Ontario Labour Relations Board
[1981] OLRB Rep. March 294
1975-80-M The Carpenters' District Council of Toronto and Vicinity on behalf of Locals 27, 666, 681,1133, 1747, 1963, 3227, 3233, United Brotherhood of Carpenters and Joiners of America, Applicant, v. J.D.S. Investments Limited and Martin Ross Construction Ltd., Respondents.
BEFORE: Ian C. A. Springate, Vice-Chairman, and Board Members H. Kobryn and J. Wilson.
APPEARANCES: J James Nyman, F. J. Leach and A. Grisolia for the applicant; Robin B. Cumine, James Ballard and David Smuschkowitz for J.D.S. Investments Limited; Martin Addario and Joseph Fishman for Martin Ross Construction Ltd.
DECISION OF THE BOARD; March 20, 1981
1The name: "416879 Ontario Limited" appearing in the style of cause as the name of one of the respondents is amended to read: "Martin Ross Construction Ltd.".
2This is a referral of a grievance to the Board pursuant to section 112a of The Labour Relations Act.
3The applicant and J.D.S. Investments Limited ("J.D.S.") are bound by the terms of the Carpenters' provincial agreement. The applicant contends that pursuant to the provisions of section 1(4) of the Act, the Board should treat J.D.S. and Martin Ross Construction Ltd. ("Martin Ross Construction") as constituting one employer for the purpose of the Act and accordingly declare that Martin Ross Construction is also bound by the terms of the provincial agreement. At the hearing, the parties agreed to have the Board determine this issue before considering any other matters relevant to the referral of the grievance.
4J.D.S. was incorporated in 1964. The firm engages in a variety of operations, including land development, building construction and property management. The firm is frequently involved with projects costing hundreds of thousands of dollars. Ninety-nine per cent of all of the shares of J.D.S. are owned by Mr. D. Smuschkowitz and Mr. Jack Israeli. Both of these gentlemen are also directly involved in the operation of the firm.
5Marlin Ross Construction was originally incorporated on July 5, 1979 as 416897 Ontario Limited. Although apparently incorporated by a firm of solicitors as a "shelf firm", at all relevant times the sole shareholder and director of the company was Mr. Martin Fishman. The head office of Martin Ross Construction is the same as the law firm which incorporated it. Martin Ross Construction has no office space of its own and no employees.
6Mr. Fishman is an engineer by profession and is the owner of two engineering firms. Mr. Fishman also controls several other firms which are involved in real estate development and property management. Mr. Fishman is a close personal friend of both Mr. Smuschkowitz and Mr. Israeli.
7Approximately one year ago, Mr. Fishman asked Mr. Smuschkowitz and Mr. Israeli if they would be interested in joining with him to build a small industrial plaza at the corner of Martin Ross Avenue and Dufferin Street in Metropolitan Toronto for the purpose of leasing it out to tenants. The three men agreed to go into the project on an equal basis in their personal capacities. They also agreed that Mr. Fishman would be responsible for the construction of the plaza, although Mr. Ed Kletke, J.D.S.'s construction manager, would be available to assist him. After these decisions had been taken and the financial arrangements completed, Mr. Smuschkowitz and Mr. Israeli played no active role in the construction of the plaza.
8Mr. Fishman decided that the construction of the plaza should be done through a separate corporate vehicle. This is what led to the activation of 416897 Ontario Limited and the re-naming of it as Martin Ross Construction. Although other of Mr. Fishman's companies do have employees, none of them were available to work for Martin Ross Construction. In addition, Mr. Fishman had made prior arrangements to be out of the country for a six week period at the same time that the project would be getting underway. Accordingly, Mr. Fishman relied heavily on Ed Kletke, J.D.S.'s construction manager. Indeed, it was agreed between Mr. Fishman and Mr. Kletke that Mr. Kletke would make the necessary arrangements for getting the project under way.
9In September of 1980, soil tests were performed on the job site. Mr. Kletke selected the firm which did the work, and the invoice was sent to J.D.S. After first discussing the matter with both Mr. Smuschkowitz and Mr. Kletke, Mr. Fishman decided which architectural firm would be used. Mr. Kletke, however, was the one who actually made contact with the firm and Mr. Kletke requested that the plans be submitted to himself. The title sheet of the plans bears the name of J.D.S. Mr. Kletke also obtained the building permit, which was issued in the name of J.D.S.
10Mr. Fishman asked Mr. Kletke if one of J.D.S.'s superintendents could be used on the project. Mr. Kletke then arranged to have one of J.D.S.'s superintendents, Mr. Walker, act as the project superintendent. Because of the relatively small size of the project, Mr. Walker has been on the job site only a few hours a week, but he is available whenever his services are required. Mr. Walker has been receiving his regular salary from J.D.S., although J.D.S. is being reimbursed for his services by Martin Ross Construction.
11Before the project got underway, Mr. Fishman asked Mr. Kletke if he could make use of one of J.D.S.'s construction shacks which at the time was not being used. Mr. Kletke agreed. J.D.S.'s superintendent on the project arranged for the movement of the shack to the job site.
12Martin Ross has no employees. Instead, all of the work to date on the project has been done by subcontractors. Mr. Kletke decided which subcontractors should do the work and he let out the contracts. At the hearing, Mr. Fishman acknowledged that he was not aware of the names of the subcontractors who had been working on the project.
13When giving his testimony, Mr. Fishman was asked whether Martin Ross Construction would earn a profit from its involvement with the construction of the plaza. Mr. Fishman responded that he had not given the matter any thought, and indicated that he had been looking to the leasing of the various units in the plaza for his profit.
14Section 1(4) of the 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 the Act and grant such relief, by way of declaration or otherwise, as it may deem appropriate.
15It is clear that there are two corporate entities involved in this case, namely, J.D.S. and Martin Ross Construction. Although Martin Ross Construction is nominally the general contractor on the project, J.D.S.'s personnel are in fact performing the duties normally performed by a general contractor. In these circumstances, we are of the opinion that the two firms are engaged in associated or related activities. Accordingly, the only remaining issue under section 1(4) is whether or not the two firms are under common control or direction.
16The respondents contend that the two firms are not under common control or direction, and in this regard rely on the fact that Martin Ross Construction and J.D.S. have no common shareholders or officers. Although the existence or non-existence of common shareholders and officers is certainly an important factor in deciding whether or not two firms are under common control or direction, the Board has indicated that it is not necessarily the determining factor and that the Board will also consider who, in fact, directs the activities which give rise to employment. See: Evans-Kennedy Construction Limited, [1979] OLRB Rep. May 388 and Donald A. Foley Limited, [1980] OLRB Rep. April 436.
17Although Mr. Fishman initially indicated that he would be assuming responsibility for the construction of the plaza and he selected Martin Ross Construction as the corporate vehicle which would build it, in fact, he relied on the skills and expertise of J.D.S. personnel, particularly Mr. Kletke, J.D.S.'s construction manager. Mr. Kletke let the contract for the soil testing and contacted the architects. Mr. Kletke also obtained the necessary building permit, and it was Mr. Kletke who selected the subcontractors and let the contracts. Actual supervision at the site was one by a J.D.S. supervisor selected by Mr. Kletke. In these circumstances, we are satisfied that the construction activities of Martin Ross Construction are in fact being carried on under the direction of J.D.S.'s construction manager. Further, the benefits of the activities of Mr. Kletke will accrue largely to Mr. Smuschkowitz and Mr. Israeli, the owners of J.D.S. These circumstances lead us to the conclusion that the related activities of the firms are being carried on under common control or direction.
18We are satisfied that the legal preconditions for the Board to apply section 1(4) are present in this case. The Board, however, still has a discretion as to whether or not it should make a declaration under section 1(4). J.D.S. is bound by the provisions of the Carpenters' provincial agreement and when it acts as a general contractor in the construction industry, it must abide by the terms of the agreement. In the instant case, J.D.S. provided all of the necessary human resources and skills to enable Martin Ross Construction to nominally act as the general contractor. In our view, not to make a section 1(4) declaration in this case would have the effect of undermining or eroding the applicant's bargaining rights. Accordingly, we are satisfied that Martin Ross Construction should also be bound by the terms of the Carpenters' provincial agreement.
19Having regard to our reasoning set out above, the Board will treat J.D.S. Investments Limited and Martin Ross Construction Ltd. as constituting one employer for the purposes of The Labour Relations Act. The Board further declares that Martin Ross Construction Ltd. is bound by the terms of the Carpenters' provincial agreement.
20At the hearing, the parties raised the issue as to whether a Board declaration under section 1(4) can have effect prior to the time it was made, or whether it could be effective only in the future. We are satisfied that unless a Board declaration under section 1(4) is specifically stated to be otherwise, it has force and effect from the time the associated or related activities or businesses commenced, and does not operate only from the date of the actual Board declaration. In this regard reference is made to the Ontario Divisional Court decision in Norfolk Hospital Association v London and District Building Service Workers Union, Local 220, 77 CLLC ¶14,094, as well as to the decision of this Board in Brant Erection and Hoisting, [1980] OLRB Rep. July 945. It is to be noted that a similar interpretation has been given to the effect of declaration under section 37 of The British Columbia Labour Code, which contains wording similar to section 1(4). In the Caledonian Lands Ltd. case, [1979] 3 Can L.R.B.R. 12, the British Columbia Labour Relations Board set out the rationale for this approach, and it is one which we would adopt:
I have referred to the statement in the Community Builders Ltd. decision of the purpose of a Section 37 determination in cases such as this. A further consideration of that purpose will serve to reinforce the conclusion that a determination under Section 37 that two or more entities are the same employer for the purposes of the collective agreement may well be effective for a period of time prior to the date of the Board's decision to that effect. To reiterate, where the Board makes such a finding, the purpose is, as the Ontario Board has said in relation to a parallel provision in the Labour Relations Act of Ontario,
…to preclude the erosion of bargaining units and bargaining rights through the utilization of separate legal entities as employers.
(Retail, Wholesale and Department Store Union, Local 414 AF of L‑CIO‑CLC and Dominion Stores Limited and Mini-Mart Ltd., [1979] 1 Can LRBR 172 at p. 179)
Clearly, the effectiveness of a Section 37 determination in serving this purpose would be radically reduced if the determination were to have no effect prior to the date upon which it is made. To say that such a determination is effective only upon and after the date it is made would be to effectively establish a route by which an employer could wholly avoid collective bargaining obligations for a significant period of time. That is because, to begin with, the Board is not able to respond overnight to Section 37 applications. The procedures of this Board, like those of any other judicial or quasijudicial tribunal, require a period of time within which to function. While this Board is making every effort to minimize that period of time in a manner consistent with the principles of natural justice, there is nevertheless an unavoidable period of time which must elapse following an application made under Section 37 or any other section of the Code before the Board can properly adjudicate and dispose of the application. That means, even assuming the application is well founded, that unless a common employer determination under Section 37 in relation to a collective agreement does have effect prior to the date upon which it is made, an employer could defeat the purposes of the determination for at least the period of time consumed by the Board' adjudicative procedures.
Even if the Board could perform the supernatural task of instant adjudication, there would still be room for an avoidance of collective bargaining obligations if a common employer determination in relation to a collective agreement were to have no effect prior to the date upon which it is made. The fact is that in the construction industry it is possible for an employer to commence a project through the vehicle of a new corporate entity in a manner which is not likely to catch the early attention of the union that is party to a collective agreement with that employer. Without being unduly pessimistic, it is inconceivable that the real world will ever be free of employers who are unwilling to recognize the force of collective bargaining rights and who will seek to defeat those rights in this manner. Trade-unions, on the other hand, are not in the business, nor should they be encouraged to enter the business, of maintaining a police force intended and equipped to detect every such attempt by unscrupulous employers.
As a result of these factors - the time involved in the Board's adjudication and the problem of detection - it is not difficult to conceive of fact patterns which involve sufficient delay to enable the completion of a construction project before the Board has determined under Section 37 that the entity in question is bound by the collective agreement of an associated or related entity. Indeed, the Board has witnessed precisely that fact pattern on more than one occasion. If the Board were to sanction the avoidance of collective bargaining obligations in this way by concluding that common employer determinations in relation to collective agreements are effective only upon and after the date the determination is made, the result would be more than a blueprint for the defeat of the thrust of the Labour Code in the construction industry. Employers would be encouraged to take advantage of the opportunity thus provided to evade collective bargaining obligations. That conduct would, in turn, generate more litigation under Section 37 and an understandable frustration on the part of the building trades unions. In all likelihood, the building trades unions would be persuaded to resort to self help measures which could harm the entire industry. All of these considerations persuade me that it would be manifestly contrary to the objects of the Code expressed in Section 37 to conclude that common employer determinations in relation to collective agreements have no force or effect prior to the date upon which the Board makes those decisions.
These references to the very small minority of employers who would deliberately seek to avoid collective bargaining obligations provide a convenient point of departure for a consideration of the Employer's alternative argument in these proceedings. That argument, it will be recalled, is that it is only in those cases that the Board finds the employer to have acted deliberately to avoid its collective bargaining obligations that a common employer determination in relation to a collective agreement should have any force prior to the date upon which it is made. If the Board were to adopt that policy, the result would almost certainly be prolonged and perhaps more acrimonious proceedings as Board panels searched through the increased volume of evidence necessary to permit a finding as to the elusive matter of motivation. But these undesirable practical consequences for the Board are not the answer to this argument. Rather, the answer again revolves around the purpose to be served by a Section 37 determination that two or more entities are a single employer for purposes of a collective agreement. That purpose, I reiterate, is to prevent the avoidance or the erosion of collective bargaining rights acquired pursuant to the Labour Code. It must be remembered that not every new corporate entity established by an employer bound by a collective agreement is created for the sinister purpose of avoiding collective bargaining rights. There are many other considerations which may motivate the incorporation of a new company to complete a particular construction project. Tax implications are the legitimate consideration most often cited in this connection. But if the effect of the employer's utilization of a new company (or even an existing company) is to erode existing collective bargaining rights, then a Section 37 determination is an appropriate vehicle to prevent that result whether the effect was intended or not. It is for this reason that proof of a deliberate attempt to avoid collective bargaining obligations has never been a prerequisite to a Section 37 determination. In one of its first decisions under this Section, the Board stated:
The Board recognizes that corporate diversity may offer perfectly legitimate business advantages, entirely apart from labour relations issues, in such matters as taxation and financing, the concluding words of Section 37, "for purposes of this Act", confirm that the Section was not intended to interfere with those advantages. That does not mean, however, that the Board won't rely on Section 37 to correct any adverse labour relations consequences of such management decisions, even where clearly made in good faith and for valid reasons. What it means is that the operation of Section 37 does not depend, in my view, on the proof of a malicious intent on the part of the employer. …The point is, the Board need not and; in most cases, will not concern itself with the issue of employer motives before reaching its conclusions under Section 37. (Baywood Enterprises Ltd., supra, at p. 181)
It would, I believe, be counterproductive to decide that the matter of the motivation of the employer should now become a factor in this question of whether a common employer determination for purposes of a collective agreement has any force or effect prior to the date upon which it is made. Even if a new entity is established for reasons which are perfectly innocent under the Labour Code, the time consumed by the union's investigation of the new entity and the Board's adjudication of the union's application can still mean that unless the Section 37 determination does have force and effect prior to the date upon which it is made, those arrangements will have the effect of eroding collective bargaining rights even though not designed for that purpose. The employer's alternative argument must therefore fail as well.
21In summary then, the Board will treat J.D.S. Investments Limited and Martin Ross Construction Ltd. as one employer for the purposes of the Act. The Board further declares that Martin Ross Construction Ltd. is bound by the terms of the Carpenters' provincial agreement, and that the effect of this declaration pre-dates today's date.
22The Matter will be re-listed for hearing to hear the evidence and representations of the parties with respect to all outstanding issues.