business is still run from the Munro's home, using the office equipment previously used by Brant Erecting. Again, it is Mr. Munro's business acumen and contacts within the industry which provide the source of work for the new company. Many of the customers are the same as those served by Brant Erecting; and Munro has even been able to "win back" certain customers who had dealt with Brant Erecting, become dissatisfied, and gone elsewhere. The character of the business, market, and mode of operation, are identical to that of Brant Erecting. None of the employees are the same. Provincial Steel has sought to operate as a "non-union" company, and denies that it is bound by any collective agreement or bargaining relationship with the applicant union.
Section 1(4) of The Labour Relations Act provides as follows:
"Where, in the opinion of the Board, associated or related activities or businesses are carried on, whether or not simultaneously, by or through more than one corporation, individual, firm, syndicate or association or any combination thereof, under common control or direction, the Board may, upon the application of any person, trade union or council of trade unions concerned, treat the corporations, individuals, firms, syndicates or associations or any combination thereof as constituting one employer for the purposes of this Act and grant such relief, by way of declaration or otherwise, as it may deem appropriate."
Section 1(4) was enacted in 1971 and deals with situations where the economic activity giving rise to employment or collective bargaining relationships regulated by the Act, is carried out by, or through more than one legal entity. Where such legal entities carry on related business activities under common control or direction, the Board is empowered to pierce the corporate veil. Section 1(4) ensures that the institutional rights of a trade union, and the contractual rights of its members, will attach to a definable commercial activity, rather than the legal vehicle(s) through which that activity is carried on. Legal form is not permitted to dictate or fragment a collective bargaining structure; nor will alterations in legal form undermine established bargaining rights. In this respect the purpose of section 1(4) is similar to that of section 55 which preserves the established bargaining rights and collective agreement when a "business" is transferred from one employer to another. Section 55 has been part of the scheme of the Act since the mid 1960's. Neither remedial provision requires a finding of anti-union animus; their primary application is to bonafide business transactions which incidentally undermine or frustrate established statutory rights. Since the two sections are complementary, it is not unusual, as in the present case, for an applicant to rely on both.
Section 1(4) does not require that related business activities under common control or direction he carried on simultaneously or contemporaneously. This issue was clarified in 1975 by the addition to section 1(4) of the phrase "whether or not simultaneously". The amendment reflects a legislative recognition that the essential unity and identity of an economic activity (which gives rise to employment) may be preserved even though the legal vehicles through which the activity is carried on will not operate simultaneously; and, business may be effectively transferred from one corporate entity to another, without any of the indicia of a "transfer of a business" which might trigger the application of section 55. This is especially the case in the construction industry where many of the employers will not have the permanence or investment in fixed plant and equipment characteristic of a manufacturing concern. A small construction company can move from jobsite to jobsite or place to place, assembling tools, equipment and a labour force as required after it has made a successful bid. There may be no established economic organization, labour force or configuration of assets. A single principal may have several companies which are used, more or less interchangeably, so that bidding is done and work performed through whichever company is convenient. In such circumstances there may be an effective transfer of business between related businesses without any apparent disposition of assets, inventory, trade names, goodwill, employees, etc. Similarly, where capital requirements are minimal and business relationships transitory, it is relatively easy to wind up one business, and create another one which carries on essentially the same business as before. Indeed there will often be good commercial reasons for doing so unrelated to any express desire to undermine the union's bargaining rights. The earlier company may have run into financial difficulties, or lost its reputation, or there may be legal, accounting or tax advantages in establishing a new vehicle through which the business, or related business activities can be conducted. Again, it is quite possible to do this without a clear and concrete disposition between the two firms so as to call section 55 into play. To ensure that the industrial relations status quo is preserved, the Legislature has provided that where two employers carry on related economic activities, under common control and direction, whether or not simultaneously, they can be treated as one for the purposes of the Act. However, it should be noted that section 1(4) is discretionary. The Board need not make a 1(4) declaration even when the conditions precedent are present; and has not done so, for example, where a trade union is seeking to extend rather than preserve its bargaining rights.
There can be little doubt on the evidence before us that Bill Munro exercises effective direction and control over Provincial Steel — even though his wife owns the company, and occupies a nominal managerial position. It is Bill Munro who has the business experience, knowledge of the industry, contacts and expertise to manage the company's business activities. It is he who solicits customers, develops the business, ensures that the work is properly done, issues the bills, and keeps the company's accounts. Beverley Munro plays no active part in any of these functions, and, as we have already pointed out, the new business and its corporate vehicle were created so that Bill Munro could continue in the business with which he was familiar, despite the financial difficulties which had befallen Brant Erecting. Once the new company was formed, Bill Munro carried on very much as before. Indeed, he testified that he became involved in Provincial Steel in late March 1979 (when it was carrying on business as a sole proprietorship) prior to the termination of Brant Erecting's activities on the Unimade job, and long before the formal bankruptcy of his partners or the dissolution of the partnership. No doubt the outstanding liabilities would have made it exceedingly difficult to carry on the business of Brant Erecting without the injection of capital which none of the partners possessed; but it is clear that the departure of Munro also made it impossible, and guaranteed the termination of the business as a going concern. Thereafter the partnership existed solely for the purpose of winding up. We are satisfied that Munro's pivotal role in running the affairs of Brant Erecting and Hoisting and Provincial Steel, satisfies the requirement under section 1(4) that two allegedly "related" employers must be "under common control or direction".
A more difficult question is whether Brant Erecting and Hoisting and Provincial Steel can be said to have engaged in "associated or related activities or businesses" since, for practical purposes, Brant Erecting ceased to exist as a going concern prior to the establishment and subsequent incorporation of Provincial Steel. The respondent contends that the two businesses cannot be "related" within the meaning of section 1(4) because they were never engaged in any joint ventures or business endeavours, nor were they carrying on business at the same time. The respondent argues that such overlap as there may have been between the activities of Provincial Steel and Brant Erecting, was solely for the purpose of winding up the latter company, and cannot be regarded as the kind of related activity to which section 1(4) is directed. But for the 1975 amendment to the Act, this argument would have considerable force; but it is now clear that the "associated or related activities or businesses" need not be carried on simultaneously. The amendment extends the ambit of section 1(4) to situations in which one business entity is actively carrying on business and the other is not. It is not necessary to have shared participation in a common business endeavour or even contemporaneous economic activity. The relationship between the business entities is a functional rather than a temporal one. Businesses or activities are "related" or "associated" because they are of the same character, serve the same general market, employ the same mode and means of production, utilize similar employee skills, and are carried on for the benefit of related principals. If these criteria are met, two businesses may be "related" within the meaning of section 1(4) even though their activities are carried on through different or corporate vehicles and are not carried on simultaneously. It is evident that the Legislature has created a regime of collective bargaining law which significantly modifies the common law notions of "privity of contract" or "the corporate veil".
The present case provides a classic example of the kind of business situation to which section 1(4) was intended to apply. The business of Brant Erecting, which was largely controlled and directed by Bill Munro, ran into difficulties and came to a halt in April, 1979. Munro, who, we are satisfied was the principal entrepreneurial force behind the Brant Erecting business sex ered his connection with that firm and immediately established a virtually identical business under the name of Provincial Steel carried on through a company incorporated by his wife. The business ability, contacts, expertise, and goodwill vested in Bill Munro himself; and some of the assets formerly used by Brant Erecting, became the assets and advantages which were the key to Provincial Steel's business success. There has been no change in the character of the business nor in the employee skills required by it. Provincial Steel is run (as was Brant Erecting) from an office in the Munro's basement and serves essentially the same clientele as was served by Brant Erecting. There was no hiatus between the apparent demise of Brant Erecting and the launching of Provincial Steel as a going concern. This is not a case in which a "key man" leaves one employer to go to work for another, or establishes a new business of his own in competition with his former employer. Here, the incorporation of Beverley Munro Inc., was undertaken so that Bill Munro could carry on essentially the same business as before. In our view these transactions fall squarely within the mischief to which section 1(4) is directed, and we are satisfied on the evidence before us that Brant Erecting and Hoisting and Beverley Munro Inc. carrying on business as Provincial Steel, carry on associated or related businesses, (albeit not simultaneously) under common control or direction. Accordingly, the Board is satisfied that it should declare that these two business entities are and always have been "one employer" for the purposes of The Labour Relations Act, and that Beverley Munro Inc. is bound by and must recognize any collective agreements or bargaining rights held by the applicant in respect of Brant Erecting and Hoisting.
There remains the question of the application of section 55 of the Act. Section 55 (1) and (2) provide as follows:
"55. — (1) In this section,
(a) "business" includes a part or parts thereof;
(b) "sells" includes leases, transfers and any other manner of disposition, and "sold" and "sale" have corresponding meanings.
(2) Where an employer who is bound by or is a party to a collective agreement with a trade union or council of trade unions sells his business, the reason to whom the business has been sold is, until the Board otherwise declares, bound by the collective agreement as if he had been a party thereto and, where an employer sells his business while an application for certification or termination of bargaining rights to which he is a party is before the Board, the person to whom the business has been sold is, until the Board otherwise declares, the employer for the purposes of the application as if he were named as the employer in the application."
Section 55 ensures that upon the transfer of a business from one employer to another, the transferee stands in the shoes of the transferor with respect to established collective bargaining and collective agreement rights. Like section 1(4), section 55 creates a regime of collective bargaining law which modifies the common law principles of privity of contract, and eliminates the significance of the separate legal identity of the successor employer. Section 55 involves two related questions: has there been a "sale" within the extended statutory definition of that term; and does what has been "sold", "transfer", or "disposed of', constitute a "business", or "part of a business". Frequently, these are not easy questions to answer as the facts in the present case demonstrate. With the exception of a small amount of office equipment there was no transfer of tangible assets from Brant Erecting to Provincial Steel. The configuration of assets used by Brant Erecting to carry on business (i.e., the pick-up trucks, welding machines, small tools, etc.) were sold, and the shop facility remains unused and beyond reach on the Indian reserve. None of the monies raised by the sale of Brant Erecting's equipment accrued to the benefit of Provincial Steel. The only element of Brant Erecting's business which can be traced into the hands of Provincial Steel (apart from the small amount of office equipment already mentioned) is the personality of Bill Munro himself. Munro's entrepreneurial skills, and contact within the industry are the crucial asset without which neither business could exist. Munro testified, and the example of both businesses clearly demonstrates, that to establish a small steel erecting business neither capital nor assets are required; all that is necessary is know-how, and a good reputation in the industry. On the other hand, Munro's reputation was not sufficient to save Brant Erecting from insolvency and may even have been tarnished by his relationship with that business. There is evidence that, despite Munro's good personal reputation, the goodwill of Brant Erecting, the alleged predecessor employer, was virtually non-existent. In the circumstances, it is doubtful whether the insolvent partnership had any goodwill to transfer. There was of course no express transfer of goodwill, nor any express intention to transfer anything from one business to the other. If there has been a transfer of a business within the meaning of section 55, it has occurred solely because Bill Munro left the insolvent Brant Erecting and became involved in a new enterprise.
The union acknowledges that it is unusual to identify a "business" with a particular individual; or to suggest that when a key individual moves from one business to another there has been a "transfer of a business" between them. The union contends, however, that this is precisely how one must regard what is essentially a "one-man business" relying on the expertise, goodwill, and initiative of a single individual. This is not a case in which the key individual has sought to place his skills at the disposal of a competitor; rather, he has sought to continue his former business. From a practical point of view the essential core of the business has been transferred; although it is equally evident (as the respondent submits) that Munro was trying to effectively separate himself from the partnership and business that was Brant Erecting. That business' economic organization was entirely dismantled, its assets were dispersed, and its principals all sought employment elsewhere. There is, of course, no suggestion that Brant Erecting was wound up, and Beverley Munro Inc. incorporated for the purpose of undermining the employees' collective bargaining rights.
The section 55 issue raises analytical and interperative problems of unusual difficulty; and in view of our declaration under section 1(4) that the alleged predecessor and successor constitute "one employer" for the purposes of the Act, it is unnecessary for us to reach any firm conclusion as to whether there has also been a "transfer or a business" between them to which section 55 might apply. The effect of a section 1(4) declaration is to affirm that Brant Erecting and Hoisting, and Beverley Munro Inc. are "one employer" and must be treated as a single business entity for the purpose of any collective bargaining obligations arising under the Statute. In the circumstances, it is our view that the section 55 issue is entirely academic, and we do not consider it necessary to deal with the matter.