Ontario Labour Relations Board
[1980] OLRB Rep. July 1059
0218-80-R; 0275-80-R Retail Clerks International Union, Local 233F, Footwear Division affiliated with the Canadian Labour Congress and the AFL-CIO, Applicant, v. Sisman's of Canada Limited, Respondent.
BEFORE: R. D. Howe, Vice-Chairman, and Board Members R. D. Joyce and W. F. Rutherford.
APPEARANCES: Ian E. Reilly for the applicant; David I. Wakely, A lien Craig and Edward Rowe for the respondent.
DECISION OF THE BOARD; July 10, 1980
The name: "Sisman's of Canada Ltd., owning and operating Hewetson Shoe Company, Brampton, Ontario Plant" appearing in the style of cause of these applications as the name of the respondent is amended to read: "Sisman's of Canada Limited."
This is an application under section 55 of The Labour Relations Act which was heard together with an application under section 1(4) of the Act. The applicant contends that the respondent, Sisman's of Canada Limited (hereinafter referred to as "Sisman's") is the successor of Hewetson Shoe Company (hereinafter "Hewetson") or that, in the alternative, Sisman's and Hewetson carry on associated or related activities or business under common control or direction.
For many years shoes have been manufactured at a plant located at 57 Mill Street North, Brampton, and sold under the name "Hewetson". This business commenced operation in the early 1900's and was purchased by the Shoe Corporation of America about 1970. Subsequently, it was sold to Mansfield Footwear Co. Limited (hereinafter "Mansfield"), a division of J. D. Carrier Shoe Co. Limited (hereinafter "Carrier"), which continued to use the "Hewetson" name for some of the casual and dress produced by it at that plant. The shoes produced by Mansfield were sold through independent shoe stores and through some chain stores.
The applicant and "Hewetson Shoe Company Brampton, Ontario Plant" entered into a collective agreement effective from November 3, 1977 to November 2, 1979 (and from year to year thereafter in the absence of notice of amendment or termination). Mr. Ian Reilly, a representative of the applicant, testified that notice to bargain for the renewal of this collective agreement was given by the applicant to Hewetson on September 13, 1979, and that on November 20, 1979, the applicant requested the appointment of a Conciliation Officer. However, no such appointment had been made as of the date of this hearing (June 16, 1980) because objections had been raised concerning the requested appointment.
In the summer of 1979, Carrier and Mansfield made public the fact that they were experiencing serious financial difficulties. The Canadian Imperial Bank of Commerce (hereinafter the "Bank") appointed Coopers and Lybrand (hereinafter "Coopers") as receiver, manager and agent of Mansfield pursuant to the terms of a security agreement and a debenture held by the flank as security for debts, liabilities and obligations of Mansfield to the Bank in respect of which Mansfield had defaulted. The Brampton plant continued to operate under the management of Coopers until the end of October 1979. At that time, the employees were laid-off or terminated.
Sisman's is one of the largest manufacturers of safety footwear in Canada. Steel toed and plated safety footwear constitutes 94% of Sisman's production. The remaining 6% includes production of police, service and other safety footwear. Sisman's sells 60% of its production through "safety houses" which specialize in selling safety footwear. The remainder of its production is sold through large chain stores. Prior to the transaction in question, Sisman's manufactured all of its footwear by using a welted construction in which the sole is stitched onto the welted material which goes around it. Welted safety footwear is manufactured by Sisman's at a plant n Aurora, at which the production employees are represented by Local P486 of the United Food and Commercial Workers of North America. A two year collective agreement entered into on January 8, 1980 between Sisman's and Local P-486 recognizes that local as the exclusive bargaining agent for "all the employees in [the Sisman's] Aurora, Ontario, (York County) plant, save except foremen, persons above the rank of foreman, and office staff and persons regalarly employed for not more than eight hours per weeks".
Mr. Edward Rowe, the President of Sisman's, testified that welted safety footwear constitutes 60% of the safety footwear market. As part of its plan to become the major producer of safety footwear in Canada, Sisman's decided to produce cemented safety footwear, which is less expensive than welted footwear and constitutes 40% of the safety footwear market. Accordingly, Sisman's leased from Coopers the premises (and surrounding parking lot) at 57 Mill Street North, Brampton, described in the lease as the "Hewetson Shoe Factory Building". The lease, which is dated January 21, 1980 and has a two year term, contains a covenant by Sisman's that the leased premises will not be used for any other purpose than that of a "shoe manufacturing business". Sisman's also obtained from Coopers an option to purchase the premises and property (in the nature of a right of first refusal) which option to purchase will remain in effect until January 17, 1982. Sisman's also purchased a large number of Mansfield fixed assets for $190,000 by Bill of Sale from Coopers dated January 25, 1980. Sisman's subsequently sold through an auctioneer for $80,000 certain of those assets for which it had no use. Sisman's also purchased $19,000 worth of the Mansfield $1,400,000 inventory of raw materials.
Sisman's commenced production at the Brampton plant in February of 1980. The bulk of the 33 persons employed by Sisman's at that plant were former employees of Mansfield. The Mansfield office employees who had been paid by Coopers to continue to work in the plant office :~rom September 1979, to February of 1980, were also hired by Sisman's. However, none of the Mansfield management team was employed by Sisman's nor were any members of the Mansfield sales force. Rowe's evidence concerning production at the Brampton plant during the first months of operation was: "During this time period we were producing anything we could sell with that equipment — steel toe, a few items lying around the factory that we could make. We have ongoing costs. We needed the people there to be trained ..." He conceded in cross-examination that the casual shoes produced during this period could not have been manufactured without the Mansfield equipment purchased through Coopers. When asked by counsel for the applicant if it "would be fair to say that [Sisman's] purchased the assets of Mansfield and are making the product which Mansfield was making as a filler while gearing up for cemented safety boots", Rowe said: "That's a fair statement."
Although Sisman's did not purchase the name or goodwill of Hewetson or Mansfield, on February 25, 1980, Sisman's registered the name "Hewetson of Canada" under The Corporations Information Act, 1976. The registration indicates that "the business activity or service to be carried on in or identified by the registered name" is "manufacturing and sale of shoes and boots". In his testimony, Rowe expressed the opinion that "there is no goodwill attached to the name 'Hewetson' because of the problems they've had in the industry — quality problems, late deliveries, all kinds of problems". He stated that Sisman's uses the "Hewetson" name to provide a distinction in the industry between Sisman, which will produce welted safety footwear, and Hewetson, which will produce cemented safety footwear. However, the evidence of Reilly that the name "Hewetson" has been synonymous with shoes since 1910 was not refuted, nor was any explanation provided concerning selection of the name "Hewetson" rather than some other name.
To promote sales of the casual shoes which it was manufacturing in the Brampton plant from February to June of 1980, Sisman's purchased advertisements consisting of two full pages in the April-May issue of trade magazines including Footwear News. One page of the advertisement consisted of a photograph of management and staff captioned "the nucleus of Hewetson's new team building to-day for a better to-morrow", below which are listed the names and addresses of the new Hewetson's sales force. The other page consisted of a photograph of four styles of men's casual shoes and boots under the name "Hewetson of Canada, a subsidiary of Sisman's of Canada". The 57 Mill Street North, Brampton address for "Hewetson of Canada" was printed at the bottom of that page. Thus, Sisman's used the Hewetson trade name to cultivate the casual shoe market of the predecessor.
Since February of 1980, Sisman's has expended $80,000 to modify equipment and retool the Brampton plant to produce cemented safety footwear. Mr. Henry Schmid, a recognized production expert concerning safety footwear, was hired to be the general manager of the Brampton plant and to retrain the workforce to produce cemented safety footwear. The retraining included teaching employees to perform "two pull lasting" (which Rowe testified is entirely different" from the "one pull lasting" involved in producing causal and dress shoes); to use new dies, patterns and markers; and to insert box toes, steel toes and steel plates.
Rowe testified that 75% of the company's production at the Brampton plant will be cemented steel toed safety footwear, with the remaining 25% being non-steel cemented heavy-duty footwear. By mid-June of 1980, 70% of the plant's production was cemented steel toed safety footwear. The remaining 30% apparently consisted of casual footwear and non-steel cemented heavy-duty footwear.
Reilly testified from his experience in the shoe industry since 1956 that shoe companies are quite "fluid" in order to keep abreast with changes in supply and demand. It was his evidence that "the kinds of changes being made at Sisman's under the name 'Hewetson' are the normal kind of thing which happens in the shoe industry." This evidence was not refuted by the respondent although Rowe did testify that it had not been Sisman's practice to make such production changes.
There is no dispute in the instant case that a "sale" occurred. The disputed issue is whether what was sold constitutes a "business" (or "part of a business") or merely a sale of assets or other incidental elements of the business. Metropolitan Parking Inc., [1979] OLRB Rep. Dec. 1193, contains a detailed discussion of the history, purposes and application of section 55. In that case, the Board stated:
"29. A more difficult question is whether it is the predecessor's 'business' which has been transferred and continued by the successor or, alternatively, there has merely been a transfer of assets or other incidental elements of the business. Unlike The Successor Rights (Crown Transfers) Act, The Labour Relations Act does not contain a statutory definition of 'business', and it is the Board, therefore, which must develop an appropriate meaning. In Raymond Cote, [1968] OLRB Rep. Mar. 1211 the Board commented:
'The meaning to be attached to the word 'business' depends to a great extent on the facts and circumstances in each particular case. It cannot be said that any one facet of an enterprise taken by itself necessarily comprises a business. It has been expressed that a business is 'the totality of the undertaking.' The physical assets of buildings, tools and equipment used in a business are not necessarily the undertaking per se but are, along with management and operating personnel and their skills, necessary in the operations to fulfill the obligations undertaken with a hope of producing profit to assume its success. The total of these things along with certain intangibles such as goodwill constitute a business.
A business is a combination of physical assets and human initiative. In a sense, it is more than the sum of its parts. It is a dynamic activity, a 'going concern', something which is 'carried on.' A business is an organization about which one has a sense of life, movement and vigour. It is for this reason that one can meaningfully ascribe organic qualities to it. However intangible this dynamic quality, it is what distinguishes a 'business' from an idle collection of assets.
In determining whether a 'business' has been transferred, the Board has frequently found it useful to consider whether the various elements of the predecessor's business can be traced into the hands of the alleged successor; that is, whether there has been an apparent continuation of the business — albeit with a change in the nominal owner. The Board in Culverhouse Foods Ltd., [1976] OLRB Rep. Nov. 691 (application for judicial review dismissed) commented:
'In each case the decisive question is whether or not there is a continuation of the business.., the cases offer a countless variety of factors which might assist the Board in its analysis; among other possibilities the presence or absence of the sale or actual transfer of goodwill, a logo or trademark, customer lists, accounts receivable, existing contracts, inventory, convenants not to compete, covenants to maintain a good name until closing or any other obligations to assist the successor in being able to effectively carry on the business may fruitfully be considered by the Board in deciding whether there is a continuation of the business. Additionally, the Board has found it helpful to look at whether or not a number of the same employees have continued to work for the successor and whether or not they are performing the same skills. The existence or non-existence of a hiatus in production as well as the service or lack of service of the customers of the predecessor have also been given weight. No list of significant considerations, however, could ever be complete; the number of variables with potential relevance is endless. It is of utmost importance to emphasize, however, that none of these possible considerations enjoys an independent life of its own; none will necessarily decide the matter. Each carries significance only to the extent that it aids the Board in deciding whether the nature of the business after the transfer is the same as it was [sic] before, i.e. whether there has been a continuation of the business.
Of particular significance for a labour relations statute is the continuity of the work performed before and after the transfer, since the trade union is certified to represent certain work groups, the collective agreement regulates the conditions of work for employees in those groups, and the purpose of section 55 is to preserve both the bargaining relationship and the collective agreement. If the work performed subsequent to the transaction is substantially similar to the work performed prior to the transaction, there is normally a strong inference that there has been a transfer of the business within the meaning of section 55. ..."
The interposition of a third party such as a receiver acting as an agent or conduit does not preclude the Board from finding that a sale of a business has occurred (see Metropolitan Parking Inc., supra, at paragraph 28; and Big Bear Storage, [1979] OLRB Rep. Mar. 164), although an application under section 55 will be premature until such time as the business has been transferred from the predecessor employer through the receiver to a successor employer (see Price-Waterhouse Limited, [1979] OLRB Rep. Jan. 50).
The difficult task faced by the Board in applications such as the present case is that of the distinguishing between a transfer of a "business" (or "part of a business") and a transfer of "incidental" assets or items. As suggested by the Board in Metropolitan Parking Inc., supra, at paragraph 34, previous cases are of limited value in resolving this issue since it is essentially a question of fact:
"This distinction is easily stated, but the problem is, and always has been, to drawn the line between a transfer of a 'business' or a 'part of a business’ and the transfer of 'incidental' assets or items. In case after case the line has been drawn, but no single litmus test has ever emerged. Essentially the decision is a factual one, and it is impossible to abtract from the cases any single factor which is always decisive, or any principle so clear and explicit that it provides an unequivocal guideline for the way in which the issue will be decided."
It was argued on behalf of Sisman's that it has acquired none of the goodwill of the predecessor employer through the transactions in question. The facts, however, do not support this contention. Following the consummation of the transaction with Coopers in February of 1980, Sisman's immediately registered the name "Hewetson of Canada" and manufactured casual skoes to be sold under that trade name which the evidence indicates has been synonymous with shoes for decades. The fact that Sisman's did not specifically purchase the goodwill of the business does not preclude a finding that it nevertheless acquired goodwill. As stated by the Board in Culverhouse Foods Limited, [1976] OLRB Rep. Nov. 691, at paragraph 12, "several. . . cases. .. indicate that the presence or absence of goodwill as an itemized factor of sale is not decisive and that the important consideration is whether the goodwill has in fact been transmitted . Nor do we consider that the goodwill associated with this trade name was totally dissipated by the shut-down of approximately two months between October of 1979 and February 1980, as confirmed by the fact that Sisman's promptly registered the trade name and purchased advertisements in which the name was prominently displayed. Moreover, the existence of an interval between the time that the predecessor employer ceases operation and the alleged successor employer commences operation does not preclude a finding of successorship where the evidence establishes some form of continuity such as the continued existence of goodwill (see Zehrs Markets Limited, [1974] OLRB Rep. May 331). As stated by the Board in Hughes Boat Works Incorporated, [1977] OLRB Rep. Dec. 815 (application for judicial review dismissed, (1979), 1979 CanLII 1853 (ON HCJ), 26 OR. (2d) 420 (Div. Ct.)), at paragraph 30, "what is referred to as a continuation of the business has reference not to a continuum in time, but in the nature of the business". Accordingly, the Board found the respondent in that case to be a successor employer even though the predecessor's business had been closed down for approximately five months.
In the present case, the business resumed operation at the "Hewetson Shoe Factory Building' in Brampton under the direction and control of Sisman's and, with machinery and other assets purchased from Mansfield through Coopers and a workforce consisting primarily of rormer Mansfield employees, manufactured for sale under the trade name "Hewetson of Canada" casual shoes similar to those which had previously been produced at that plant by Mansfield. While the respondent's motivation for resuming the operation in this fashion was to generate revenue to offset some of the overhead expenses while modifying the equipment and retraining the employees to produce cemented safety footwear, this motive does not charge the fact that Sisman's continued to operate the same business as was carried on by Mansfield prior to the transactions in question.
Counsel for the respondent also argued that the Board should attach little or no importance to the employment by Sisman's of many of the former Mansfield employees. In support of this position he advanced the desirability of avoiding the adoption of an approach which might discourage purchasers from rehiring former employees to the detriment of such former employees. The Board has ruled in a number of cases that the employment by the alleged successor employer of former employees of the predecessor is a factor to be considered in an application under section 55. In Metropolitan Parking Inc., supra, at paragraph 36, the Board noted that "continuity of the work and! or the employees is significant, but it is not always sufficient to sustain a finding of successorship". (See also paragraph 32 of that case as quoted earlier in this decision.) Refusal by a successor employer to employ such persons in an attempt to weaken the link between the successor employer and the predecessor employer in any subsequent successor rights application would constitute a violation of section 58 of the Act. However, in recognition of policy considerations similar to those advanced by counsel in the instant case, the Board has indicated that while the employment of such persons is one factor indicating the sale of a business, the refusal to employ such persons does not negate the fact of a sale (see Zehrs Markets Limited, supra, at paragraph 16). Accordingly, the Board finds that the fact that Sisman's chose to employ a substantial number of former Mansfield employees is a factor which suggests that a sale of the business may have occurred in the present case.
Counsel for the respondent submitted that the Board should not view the situation as of the date in February in which the transactions in question were completed. He argued by analogy to the Board's buildup principle in certification cases that the Board must consider the respondent's ultimate plans for the Brampton plant, namely, the manufacture of cemented safety footwear.
A change made by an alleged successor employer in the character of the business such that it is substantially different from the business of the alleged predecessor employer may have different consequences under section 55 depending upon when the change is made. If the change is made contemporaneously with or immediately after completion of the transaction which is alleged to constitute a sale of a business, it may result in a finding that no sale of a business has in fact occurred within the meaning of section 55. See, for example, Dufferin Steel Company Awico Division, [1976] OLRB Rep. Mar. 81, in which a change from production of ornamental iron and miscellaneous steel for a number of customers to production of plate for a single customer was found to support the contention of the alleged successor employer that there had been no sale of a business within the meaning of section 55 (in a situation in which the alleged successor did not purchase raw materials, inventories or receivables from the predecessor; refused $700,000 worth of work on the books of the alleged predecessor; and did not employ persons in on-site erection and installation (i.e. the persons represented by the applicant trade union in that case) as the predecessor had done). However, to support such a finding, the change must be of a substantial nature, as indicated by the Board decisions in Provincial Fruit Company (Ottawa) Limited, [1975] OLRB Rep. Nov. 830 (in which the Board stated that a variation in the type of fruits and vegetables sold did not preclude a finding that there was a continuation of the business since both before and after the sale the employers were engaged in the sale by wholesale of fruit and vegetables); Culverhouse Foods Limited, supra, (in which the Board found successorship to have occurred despite an alteration in the type of vegetables canned); and Hughes Boat Works Incorporated, supra, (in which the nature of the business was held to continue to be that of construction and sale of boats notwithstanding that there had been some design changes). Thus, the result of a substantial change in the character of a business made contemporaneously with or immediately after completion of the transaction is that no successorship occurs; since no sale of a business transpires in such circumstances, section 55 is inapplicable and there is no preservation of existing bargaining rights or of the existing collective agreement (if any).
The Act contains a specific provision concerning the effect of a substantial change in character of a business made after a sale of the business has occurred. Section 55(5) provides:
"The Board may, upon the application of any person, trade union or council of trade unions concerned, made within sixty days after the successor employer referred to in subsection 2 becomes bound by the collective agreement, or within sixty days after the trade union or council of trade unions has given a notice under subsection 3, terminate the bargaining rights of the trade union or council of trade unions bound by the collective agreement or that has given notice, as the case may be, if, in the opinion of the Board, the person to whom the business was sold has changed its character so that it is substantially different from the business of the predecessor employer."
Thus, the result of a substantial change in the character of a business made after completion of the sale of the business but within the time frame specified in the subsection, is to empower the Board to terminate any bargaining rights which have attached to the successor employer's business by operation of section 55(2) or 55(3) of the Act. However, unlike the situation in which a contemroraneous or immediate substantial change of character precludes any successorship from occurring, a substantial change of character made subsequent to the sale of the business does not negate successorship; it merely gives the Board the discretion to terminate the bargaining rights which have flowed through to the successor employer as a result of the sale of the business, which bargaining rights continue to bind the successor employer unless and until the Board terminates them.
Since section 55(5) only applies where a sale of a business has occurred, it is implicit in that provision that the determination of whether or not such a sale has occurred is to be made by having regard to the manner in which the business was initially operated by the alleged successor employer prior to the making of a subsequent change to which section 55(5) may be applicable (such as the subsequent change from production of cemented casual footwear to production of cemented safety footwear in the present case). Applying this approach to the instant case, the Board on the basis of the totality of the evidence before it and having particular regard to the facts set forth in paragraphs 7, 8.9, 10, and 18 of this decision, is satisfied that there has been a "sale" of the "business" of Mansfield through Cooper to Sisman's within the meaning of section 55 of the Act the Board so declares.
Having found that a sale of a business has occurred, the Board must also determine whether this is in appropriate case in which to exercise its discretion under section 55(5) to terminate the applicant’s bargaining rights. The present case is a situation in which the change from productioi of cemented casual footwear to production of cemented safety footwear occurred during a period of several months after the transactions in question were completed. Thus, it is questionable whether this change occurred within the time frame specified in section 55(5). However, it is unnecessary for the Board to rule on that matter since the Board is of the opinion that the business has not in any event been so changed in character by Sisman's that it is substantially different from the business of the predecessor employer. The change from production of cemented casual footwear to production of cemented safety footwear is not a fundamental difference affecting the nature of the work requirements and skills involved in the business to such an extent that continued representation of the employees by the applicant trade union (which, notably, is a local of the "Footwear Division" of the Retail Clerks International Union) would be inadequate, inappropriate or unreasonable in all the circumstances of the case (see Winco Steak n' Burger Restaurants Limited, [1974] OLRB Rep. Nov. 788, at paragraph 24). Thus, having regard to all the evidence before it, the Board declines to exercise its discretion wider section 55(5) to terminate the applicant's bargaining rights.
In view of our disposition of the section 55 application and in view of the fact that there is no evidence that Sisman's and Hewetson carry on associated or related activities or business under common control or direction, the application under section 1(4) is dismissed.