Hotel, Motel and Restaurant Employees Union, Local 442 v. Ontario 474619 Ltd., 1981 CanLII 960

0716-81-R Hotel, Motel and Restaurant Employees Union, Local 442, Applicant, v. Ontario 474619 Ltd., Respondent

BEFORE: M. G. Picher, Vice-Chairman, and Board Members M. J. Fenwick and W. H. Wightman.

APPEARANCES: A lick Ryder for the applicant; J.A. Roffey and Harry Oakes Jr. for the respondent.

DECISION OF THE BOARD; October 1, 1981

1. This is an application under section 63 of The Labour Relations Act. The applicant contends that the respondent 474619 Ontario Limited is the successor of Hoco Limited with respect to two restaurants operating as the Park Motel in Niagara Falls, Ontario.

2. The applicant union is bargaining agent for employees of the Park Motel Hotel. The union and hotel are presently bound by a two-year collective agreement which will expire in January of l982. At the time the agreement was entered into, the hotel had been operating two restaurants one being a cafeteria style restaurant known as the Terrace Cafe, and the other being a pub called the Rathskeller. The employees in both restaurants were covered by the agreements. The two restaurants were operated on a seasonal basis in that they were both open only during the summer months. Towards the end of 1980, Hoco Limited, the company which owned the hotel, closed the two restaurants with the intention of renovating and re-opening them the following year on a full-time basis.

3. The restaurants were re-opened on June 1, 1981, with a number of changes. The Terrace Cafe now operates as a full service sit-down restaurant while the Rathskeller has become a discotheque called "Rumours".

4. On April 1, 1981, Hoco entered into an agreement with the respondent by which the respondent agreed to manage the staff of the newly renovated restaurants. The respondent specifically agreed to provide all necessary staff including supervisory staff. In return Hoco agreed to pay the respondent the greater of 10% of the gross liquor sales or 49% of the net profit. Even though the management fee was to be in the form of a percentage of either sales or profits, all revenues are received by Hoco and the respondent's management fees are then paid out of those revenues. Hoco is responsible for all other management decisions; it establishes hours, prices and all other policy for the two establishments. It also retains ownership and control of the physical plant, having itself decided upon and paid for all renovations. The respondent, on the other hand, is responsible only for the hiring, firing and discipline of all employees. The respondent pays and supervises the employees. Two or three of the employees who previously worked part-time for Hoco now work for the respondent. All other employees in the Motel continue to be employed by the Motel and are covered by the collective agreement with the applicant union.

5. The issue in this case is whether Hoco, by contracting with the respondent, has transferred any part of its business to the respondent. If it has, then the respondent, as a successor employer, is bound by the current collective agreement between the hotel and the union.

6. The union contends that section 63 is applicable to this case even though the employer appears to have contracted out the work. Counsel for the union argues that a transfer of the business should be inferred from the various benefits which have accrued to the respondent, namely, the right to share in the premises, the profits of the business and/or the benefits of the liquor license. In the view of the union's counsel these circumstances lead to the conclusion that there has been a transfer of something more than just a management function that "something" being a part of Hoco's business.

7. Counsel for the respondent countered that this was simply a case in which the employer had contracted out some bargaining unit work. He referred the Board to previous cases, such as Superior Sanitation Services Ltd., [1968] OLRB Rep. July 395, in which the Board has held that the contracting out of bargaining unit work does not constitute the transfer of a business within the meaning of section 63.

8. Sections 63(1) and (2) provides:

63.-(l) In this section,

(a) "business" includes a part of 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 person 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.

10. The effect of these provisions is twofold. They would prevent an employer from suppressing a union's bargaining rights by assigning its legal status as employer through a transfer of the business. By the same token they preserve the expectations of employees that their bargaining rights will not be eroded simply because the identity of their employer has changed. These purposes were more fully explained in Aircraft Metal Specialties Ltd., [1970] OLRB Rep. Sept. 702 at p. 704:

The purpose of section 47A [now section 55] becomes important in assessing the various fact situations that arise. Section 47A operates on a number of levels. The first level of course is to prevent the subversion of bargaining rights by transactions which are designed to get rid of the union. We have encountered situations where there are transactions between various corporate entities which are in effect "Paper Transactions", and are a form of corporate charade engaged in for the purpose of eliminating the trade union. In this type of case the Board has liberally interpreted section 47A to preserve the bargaining rights and has attempted to look beyond "Paper Transactions" to achieve that purpose. See E.G. Ken's Masonry, Dec. 1964 OLRB, Mthly. Rep., 382 and Trenton Riverside Dairy, September 1964 (Unreported).

A further and important purpose of section 47A is to preserve the bargaining rights with respect to work which has accrued to the benefit of the employees as a result of their union becoming the bargaining agent through certification or voluntary recognition. Once the union had been recognized with respect to a particular business the union then obtains a right to bargain with respect to wages, hours and other conditions of employment in that business. The right to participate in the business and its functions in that manner is in the nature of a vested right and section 47A allows the union to pursue that bargaining right when all or part of the business is sold. In making determinations under section 47A therefore, the Board is interested in maintaining the bargaining rights where the sale involves a continuum of the business.

11. In most cases these considerations have led the Board to give a wide interpretation to the section and in particular to the meaning of the word "sale". In Thorco Manufacturing Ltd., 65 CLLC ¶116,052, the Board explained at p. 787:

According to its strict signification, the term sells is usually taken to describe a transaction involving the disposal of property by one to another in consideration of a sum paid or agreed to be paid by the recipient in money or its equivalent. As used in section 47a, however, the word sells has been given a wide definition which includes lease, transfers and any other manner of disposition of the business or part thereof. In legal parlance the word lease generally denotes a specific kind of contract by which one party, called the lessor, for a consideration in money or its equivalent, confers on another, called the lessee, the exclusive possession of certain property for a period of time.

The word transfers, however, is obviously a term of wide significance and unless restricted by the context is capable of describing a multitude of transactions whether by sale, exchange, gift, trust or otherwise by which property, rights, or interests, etc. are transmitted absolutely, conditionally etc. or by operation of law from one person to another. We are unable to find anything in the language of the section to denote any legislative intention to restrict the meaning of the word transfers to any particular kind of transfer. Also, having regard to the particular language used and the remedial object sought to be attained by and the wide meaning which must be attributed to the preceding word transfers, it is our opinion that the generality of the words any other manner of disposition is not intended to be in any way limited or interpreted ejusdem generis with the words leases, or transfers. In our opinion, it is more in harmony with the language of and the remedy envisaged by the enactment to interpret the words and any other manner of disposition as an omnibus or saving provision intended to include dispositions of the business or a part or parts thereof by any mode or means whatever which are not appropriately described by the preceding words which state that sells includes leases or transfers.

It is a rudimentary principle applicable to the construction of remedial legislation that, consistent with the language of the enactment, the interpretation which must be adopted is the one which best serves to advance the remedy and to suppress the mischief contemplated by the legislation. (See also section 10 of The Interpretation Act R.S.O. 160 c. 191). Having regard to this principle and to the fact that the language of the section is entirely susceptible of and in agreement with such a meaning, we are impelled to give the section a large and liberal rather than a narrow or restrictive construction.

12. The history of section 63, together with the extent to which this broad interpretation of it has been applied was further elaborated by the Board in Metropolitan Parking Inc., [1979] OLRB Rep. Dec. 1193.

13. While section 63 has generally been interpreted liberally, the Board has limited the scope of the section in situations where work has been contracted out from one employer to another. Obviously contracting out involves a transfer of work but that of itself does not trigger the application of section 63. In such cases the Board is called upon to determine whether there has also been a transfer of a business, or part of a business, required by the section. This determination is not always an easy one to make, and conclusions in this regard can vary with the particular facts of each case.

14. In Superior Sanitation Services Ltd., [1968] OLRB Rep. July 395, the employer-municipality contracted out its garbage collection work to the respondent, whom the union alleged was a successor employer. At p. 398 the Board held that:

In the circumstances of this case the corporation has not disposed of part of its business but has merely changed its method of carrying on such business by contracting with an agent to perform the tasks which it formerly performed by its own employees.

15. In Clark Dairy Ltd., [1970] OLRB Rep. Aug. 601, the employer contracted out its milk delivery service to the respondent after its own drivers had gone on strike. Under the contract, the respondent was to supply both staff and necessary equipment including trucks. The employer was to pay the respondent $8.00 for every hour that one of its trucks was on the road. Furthermore, the respondent was required not to solicit any business on its own. The Board, in finding that the respondent was a successor employer, stated at p. 605:

In this case although Clark carries on business as a dairy, part of its business consists in the delivery of a dairy product to various customers. It is clear that by its arrangement with Lark [the respondent] it has disposed of a part of that delivery service. Its actions in so doing constitute a manner of disposition of a part of its business within the meaning of section 47A(l)(a)(b) of The Labour Relations Act.

16. In several more recent cases the Board has declared successorship in contracting out situations where there is evidence that the employer and contractor are in a non-arm's length relationship (Culverhouse Foods Inc., [1977] OLRB Rep. Jan. 16; see also Thunder Bay Ambulance Services Inc., [1978] OLRB Rep. May 467, where the Board declared successorship in a contracting out situation in which the knowledge and expertise of the successor was directly traceable to that of the predecessor).

17. In British American Bank Note Company Ltd., [1979] OLRB Rep. Feb. 72, a company had contracted its job of printing Wintario tickets to its parent, which had in turn transferred the work back to the subsidiary. In finding that no sale had taken place, the Board pointed out that bargaining rights attach to the business itself and not to the work performed in that business. At p. 74 the Board explained:

... section 55 cannot be interpreted as guaranteeing to a bargaining agent an absolute right of property in the work performed by its members. Section 55 serves only to preserve bargaining rights that have become attached to a business entity so that when that business entity is transferred, either in whole or in part, those bargaining rights survive and bind the successor employer.

18. In Metropolitan Parking Inc. (supra) the federal government contracted the operation of its parking lot to an independent contractor. Upon the expiry of that contract, the operation of the lot was then contracted out to a second company. The Board had to determine whether there was a transfer of a business from the first company to the second. At p. 1210 the Board gave a detailed explanation of how a true contracting out situation might be distinguished from a sale of a business:

19. The present case involved a form of subcontracting, and sub-contracting arrangements always involve the transfer of work. Work or services performed by A's employees within A's own organization are 'contracted out' to B, and B uses his own managerial skills, plant, equipment and 'know how' to supply to A, for a price, the product, services, facilities or components formerly produced by A's employees. A, therefore, is contracting for the use of B's economic organization in lieu of his own. A is generating a particular demand, or market, for B's product, and it is implicit in the arrangement that, thereafter, the two businesses will remain in a kind symbiotic relationship, bound together by close economic ties. The continuity of the work, and the preservation of a close economic relationship, between the two parties is implicit in subcontracting and does not, in itself, establish a transfer of all, or part, of a business. If it is clear on the evidence, however, that B is unable to fulfil A's requirements with his existing equipment or organization, and received from A a transfer of capital, assets, equipment, managerial skills, employees or know how, then the transaction no longer looks like a simple contracting out of work. A may not be making use of B's economic organization, rather A may be transferring part of his economic organization to B (and recall that section 55 is triggered by the transfer of 'part of a business') or merely permitting B to make use of (A's) organization while retaining control and direction of the related economic activity. Of course, it is to be expected that when A phases out part of his operation there may be certain equipment or assets which are now surplus and which can be disposed of on the market. These assets may, as a matter of convenience, be purchased by B. None of these factors unequivocally demonstrates or foreclose the application of section 55 (or section 1(4).) If, however, 'but for' the transfer of such assets, licences, know how or property interests from A, B would be unable to fulfill the contract, then it is easier to infer a transfer of part of A's business albeit a part which A no longer wishes to operate itself.

20. The Board went on to note that it was the federal government which set the fees and derived the revenues of the lot. Thus, while the lot's customers were the customers of the federal government, they were not the customers of the contractors. Their customer was the federal government. For these reasons the Board found that neither the first contractor nor government had transferred a business and that therefore, the second contractors were not successor employers.

21. The criteria set forth in Metropolitan Parking were recently applied in an unreported decision in Kennedy Lodge Nursing Home, Board File No. 063 2-80-R. In that case the employer had contracted out is janitorial services to the respondent contractor. The Board noted that in Raymond Cot6, [1968] OLRB Rep. Mar. 1211 it had defined 'business' to mean the "totality of an undertaking" including tools, equipment, management, personnel and their skills and goodwill. In concluding that Kennedy Lodge Nursing Home had not transferred part of its business the Board stated:

22. Kennedy's business was and is the operation of a Nursing Home, i.e., to provide food and shelter together with expert supervision and medical care of its customers. One of the essential ingredients to attaining its business objectives is that it requires work to be done in the form of janitorial and housekeeping services. Kennedy has determined that these services can best be provided by employing Cosmos which has demonstrated managerial expertise in this area, and which Kennedy obviously concluded was superior to its own managerial expertise in the same area. Nothing, tangible or intangible, moved from Kennedy to Cosmos other than the janitorial and housekeeping work which is now performed by Cosmos employees rather than Kennedy employees. There has been no change in the scope of nature of Kennedy's business. Kennedy has not disposed of a part of its business but had changed its method of accomplishing certain sub-functions in its business by relying on an agent to provide such services. There has been no change in 'totality of the undertaking' which comprises the business. It is true that work formerly done by employees of Kennedy who are covered by a collective agreement, is not done by employees of Cosmos. That, in itself, in the total circumstances of this case cannot be construed as a sale of part of a business within the meaning of section 55.

23. The Board in this case is now left with the task of determining whether Hoco Ltd. has transferred any part of its business to the respondent so that it should be declared to be a successor employer.

24. In the instant case, the payment of the respondent of a percentage of the gross liquor sales or profits is not of itself conclusive that there has been a sale of a business or of part of a business. Provisions of that kind are common in commercial contracts, notably in leases, and do not of themselves evidence the sale of a business. In the instant case the conditioning of the revenues of the respondent on the volume of sales or profits gives it some share in the risk of profit and loss. That is an obvious incentive to better service and could be one of a number of indicia of a joint venture between the respondent and the Motor Hotel for the purposes of section 1(4) of the Act (an issue touched on further below). It does not, of itself, establish that part of a business has been transferred within the meaning of section 63 of the Act.

25. In analyzing the facts of this case it is important to bear in mind the meaning of the word "business" for the purposes of the Act. In Metropolitan Parking Inc. at pp. 1205-07 the Board usefully reviewed this aspect of section 63:

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 tangible this dynamic quality, it is what distinguishes a 'business' from an idle collection of assets. This notion is implicit in the remarks of Widjery, J., in Kenmir v. Frizzell et al., [1968] 1 All E.R. 414 a case arising out of legislation similar to section 55. At page 418 the learned judge commented:

'In deciding whether a transaction amounted to the transfer of a business, regard must be had to its substance rather than its form, and consideration must be given to the whole of the circumstances, weighing the factors which point in one direction against those which point in another. In the end, the vital consideration is whether the effect of the transaction was to put the transferee in possession of a going concern, the activities of which he would carry on without interruption. Many factors may be relevant to this decision though few will be conclusive in themselves. Thus, if the new employer carries on business in the same manner as before, this will point to the existence of a transfer, but the converse is not necessarily true, because a transfer may be complete even though the transferee does not choose to avail himself of all the rights which he acquires thereunder. Similarly, an express assignment of goodwill is strong evidence of a transfer of the business, but the absence of such an assignment is not conclusive if the transferee has effectively deprived himself of the power to compete. The absence of an assignment of premises, stock-in-trade or outstanding contracts will likewise not be conclusive, if the particular circumstances of the transferee nevertheless enable him to carry on substantial/v the same business as before.'

[Emphasis added]

Widjery, J. took the same approach as that adopted by this Board, concentrating on substance rather than form, and stressing the importance of considering the transaction in its totality. The vital consideration for both Widjery, J. and the Board is whether the transferee has acquired from the transferor a functional economic vehicle.

000

There need not be a transfer of the entire business before section 55 comes into play. The successor rights provisions may also be triggered by the transfer of 'part of a business.' [See section 55(1).] This language suggests that that bargaining rights continue when something considerably less than 'the totality of the undertaking' has been transferred. Presumably the Legislature envisaged the preservation of bargaining rights where there is a severance and transfer of a discrete, cohesive portion of the economic organization or activities which comprise the totality of 'the business.' The Board has found a transfer of 'part of a business', where one of a chain of retail stores has been sold to a competitor (Supercity Discount Foods, [1979] OLRB Rep. Apr. 119; Loblaws Groceterias Ltd., [1973] OLRB Rep. Jan. 73); where there is a transfer of the right and means to produce one of the products formerly produced by the predecessor's business; (Canac Shock Absorbers, [1973] OLRB Rep. Oct. 508); where there was a transfer of certain milk delivery routes in a particular geographic area (Borden Co. Ltd., [1970] OLRB Rep. Jan. 1244), and where there was a transfer of the oil burner installation and service branch of a firm which was primarily engaged in the sale and delivery of fuel oil (Automatic Fuels Ltd. [19071] OLRB Rep. May 515.)

In each of these cases the Board found that the predecessor had transferred a coherent and severable part of its economic organization managerial or employee skills, plant, equipment, 'know how' and goodwill — thereby allowing the successor to serve the market formerly served by the predecessor. This economic organization undertook activities which gave rise to employment, and the terms of employment, together with the union's right to bargain about them, were preserved. The part of the predecessor's business which it no longer wished to continue provided the business opportunity which the successor was able to pursue to its own advantage.

24. In this case there has been no transfer of any physical assets, much less the transfer in whole or in part of a "functional economic vehicle". The Hotel is the sole decision maker as to what food and drink will be bought and sold. It alone decides the hours of business and the prices to be charged. The respondent would be powerless to prevent decisions by the Hotel in these areas which could materially affect the volume of sales or profits and thereby reduce or increase its revenues. Like the management company in Metropolitan Parking Inc. the respondent has acquired an obligation to perform services for compensation. lt would in our view be out of keeping with business reality and go beyond the contemplation of section 63 of the Act to conclude that by contracting to supply staff to the Motor Hotel's restaurant and disco the respondent has acquired part of a business. To acquire the right to perform services in the restaurant and disco is not to acquire a going concern, in whole or in part. The segment so split off is not a going concern that can stand alone, as contrasted for example with the sale of one of a number of stores in a supermarket chain or the severance of the manufacturing and retailing arms of a previously integrated business. For the foregoing reasons the application must be dismissed.

25. It should be noted that the Board draws no conclusions with respect to what its decision would be if the same facts had been the subject of an application under section 1(4) of the Act (a refinement of the Act which did not exist at the time of the decisions in Thorco and Aircraft Metal). In light of evidence suggesting a relationship in the nature of a joint venture between the Motor Hotel and the respondent, including evidence that the president of the respondent is a director of the company that operates the Motor Hotel, the Board specifically asked counsel for the applicant whether he wished to plead section 1(4) in the alternative. He categorically declined to do so. Since section 1(4) on its face requires some form of application to the Board, we can say nothing more in respect of that alternative.

26. The Board also makes no comment on whether as a matter of law Hoco Ltd. continues to be the employer of the persons employed in the restaurant and disco. We have concluded that there has been no transfer of a business within the meaning of section 63. It may be that there has also been no transfer of the employment relationship having regard to the numerous factors that may bear on the question of who is the true employer (cf. Sutton Place Hotel, [1980] OLRB Rep. Oct. 1538). On the limited evidence placed before the Board by the agreement of the parties, and no argument having been directed to that issue the Board can make no determination in that regard. That issue may, of course, fall to be determined in some further application or at arbitration.