[1984] OLRB Rep. September 1241

3061-83-U Health, Office & Professional Employees, Division of Local 206, Retail, Commercial and Industrial Union, Chartered by the United Food and Commercial Workers International Union, Applicant, v. Preston Springs Gar­dens Retirement Home, Respondent

BEFORE: R. O. MacDowell, Acting Alternate Chairman, and Board Members Gordon Donnelly and Bruce Lee.

APPEARANCES; D. V. MacDonald, C. McCormick, and L. Parker for the applicant; Irv Kleiner, Charlotte Zigler and Rob Williamson for the respondent.

DECISION OF R. 0. MACDO WELL, ACTING ALTERNATE CHAIRMAN AND BOARD MEMBER GORDON DONNELLY; September 11, 1984

I

1. This is a complaint under section 93 of the Labour Relations Act alleging that the respondent employer has threatened, and subsequently implemented an unlawful lockout. The definition of the term "lockout" is found in section l(l)(k) of the Act, which reads as follows:

"lock-out" includes the closing of a place of employment, a suspension of work or a refusal by an employer to continue to employ a number of his employees, with a view to compel or induce his employees, or to aid another employer to compel or induce his employees, to refrain from exercising any rights or privileges under this Act or to agree to provisions or changes in provisions respecting terms or conditions of employment or the rights, privileges or duties of the employer, an employers' organization, the trade union, or the employees."

It is conceded that if the course of employer conduct described below constitutes a "lockout" within the meaning of the Act, that "lockout" must necessarily be illegal, because it would have occurred during the currency of a subsisting collective agreement between the parties (see sections 42 and 72 of the Act).

2. The respondent employer, as its name suggests, runs a retirement home located in Cambridge, Ontario. The home has approximately 60 residents. In early 1982, the complainant union was certified to represent a bargaining unit comprising approximately 24 service employ­ees working for the respondent. Following certification, the parties engaged in collective bargaining and eventually concluded a collective agreement. The agreement was executed on November 11th, 1982, and runs (partially retroactively) from June 1st, 1982 to January 30th, 1984.

3. There is no evidence concerning the course of bargaining between the parties, but it is apparent that the agreement to make retroactive wage payments resulted in some initial difficulty for the respondent. On December 3rd, 1982 the union executed a document permitting the respondent to pay the retroactivity in installments, with the outstanding balance to be finally discharged on April 21st, 1983. In addition, on December 2nd, 1982, shortly after the agreement was signed, the parties executed the following additional "Letter of Understanding":

The Union and the Employer will work and co-operate with each other in an endeavour to reduce the labour compensation costs in the Home. The parties agree that they will use their best efforts to bring the present labour compensation cost per patient day from its current level to a point where it would be competitive with per patient day costs of other Retirement Homes in the area. The parties agree that a reasonable target in this regard is a per patient day cost of $12. and shall use their best efforts to attain that goal.

Any reduction in wage related costs are to be accomplished in accordance with the Collective Agreement between the Employer and the Union and it is the Union's intention to co-operate fully in this matter.

The Letter of Understanding is a reflection of the financial problems faced by the employer at the time, and was the result of undertakings made by the union during the bargaining process. It was to be used to persuade the respondent's bankers that serious efforts were being made to contain costs, so that those bankers would provide the funds necessary to pay the retroactivity.

4. The retirement home has been in financial difficulties for some time. It was purchased in 1981, and there are currently four mortgages on the premises. In the fiscal year ending March 31st, 1982, it had a net loss of approximately $62,000. In fiscal 1983, the loss grew to $185,000; and in the ten months, ending January 31st, 1984, there was a loss of approximately $164,000. The projected loss for fiscal 1984 was in the neighborhood of $200,000.

5. In this industry, operating profit or loss "per patient day" is a common measurement of economic performance. For the respondent, the operating profit per patient day (i.e., excluding interest, depreciation and extraordinary expenses) declined from $6.83 in 1982, to $2.53 in 1983 and, finally, a mere 16 in the first ten months of fiscal 1984. During the same period, operating expenditures — and particularly escalating labour and benefit costs — were consuming an ever-increasing proportion of the total revenue, at a time when that revenue was already declining because some residents were seeking accommodation elsewhere. In fiscal 1982, labour costs absorbed 45% of total revenue; in fiscal 1983, it was 59%; and in the first ten months of fiscal 1984, it was 69%. Layoffs and reductions in working hours instituted in 1983 did not significantly alter the trend. In January, 1984, wage and benefit costs consumed 74% of incoming revenues and the employer calculated a loss for that month of over $21,000. This represented an operating loss of $5.70 per patient day which can be usefully compared with the operating profit of $6.83 per patient day registered in fiscal 1982. The home had never been a profitable venture, but by early 1984, it was becoming a financial disaster.

6. In the Fall of 1983 the new owners of the respondent made efforts to sell the home back to its previous owners. The previous owners had a "soft spot" for the business, and good connections in the local community which could help to attract new residents. But the efforts were unsuccessful. The previous owners were unwilling to re-acquire what had clearly become a losing proposition.

7. These financial problems had been mentioned to the trade union representatives, but there had never been any thorough exploration of the employer's difficulties or any concerted collective effort to tackle the problem. In the spirit of the 1982 letter of understanding, the employer had merely reiterated its hope that the union could help contain the escalating costs. In a grievance meeting on February 16th, 1984, Robin Williamson, President of the respondent, asked the local union representative whether, in view of the employer's deteriorating financial position, it could expect any accommodation from the union and its members. He was told that there could be none, since negotiations were forthcoming and the employees in the bargaining unit expected a wage increase. When he was asked whether he would like to see a financial statement, the union representative declined.

8. At a later grievance meeting on February 23rd, 1984, the respondent again explained its financial problems, referring to the most recently available computer printouts. The trade union representatives were advised that the employer might find it necessary to subcontract the work of the employees in the bargaining unit. The employer had been considering that option since September, 1983 when the previous owners had decided not to re-purchase the facility.

9. Towards the end of February, 1984, the respondent decided that subcontracting the work of employees in the bargaining unit represented by the union was its only financial alternative; and, on February 27th, 1984, it sent the union the following letter:

Recently we have had discussions with Messrs. Hastings and Andress concerning the very serious financial circumstances in which Preston Springs Gardens Retirement Home finds itself. This, we are sure, comes as no surprise, as oftentimes during prior meetings, we have referred to the extreme month-by-month losses we are encountering.

One of the most definitive ways by which we, the Employer, can reduce the very serious financial obligations we are incurring in the operation of Preston Springs Gardens Retirement Home, is by contracting out of work in the bargaining unit. Accordingly, and pursuant to the provisions of Article 25 of the collective agreement between Preston Springs Gardens Retirement Home and Local 206, we are advising you that the Employer finds it necessary to contract out all the work performed by employees in the following categories in the employ of Preston Springs Gardens Retirement

Home:

Guest Attendants

Housekeeping

Dietary

Laundry

Handyman/Maintenance

Students

Assistant Cooks

It is intended that the contracting out itself occur no later than April 15, 1984, however, a more definite date will be set in the very near future.

As a result of such contracting out, there will be a permanent layoff of employees in the above noted categories at Preston Springs Gardens Retire­ment Home.

In accordance with the provisions of Article 25 of the collective agreement, we would appreciate having the opportunity to meet with you within the period of the next thirty (30) days in order to consider any suggestions which you might have to minimize the adverse effects of the permanent lay-off which will take place as a result of such contracting out upon the employees so affected.

Please contact us immediately so that a meeting may be arranged to discuss the matter.

We will assume that you will inform the Union Stewards and Committee of our intentions. We would also request that you caution the Union Stew­ards and Committee not to discuss this matter with any of the Residents of Preston Springs Gardens. We will, in due course, inform the Residents as to our actions."

The categories mentioned, collectively, compromise the entire membership of bargaining unit. Article 25 of the collective agreement referred to in the letter, reads as follows:

"Where the employer finds it necessary to contract out work performed by the bargaining unit, and where such contracting out results in a lay-off of employees, the Home undertakes to meet with the Union no less than thirty (30) days in advance of such lay-off to consider what might be done to minimize the adverse effects upon the employees concerned."

Mr. Williamson testified that the purpose of this letter was to notify the union of the intended permanent lay-off of the employees in the bargaining unit, and to initiate discussions on the precise timing of that lay-off.

10. On March 13th, 1984, there was a meeting with trade union representatives as contemplated by the letter of February 27th, and Article 25 of the collective agreement. Charles McCormick, President of the complainant local union, was spokesman for the employees; and Robin Williamson was spokesman for the employer. At the meeting, the union was provided with a computer print-out of the employer's economic position which Williamson explained in detail. McCormick admitted that the wage costs were too high, but maintained that the union was "not in the business of making concessions" — an alternative which, according to McCor­mick, had not been suggested by Williamson in any event. McCormick indicated that if the union's accountants were provided with the employer's audited financial statements, and verified the accuracy of the employer's pessimistic projection, the union might consider recommending a wage freeze to its members. Again this was a suggestion from McCormick, not Williamson.

11. Mr. Williamson testified, and we accept, that the purpose of the February 27th letter, and the March 13 meeting, was not to induce any union concessions. It was a meeting held in accordance with article 25 of the agreement, to discuss ways of minimizing the effects of the planned layoff. Mr. McCormick's evidence confirms this proposition. McCormick testified that the "the company didn't ask for concessions and we didn't agree to any". McCormick told the Board that he was absolutely convinced that the company was determined to "bury the bargaining unit". In McCormick's opinion, there had been an irrevocable decision to sub-contract the work of the employees in the bargaining unit, and the employer had no intention of ever reversing that decision. In McCormick's submission, the meeting of March 13th was something of a charade — even though the employer did indicate that there would be no real need to sub-contract if its existing labour costs were competitive with those available through the use of an outside sub-contractor. McCormick said the entire thrust of the meeting involved the union's opposition to any sub-contracting at all, and the employer's repeated assertions that this was precisely what it planned to do. McCormick was annoyed by the employers's apparent rigidity.

12. A copy of the February 27th letter had been sent to the Minister of Labour and, on March 23rd, 1984, Williamson met with the Minister, the Deputy Minister and an Assistant Deputy Minister. As a result of that meeting, Harry Sparling, a Ministry official, was inserted into the process, with a view to seeking some accommodation. His precise role in the process is not clear. Sparling told Williamson that he would be in touch after he had talked to McCormick.

13. Sparling contacted Williamson a few days later, and told him that McCormick wanted a specific "proposal". Williamson repeated what he had earlier told the union directly: the decision to sub-contract was made because of the projected savings and, if the union could match those cost savings, the sub-contracting would be unnecessary. Williamson testified that he advanced this proposal only because he had been requested to do so by both the union and the Ministry of Labour.

14. After discussing the matter with his colleagues, McCormick indicated that the union would be prepared to extend the agreement, with a wage freeze for one year, and to canvass the members about the employer's purported "roll-back proposal". Counsel for the employer, however, indicated that the employer was not there to negotiate. The union's proposal was not a sufficient reason to revoke the employer's decision, nor were there any other developments which, in the respondent's view, warranted a rescission of its firm decision to sub-contract the work of the employees in the bargaining unit. It had taken its decision as a matter of pressing economic necessity, and it was not prepared to be drawn into a process of bargaining. It was too late for that.

II

15. A "lock-out" is a form of economic sanction undertaken by an employer to modify his employees' behaviour. It is a bargaining posture with both subjective and objective elements. In the first place, there must be a withholding of work opportunities: "a closing of a place of employment, a suspension of work or a refusal by an employer to continue to employ a number of his employees". Secondly, (although often much more difficult to determine), there must be a subjective intention to compel or induce his employees (or some of them) to refrain from exercising rights or privileges which they enjoy under the Labour Relations Act, or to agree to changes in their terms and conditions of employment. Both elements must be present if the conduct in question is to be characterized, legally, as a "lock-out".

16. The termination or lay-off of employees does not, in itself, constitute a lock-out even though the consequences for employees may be the same, nor is it sufficient that the employer was motivated by anti-union animus, if his intention was not to preserve the employment relationship of at least some of his employees on terms more favourable to himself. As the Board noted in Doral Construction Limited [1980] OLRB Rep. March 310, a mass termination of employees in favour of sub-contracting the work (there in response to a union organizing campaign) may be clearly illegal, yet still not constitute a "lock-out". What is critical, is the specific motive behind the employer's action, and, in particular, whether his intention is to preserve the relationship with his employees (or some of them) on different and more favourable terms. In the absence of such specific intent, the employer's conduct is not a "lock-out" even though it may be an unfair labour practice or contrary to the terms of a collective agreement. That is why the Board has often held that a clear, final, unequivocal, and irrevocable decision to dispense with the services of some employees would not be a "lock-out" because the employer has no intention of preserving existing employment relationships on different terms or inducing employees to give up established rights. To reiterate: it may be an unfair labour practice, but it will not be an unlawful lock-out.

17. The determination of the employer's intention, while critical in this legal context, can often be very difficult. In a volatile economic environment, occasions will inevitably arise when employers will be required to adjust their utilization of labour, alter hours of work, institute lay-offs, introduce job-destroying technological change, or even shut down part of their opera­tion. Such decisions will necessarily have an adverse impact on employees, and will be of concern to their trade union; moreover, experience has shown that a candid discussion of these problems by labour and management can sometimes result in their resolution with attendant benefits to all concerned. Indeed, in Consolidated Bathurst, [1983] OLRB Rep. Sept. 1411, the Board suggested that responsible employers should seek to involve their employees' bargaining agent in this often painful and difficult decision-making process. Certainly, from a public policy point of view, it would be a curious result if an employer who refused to discuss these matters with a trade union were immune from criticism, while an employer who engages in a full and frank discussion of his economic problems, his options, and the potential employee impact were to find himself guilty of a threatened "lock-out". One would not lightly embrace an interpretation of a collective bargaining statute which so clearly encouraged unilateral decision-making and discouraged joint discussion of mutual problems. Should the "message" to employers be that they may face a lock-out allegation unless they act unilaterally, avoid consultation, adhere rigidly to their established course, and under no circumstances engage in discussion with the union which might be construed as "bargaining"? In C. E. Lummus Canada Ltd., [1983] OLRB Rep. Oct. 1688, the Board observed:

18. The point raised is a difficult one. Given the definition of "lock-out", an employer who speaks during the term of a collective agreement of the need for concessions as a condition of further employment must be mindful of the basic structure of our Labour Relations Act. During the term of a collective agreement, an employer is not entitled to simply say, "I want a better deal, and I'm not going to continue to use your services, or part of your services, until I get it". That is prohibited as an untimely "lock-out", just as the opposite conduct on the part of employees and a trade union is prohibited as a "strike". On the other hand, an employer may, from time to time, find himself in a position where economic necessity has raised the spectre of management deci­sions which will significantly impact on the employment opportunities of his employees. In such circumstances it would seem to make labour relations sense to permit the employer to invite the bargaining agent to engage in meaningful discussion designed to avoid or minimize such impact, and indeed, this has been a main theme of the Board's "bargain­ing in bad faith" cases in recent times. Compare Westinghouse Canada Limited, [1980] OLRB Rep. April 577; Sunnycrest Nursing Home, [1982] OLRB Rep. Feb. 261; and Consolidated Bathurst, [1983] OLRB Rep. Sept. 1411. The Board's interpretation of the law ought not simply to deny the employees, through their trade union, (or employ­ee bargaining agency, as the case may be) this opportunity for input in every case where the problem comes to a head during the term of the collective agreement itself. But, as noted, a fundamental prohibition exists against "lock-outs" or threatened "lock-outs" during the term of the collective agreement, just as it does for "strikes", and the Board must be scrupulous in its analysis of each case, lest a plea of "economic circumstance" be used to mask an attempt simply to obtain better terms and conditions than have been agreed upon in the collective agreement. The Board recognizes that the issue of "economic necessity" can be a complex one, making a judgment on the employer's true motivation difficult; but the Board cannot shy away from making such judgments, if employees through their bargaining agent are to be permitted an opportunity to exercise some degree of control over their economic lives, on the one hand, and the identification and control of unfair labour practices, engaged in under a cloak of "economic necessity", is to be achieved on the other."

19. However, in our view, these questions of high principle or delicate balancing need not be debated here. The circumstances of the instant case provide a classic example of what is not a lock-out — whatever else it may be.

20. The evidence establishes, without doubt, that the employer's enterprise was awash in a sea of economic troubles, which threatened its continuing viability. Operating losses were escalating — in large measure because of rising labour costs which even the union conceded were substantially "out of line" with those of competitors. Equivalent services could be purchased in the market for much less, and the employer decided to take that opportunity. There is no doubt whatsoever that this decision was based solely upon economics and was intended to be final and irrevocable, nor we might add were there any of the classic indicia of anti-union animus which prompted the Board to draw the distinction between an unlawful lockout and other unfair labour practices. In any case, as Mr. McCormack saw it, the employer was seeking to "bury the bargaining unit". It was not seeking concessions. Its discussions with the union were solely in accordance with Article 25 of the collective agreement.

21. There was no intention on the part of the employer or expectation on the part of the union that modification of the terms established in the collective agreement could stave off the proposed lay-off. The only contrary suggestion came from an official of the Ministry of Labour who, upon the request of the union, requested a "proposal" from the employer which might result in some modification of its decision. Even then, the employer's response was that it had made its decision on economic grounds and that if it could realize equivalent cost savings in other ways, there would be no reason to sub-contract the employees' work. There was no "concession bargaining" on the employer's part, and no intention to do so prior to the prompting of the Ministry of Labour official at the request of the trade union. In the circumstances the employer could not reasonably refuse to repeat what was obviously the case: so long as its labour costs were significantly above those payable to a sub-contractor, it was in its economic interest to sub-contract the work. We do not think that this interchange is sufficient ground for finding that there has been a threat of an unlawful lock-out; and, even if we were to find that the technical requirements for a "lock-out" have been met, we would be reluctant to grant relief for the allegedly culpable conduct on the employer's part is merely an honest response to the union's inquiry about what might be done to avoid the consequences of the course upon which the employer had embarked.

22. For the foregoing reasons, the Board finds that the respondent employer has not engaged in an unlawful lock-out. The complaint is therefore dismissed.