Penmarkay Foods Limited v. Retail Wholesale & Department Store Union, Local 414, 1984 CanLII 1128

Penmarkay Foods Limited v. Retail Wholesale & Department Store Union, Local 414

[1984] OLRB Rep. September 1214

1045-83-R;0903-83-R;0904-83-R;0905-83-U Penmarkay Foods Limited, Applicant, v. Retail Wholesale & Department Store Union, Local 414, Respondent; Retail Wholesale & Department Store Union, Local 414, Applicant, v. Dominion Stores Limited, Willett Foods Limited, Penmarkay Foods Limited, Respondents; Retail Wholesale & Department Store Union, Local 414, Applicant, v. Dominion Stores Limited, Willett Foods Limited, Respondents

BEFORE: Richard M. Brown, Vice-Chairman, and Board Members J. A. Ronson and E. G. Theobald.

APPEARANCES: Barry W Earl, Q. C., and John Woon for Penmarkay Foods Limited; Ross Dunsmore and Michael Hines for Dominion Stores Limited and Willett Foods Limited; James Hayes, William Kaplan, Robert McKay and Bert Scott for Retail Wholesale & Department Store Union, Local 414.

DECISION OF RICHARD M. BROWN, VICE-CHAIRMAN, AND BOARD MEMBER E. G. THEOBALD; September 24, 1984

1. This dispute arose out of the franchising of stores formerly operated by Dominion Stores Limited ("Dominion") as corporate stores. The franchisees, carrying on business under the name Mr. Grocer, have entered into a franchise arrangement with Willett Foods Limited ("Willett") which is a corporate relative of Dominion. When the stores were operated by Dominion, the work force fell under a master agreement between the employer and Local 414 of the Retail, Wholesale & Department Store Union (the "union"). The first franchisee to open a Mr. Grocer store was Penmarkay Foods Limited ("Penmarkay"). Conceding a business has been sold within the meaning of section 63 of the Labour Relations Act, Penmarkay has applied under section 63(5) for an order terminating the union's bargaining rights. This application followed an application by the union under section 63 relating to the store operated by Penmarkay. The union also seeks a ruling, under section 1(4), that Dominion, Willett and Penmarkay are one employer for the purposes of the Act. In addition, Local 414 has filed a complaint under section 89 alleging a violation of sections 50, 64, 66 and 67.

I

2. The first Mr. Grocer store opened in the spring of 1983; but Dominion's interest in franchising can be traced back to the mid-seventies, according to Mr. Larry Gee, now vice-president of operations. Dominion was being badly hurt at that time by recurring price wars in the grocery industry. Unlike other grocery companies, Dominion was strictly a retail business with no processing or wholesaling arm. When consumer prices dropped during a price skirmish, competitors with diversified operations were able to maintain a stronger profit position than was Dominion. One of Dominion's first ventures into the wholesale market was the creation of Mm-A-Mart Ltd. in 1975, as a wholly-owned subsidiary. This company has established forty-eight convenience stores; forty-one are presently franchised and the others are awaiting a willing franchisee.

3. Also in 1975, Dominion purchased a majority of the shares of a company now known as Willett Foods Limited which was then carrying on a wholesale business in the Maritimes. Willett was one of two Atlantic wholesalers acquired by Dominion in the mid-seventies — the other is Donovan's Wholesale Limited in Newfoundland. Between 1975 and 1980, Willett's annual sales increased almost ten-fold to thirty million dollars; Willett doubled the size of its plant in St. John's, purchased Dominion's plant in Halifax and expanded it, and acquired O'Brien's Produce in Halifax. Dominion acquired sole ownership of Willett in 1980 through a holding company, Quintana Inc., which is itself a wholly-owned subsidiary of Dominion. The expansion of Willett's wholesale business in the Maritimes continued after 1980 with the opening of a cash and carry operation in Halifax and Moncton and the acquisition of Mason's in Sydney and Judson Foods in Moncton. A tentative entry into franchising in the Maritimes was made by Willett in 1979 or 1980 when it opened a model store under the name Village Mart; this store was not a success and closed two years later.

4. Willett first entered the Ontario market in the early eighties. A warehouse complete with sales office opened in Ottawa in December, 1982; Willett leases these premises from Dominion. The Ottawa distribution centre sells supplies to restaurants, institutions and retail operations. The grocery stores in the Ottawa area supplied from this warehouse include independent retailers, some stores associated with two grocery chains that compete with Dominion, Dominion stores, and one Min-A-M art. This warehouse was originally scheduled to open in 1986. But in 1981 when Dominion sold its distribution centre in Quebec — from which Dominion stores in the Ottawa Valley had been supplied — opening the Willett warehouse in Ottawa became a top priority; Mr. Gee testified Willett was told, presumably by Dominion, to open the Ottawa warehouse as soon as possible. Sales to Dominion stores in eastern Ontario comprise approximately one-half of the output of the Ottawa warehouse, according to Milford Sorenson, who is a vice-president of Willett. A second Willett wholesale facility in Kitchener began to service independent retailers and Min-A-M art stores in October, 1983; this warehouse does not supply Dominion stores. Willett's Ontario offices are located at the same site as this plant. Willett voluntarily recognized Local 414 as bargaining agent for the warehouse employees at Ottawa and Kitchener; a QWL program has been established at both locations at the employer's suggestion and with the union's co-operation. Other operations carried on by Willett in Ontario include a few recently acquired food service companies — i.e., suppliers to restaurants and institutions — and one cash and carry facility.

5. The Dominion empire now extends beyond the food industry. Dominion owns 93 per cent of Labmin Resources Limited which in turn owns Hollinger Argus Limited among whose holdings are several mining companies.

6. In 1982, Dominion decided to close a substantial number of its retail stores and the Mr. Grocer concept was born. Management Horizons, an American consulting firm retained by Dominion, presented its report in June, 1982. The consultants identified several problems in the grocery industry and in Dominion's business: there were too many stores in the retail grocery trade; Dominion was bound by a ''strict union contract whereas independent retailers were typically not unionized; competitors who had a stronger base in wholesaling were better able to withstand price wars; many of Dominion's stores were too old and therefore unattractive; and competitors belonging to large buying groups were able to purchase supplies at a lower price than Dominion could. The range of solutions presented for Dominion's consideration included new vehicles such as warehouse stores and super stores; the consultants also suggested greater emphasis on wholesaling and on franchising in particular. According to Larry Gee, little happened between June and November because key people were on holiday in July and August and the president of Dominion was ill during the fall; then in late November a new president took office and the pace quickened. In addition to a new president, there were several other changes in the management structure at Dominion in late 1982 and early 1983 — 8 vice-presidents, 5 departmental directors and 2 district managers left. A decision was made in November to close a large number of Dominion stores. Some stores had been losing money for years; by late 1982, as the end of the third fiscal quarter approached, Dominion was suffering losses in approximately 110 of its 290 stores across Canada. If the situation had remained unchanged, the loss would have amounted to thirty million dollars annually. Dominion decided to close all losing stores as soon as possible over the next two or three years. In order to survive in the short run, Dominion pushed up its retail prices; at year end there was a loss of seven million dollars. Another economy measure taken was the selling of banked land.

7. Franchising was also being discussed at Dominion in November, 1982, as evidenced by a memorandum dated November 8th from Gee to the new president, John Toma. A franchise committee chaired by Larry Gee and manned by fellow Dominion executives, along with Walter Flewelling who is president of Willett, met on December 1 and 15, 1982 and again on February 9, 1983. The Mr. Grocer concept was developed by this committee. According to Gee, the stores slated to close would have been shut down as unprofitable even if there had been no franchising scheme; the closure decision was made before there was a final determination to immediately launch a franchise scheme. Gee testified the plan was always to assign the franchise operation to Willett; people at Dominion did the spade work because those at Willett were too busy at this time — they were establishing new facilities in Ottawa and Kitchener as well as taking over the recently acquired food service companies. The creation of Mr. Grocer as a division of Willett was approved by the executive committee of Dominion's board on December 22, 1982. According to Gee, Willett already had long-standing plans to launch a franchise scheme in Ontario to recover some of the expenditures sunk in the Ottawa and Kitchener facilities; these plans were accelerated when Dominion decided to close a large number of corporate stores because the vacated premises would have been lost if not put to immediate use. Willett has become the focus of franchise activity in the Dominion corporate family. Since 1983, Mm-A-Mart stores have been supplied from Willett's warehouses in Ottawa and Kitchener; Mm-A-Mart Ltd. now reports to Milford Sorenson at Willett. The predominant practice throughout North America, according to Larry Gee, is for corporations operating chain stores to assign franchise operations to a separate wholesale arm; the rationale for this division of management responsibility is that a franchisee is more of an entrepreneur than is a corporate store manager.

8. The abandonment of losing stores does not mean that Dominion intends to entirely cease retailing groceries through corporate stores. Larry Gee testified his company intends to continue to operate chain stores; indeed, this is to remain the dominant part of its business. Entered in evidence was a map of the Toronto area showing locations for which new stores are being planned. In a memorandum dated February 23, 1983, Mr. Gee told his colleagues at Dominion about the franchising scheme which was being developed; the memorandum is entitled "Mr. Grocer, Willett Foods":

By November 1982, Company profits had been so profoundly impacted by a growing number of smaller, inefficient stores, that a decision was made to move into franchising ahead of our plans to first have all of our wholesaling operations in place (e.g. 1986). This is not to say that the objective of our franchising program has changed from one of being "wholesale" driven to one of "asset" shifting, but rather that Dominion's misfortune has presented a good opportunity for Mr. Grocer, which might not be there in two years.

Gee explained the purpose of this memorandum was to inform people at Dominion as to what was going on at Willett. Dominion's annual report for 1983 describes the company's retail activities in this way:

The Company is in the process of strategically covering the markets it serves with a combination of conventional Dominion supermarkets, Best for Less warehouse stores and franchised Mr. Grocer neighbourhood grocery stores. These three retail vehicles have been developed to continue Dominion's prominence in the retail food sector.

9. Milford Sorenson took over responsibility for Willett's Ontario operations, including Mr. Grocer, in May, 1983. Immediately prior to his arrival in Ontario, according to Sorenson, Mr. Grocer was managed by Bill Ashton and Ross Bletsoe; Gee testified Ashton stopped reporting to him in February. Ashton had been a member of Dominion's franchise committee before he moved to Willett in April or May of 1983 to become director of administration for Mr. Grocer. Ross Bletsoe was enticed to leave the Oshawa Group — the leading IGA supplier in Ontario — in February or March of 1983 to join Mr. Grocer as director of franchising. Both Bletsoe and Ashton report to Mr. Sorenson; he answers to Willett's president, Walter Flewelling. Four of the nine officers of Willett are Dominion employees, including one of two vice-presidents, the assistant treasurer and the three assistant secretaries. Willett's board of directors was described by Larry Gee as "not active". John Willett is chairman of the board; 4 of the 7 directors are employees of Dominion. Willett's president reports to Larry Gee at Dominion and he in turn reports to Dominion's board of directors twelve times each year —at 4 full-board meetings and at 8 meetings of the board's executive committee. Once a year Dominion's board reviews a three-year plan for Willett. Willett's annual budget is approved by Dominion; quarterly reports on the subsidiary's progress in relation to the budget are also submitted to the parent corporation. Any expenditure over $50,000 that is not already a part of the approved budget is subject to scrutiny by Dominion's board. (Dominion's board of directors approved the building of Willett's facilities in Ottawa and Kitchener as well as Willett's recent purchases of existing businesses.) According to Sorenson, Dominion plays no part in the day-to-day operations of Willett. However, he testified Larry Gee is kept "fully informed" about Mr. Grocer; Sorenson described Gee as a "hands on guy". Larry Gee testified he does not take part in the day-to-day operations of either Willett or any of the other seven subsidiaries — involved in businesses ranging from soft drinks to gas bars — that report to him; his responsibility is to ensure these companies produce a satisfactory rate of return on investment and he is little concerned about how they achieve this objective. The paper record contains memoranda — dated after Sorenson's arrival in Ontario — to Gee about Mr. Grocer. In a memorandum dated April 5, 1983 and addressed to Larry Gee, Ross Bletsoe made several recommendations about the Mr. Grocer franchise scheme. According to Gee, he was not responsible for Mr. Grocer at this time; he said the only purpose of this memorandum was to convey information. In another memorandum dated May 5, 1984 and again addressed to Gee, Bletsoe listed prospective sites and franchisees — a copy of this memorandum was sent to Sorenson and Ashton among others. Larry Gee testified he has seen no such memorandum since that date. As well as being a vice-president of Dominion, Larry Gee holds the same title at Willett; however, according to Gee, his Willett title does not increase his responsibilities with respect to that company beyond those associated with his position at Dominion. Dominion continues to provide several types of services to Willett — data processing, legal and real estate; Willett pays for these services. Among the products offered by Mr. Grocer to franchisees are approximately one hundred red label lines sold to Willett by Dominion; Willett has for some years offered these products to non-franchised independent grocers. Willett's own distinctive logo appears on its trucks and buildings.

10. Dominion played a larger role in Willett's operations when it first moved to Ontario. The work of Dominion's franchise committee has already been noted. Until Willett's Kitchener facilities were opened in October, 1983, its Ontario offices were located at Dominion's headquarters in the same area as other associated companies. Three task forces manned by members of Dominion's management team and chaired by Sorenson were established to assist Willett set up its Ottawa and Kitchener operations. Initially, additional products supplied to Mr. Grocer stores — in particular store supplies and frozen foods — were purchased by Willett from Dominion; this practice was scheduled to end in January, 1984. In January 1984, Don Blair, then director of labour relations for Dominion, negotiated a collective agreement for Willett's Ottawa warehouse.

11. A number of former Dominion employees are now employed by Willett in Ontario. Sorenson left Dominion to join Willett in 1980. Bill Ashton's change of employer has been mentioned above. Several other Willett employees previously worked for Dominion: Bill Plate, plant manager at Kitchener; Danny DiFrancisco, produce manager at Kitchener; Bob Seguin, merchandising manager; V. Martin, merchandising manager at Ottawa since December 1981; J. Morris who joined Willett in the spring of 1983 and later became a Mr. Grocer franchisee; Bob Bell, a Mr. Grocer district manager; Doug Stickle and Mario Pivato, set-up co-ordinators; Bill Anderson, an advertising co-ordinator; Frank Brinkoff and Tom Stafford in merchandising at Kitchener; Jim Hill, a retail counsellor; Conrad Robert, a meat specialist; Laura Atherby, a cashier trainer; and Carol Robert. In addition, N. Kerr who formerly managed Superparket Limited, another Dominion subsidiary, joined Willett in the spring of 1983. Except for Ross Bletsoe — and perhaps one other — all of the people working in the Mr. Grocer division of Willett are former Dominion employees. Sorenson testified those who left Dominion to join Willett were not compelled or pressured to leave by Dominion; Willett has not made a job offer to an employee of Dominion without first asking its permission which is not always given; and Willett decided to whom job offers were made. Executive compensation and fringe benefit programs are the same at Willett as at Dominion.

12. In his evidence, Larry Gee explained why a franchise store can be more profitable than a corporate store. He contrasted an entrepreneur who is financially dependent on a family business with a corporate manager who can move to another store if one store fails. Gee described several ways in which a franchisee has a competitive edge in an industry where an after-tax profit of one per cent of sales is an acceptable rate of return. Unlike a franchisee, a corporate store is burdened with the overhead costs associated with a large organization, amounting to 2.3 per cent of sales. An entrepreneur may also be able to curtail theft by both staff and customers, improve receiving practices to prevent overpayments to suppliers, reduce both under-pricing on the shelf and under-rings at the cash register and limit waste in the produce and meat departments. Gee estimated these methods of controlling "shrink" could save an amount equal to 2 per cent of sales. A corporate manager's efforts to build a united team of employees is constantly disrupted by inter-store transfers, whereas a franchisee does not face this problem. Franchisees can also save money by employing relatives and by obtaining their family groceries at cost. Finally, Gee estimated the tax rate for a small business at 25 per cent as compared with 45 or 50 per cent for a large corporation. According to Gee, labour costs were a factor in the decision to franchise only to the extent that a franchisee might obtain greater productivity from employees than could a corporate manager. Larry Gee also explained what benefit a franchisor derives from a franchise arrangement. In addition to any franchise fees, the franchisor is of course paid for all supplies delivered to the franchisee. Moreover according to Gee, a franchise scheme benefits Dominion by allowing it to obtain greater volume discounts on supplies purchased for its corporate stores; the products supplied to Mr. Grocer stores and those purchased by Dominion for its own stores are bought through Volume 1 Inc., a buying group comprised of the Dominion and Steinberg corporate families.

13. Local 414 of the Retail, Wholesale & Department Store Union has been the bargaining agent for employees at the vast majority of Dominion stores in Ontario for many years. For the last fifteen years there has been a single collective agreement for Dominion employees represented by Local 414; at one time there were 43 separate agreements. The present agreement — running from October 17, 1982 to June 21, 1984 — recognizes Local 414 as bargaining agent for "employees of Dominion Stores Limited in its retail stores" in approximately sixty municipalities. The scope clause also provides:

Should the Company open stores within the townships set out in the attached schedule the Company will recognize the Union as the bargaining agent and such stores will be covered by this agreement. In the event that another union is the bargaining agent for one of the Company's stores in a township adjacent to those set out in the above mentioned schedule, the matter of recognition will be decided by the Ontario Labour Relations Board.

Where a Regional Municipality is created and the Union has a certification in one of the areas incorporated, the Company will recognize the Union in the entire Regional Municipality provided no other Union has a certification in one of the areas incorporated. In the latter case, the Regional Municipality would be divided between the two Unions involved, or decided by the Ontario Labour Relations Board.

Under the current collective agreement, an employee in one store may exercise seniority rights to claim a job in another store, within a defined seniority area, in the context of a promotion, demotion, layoff, recall or transfer. The two largest seniority areas are in the Toronto area and each contains more than forty stores.

14. Larry Gee testified that in December, 1982 or January, 1983 he inquired if anything in the collective agreement would prevent franchising; he was told the only hurdle was "successor rights". Although this information was relayed to Gee by Bill Ashton, Gee thought the source was Don Blair, Dominion's director of labour relations. According to Gee, successor rights was the only labour relations issue discussed by Dominion's board of directors. The minutes of the December 15, 1982 franchise committee meeting ended with an agenda for the next meeting scheduled for December 20th; among the topics listed is "union agreement". According to Mr. Gee, there was no meeting on December 20th and no discussion of the existing collective agreement at any franchise committee meeting. Gee testified Dominion had a positive attitude towards collective bargaining, citing the voluntary recognition of the union by Willett at Kitchener as evidence of this outlook.

15. Don Collins, Canadian director of the Retail, Wholesale and Department Store Union, first learned in November, 1983 that a large number of Dominion stores would be closing and that franchised stores were being contemplated. Although Collins was opposed to franchising of any kind, he told John Toma in December, 1982 that if there was to be franchising it should not be under the Dominion name. On January 14, 1983, Don Collins and two other union representatives met with Don Blair, Bill Ashton, Larry Gee and two other Dominion executives. As the spokesman for management, Blair said Dominion planned to close approximately 100 stores and to launch a franchise venture. Blair said the union would be recognized as bargaining agent at the franchised stores — or at least those that were formerly Dominion stores; but he went on to say the franchised stores could not be operated under the "rich" master agreement. According to Larry Gee, he then thought franchises would not be marketable unless relief was obtained from the union with respect to both wages and inter-store transfers; looking back, he did not believe the collective agreement has had any adverse impact. Don Collins undertook on January 14th to consider a proposed collective agreement for Mr. Grocer stores; a draft agreement was presented to him either then or a few days later. According to Collins, he rejected the proposal as unrealistic, saying he was prepared to deal if management took the matter more seriously. When Blair invited a counterproposal, Collins said he was tired of bargaining with himself but would consider an improved offer from management. Don Collins testified as to what troubled him about Blair's proposal. It excluded a number of jobs covered by the existing contract — department manager, chief clerk, bookkeeper and store porter. Substantial cuts in hourly rates were also proposed — for example, at the starting rate, a reduction from $6.68 to $4.37 for a clerk A and from $11.49 to $5.75 for a meat cutter. Inter-store transfers were also abolished. The agreement proposed by Blair was to be between the union and an individual franchisee and Collins was disturbed by the prospect of single-store bargaining. He thinks a consolidated bargaining structure increases the union's leverage at the bargaining table and reduces the administrative burden of negotiations. In his view, separate bargaining by Mr. Grocer franchisees would erode job security and bring about a loss of union members. Don Collins testified he has discussed Mr. Grocer with John Toma several times since January, 1983; Collins has sought a collective agreement applicable to all Mr. Grocer stores — including stores not previously operated by Dominion and future stores in areas covered by the current collective agreement. Although concession bargaining resulted in a stalemate in 1984, Dominion has obtained concessions from Local 414 in the past. Approximately four years ago when some Dominion stores were converted to Thrift stores and Best-for-Less stores, a special deal for these new ventures was struck and included as an appendix to the master agreement.

16. According to both Sorenson and Gee, franchisees operating in premises formerly occupied by Dominion have been told they have to live by the collective agreement until it is re-negotiated. This evidence is supported by the testimony of Gerald Penrose who is the leading actor behind Penmarkay, the first franchisee; Ashton told Penrose the existing contract would be binding on him. Willett offers to franchisees a benefit package for Mr. Grocer's employees that is substantially the same as the one contained in the collective agreement; Penmarkay has adopted this plan which is administered by Confederation Life. Penmarkay initially paid all of its employees — including those who formerly worked at Dominion — the starting rate under the collective agreement. Penmarkay did not hire its employees from among those who had been laid off by Dominion; the store taken over by the franchisee had no employees at the time as it had been vacant for three months.

17. According to Milford Sorenson, Dominion's labour costs amount to between 11-1/2 and 12 per cent of sales. Several documents relating to labour costs at Mr. Grocer stores were introduced into evidence. The first document is a pro forma — a detailed projection of income and expenditures for a five-year term — presented to Gerald Penrose in March of 1983 when he was a prospective franchisee. Labour costs are shown as 10.5 per cent of sales in the first year and drop to 8 per cent in the second and subsequent years. (In absolute terms, labour costs are $273,000 in the first year and $220,490 in the second.) This projected reduction in labour costs coincides with an increase in the cost of leasing the store and its equipment from Willett; the rent for the first year is indicated to be $7,000 and for later years $68,000. (These are the amounts of rent fixed in the lease executed a few months later.) The pro forma also provides estimates of other expenditures: store services, customer services, franchise fees, taxes, insurance, interest, and legal and accounting services. On the other side of the balance sheet appears the margin — i.e. the difference between the amount paid by the franchisee to Mr. Grocer for supplies and the price charged to the consumer — for groceries, meat, produce and general merchandise. The bottom line shows the expected profit both before and after tax. In another pro forma for a store in Stratford, dated May 4, 1983, labour costs are shown as 10.5 per cent of sales in the first year and 8 per cent thereafter; rent increases from nil at the outset to $77,583 in the second and subsequent years. The estimated after-tax profit on both pro formas shows a small but steady rise from the first to the last year. Sorenson testified the objective was to achieve the reduction in labour costs shown on these two pro formas through negotiations when the collective agreement expires at approximately the same time as the first year of the five-year period draws to a close. Attached to a third pro forma is the following caveat — the evidence does not disclose whether it accompanied the first two pro formas:

MR. GROCER does not represent or warrant that any prospective Dealer can expect to attain the sales volume, margins or profit shown on the pro forma statement on the reverse side hereof, or that he will have a profitable operation at the location being considered.

Rather, the prospective Dealer is cautioned that he cannot expect to have similar results unless he can attain similar sales and margins and maintain his cost of labour and other operating expenses within similar limits.

(This pro forma, dated January 10, 1983, estimates labour costs at a constant 8 per cent over the five-year term.)

18. Labour costs are also addressed in a memorandum written by Bill Ashton, dated April 25, 1983, copies of which were sent to Walter Flewelling and Larry Gee among others. It contains the following passage with respect to the franchisee as a "profit centre".

Pro formas show a 2% profit before tax after a manager's salary of 1% and costs associated with debt servicing 75% of capital required (inventory). To achieve the 2% profit, Mr. Grocer is required initially to assume some/all occupancy costs. However, all stores should bear all occupancy costs and develop a 2% profit, after the location is decertified (union), when the wages and benefits drop from a current 11.5% to 9.0%.

Larry Gee could not recall reading this memorandum. Milford Sorenson disclaimed any assumption that franchised stores would soon be non-union, saying the issue of decertification was raised by franchisees. Another memorandum written by the same author and dated two days later states: "Presumably, the Mr. Grocer franchisee will be required by union contract to maintain all benefits outlined in the collective agreement." Also entered in evidence was a letter dated March 11, 1983, from Ross Bletsoe to Stephen Bartley who was then a prospective franchisee; attached to this letter is an estimate of labour costs totalling 8 per cent of sales. The hourly rates shown are substantially less than those set out in the collective agreement — the differential in the starting hourly rate for a clerk A is $1.68 and for a meat cutter $3.98. Some benefits found in the current contract are omitted. Larry Gee was not sure whether he had seen this letter before it was shown to him at the hearing; he was aware of its "flavour", although he did not know how the wage costs were calculated. According to Sorenson, Bartley thought he could cut a deal with the union more favourable than the current collective agreement and asked Ashton or Bletsoe to provide some guidelines to use in negotiations with Don Collins. Bartley did refer to Bletsoe's letter when he spoke to Collins.

19. The Penmarkay franchise opened at 666 Burnhamthorpe Road, Mississauga, on July 6, 1983. This store had been covered by a collective agreement between Local 414 and Dominion for many years, although it had been closed for three months when taken over by Penmarkay. Gerald Penrose was the president, sole director and only shareholder of Penmarkay when he testified in the fall of 1983. However, he had already arranged to take three former Dominion store department managers into the business as partners: Wayne Hamilton, Frank Wetselaar, and Bill Jackson. These three gentlemen were each to own 16 per cent of Penmarkay; they apparently perform the role of department manager in the new store. Neither Willett nor its corporate parent played any part in their decision to leave Dominion. Penrose had just retired as manager of the Meadowvale Dominion store when he was first approached by Bill Ashton in March, 1983. Penrose discussed a possible franchise arrangement with Ashton and Bletsoe at various times through March and April; negotiations broke down in May and Penrose returned the draft documents which they had provided to him. Then on May 27th the prospective franchisee received a call from Mr. K. Parkhill, a vice-president of Dominion who had served on the franchise committee and had known Mr. Penrose for many years. Upon meeting with Parkhill and Sorenson, Penrose got the answers he had been seeking; on the same day he spoke to Larry Gee who assured him of the wisdom of taking a Mr. Grocer franchise. According to Penrose, the initial impasse was over earned volume discounts and royalties. As to the royalties, Ashton proposed a fee of 3.85 per cent of sales and Penrose countered by suggesting a lower fee at the outset; the final agreement fixes the fee at 3.85 per cent. There was also some discussion relating to Mrs. Penrose. She was named as a party on draft documents including a franchise agreement, a lease, and a promissory note to Willett; but she is not named on the final documents. Throughout the negotiations over this franchise, Mr. Penrose was advised by his own lawyer. The formal franchise agreement, a lease and other related documents were executed in late June and early July. The franchise agreement was drafted by Coulson Mills, a solicitor employed by Dominion, and signed by Larry Gee as vice-president of Willett. As the premises were previously occupied by Dominion, the lease was assigned to Willett on July 5th, one day before Willett leased the store to Penmarkay.

20. Penmarkay was initially financed by a $50,000 loan from Willett and a $100,000 loan from the Toronto Dominion Bank guaranteed by Willett. Mr. Penrose has not invested any of his own money; nor apparently have his partners. Gerald Penrose testified he would not mortgage his home for something that was untried. However, Penrose is a guarantor on the franchise agreement and on the promissory note setting out the terms of repayment for the money borrowed from Willett. Milford Sorenson explained that Willett assisted in the financing of Penmarkay in order to produce a "success story" which would help sell other franchises. For the same reason, Willett initially assumed some or all of the "occupancy costs" for the first few franchised stores. Penmarkay has six full-time employees and six part-time employees; three of the full-time employees previously worked for Dominion — one of the three had retired; but Dominion played no part in their decision to work for Penmarkay. Although the lease was not signed until July 6, 1983 when the store opened, Penmarkay was allowed access to the building on June 14th; renovations were then under way. Two dairy cases and five doors of a ten-door frozen food unit have been retained. The five checkout desks have been refurbished. Much new equipment has been added: a five-deck frozen poultry case; 48 feet of frozen food storage; 40 feet of self-service meat coolers; two produce display cases; five islands of grocery shelves; a full-service deli; and a bake-off complete with freezer, oven and merchandising cases. The store has also been repainted. Willett paid for all leasehold improvements and leases all of the equipment to Penmarkay.

21. The store at 666 Burnhamthorpe Road had been operated by Dominion as a Thrift store for the last two years before it closed in mid-March of 1983. In a Thrift store, grocery products are displayed in boxes, produce is stored in bulk containers and customers bag their own groceries. There is no fresh meat department or deli; there is not a bakery or even a bake-off to bake frozen goods. Over 7000 items are offered for sale by Penmarkay as compared to 3000 at a Thrift store.

22. According to the author of the franchise agreement, Coulson Mills, it does not vary substantially from the agreements used by IGA and Chrysler. The first paragraph of the franchise agreement describes in general terms the franchising package offered by Willett:

WHEREAS Mr. Grocer has developed an integrated marketing plan including a merchandising lay-out, a bookkeeping system and procedures, inventory and quality controls, advertising and promotional programs and centralized inventory purchasing and delivery for the operation of retail food supermarkets.

Mr. Grocer's obligations to the franchise are described in the following way:

Mr. Grocer agrees to advise and assist the Dealer in operating the business of a retail food supermarket in the Premises, pursuant to a marketing plan or system prescribed by Mr. Grocer for the distribution, through independent franchised dealers, of a multiplicity of products obtained by Mr. Grocer from competing sources of supply and a multiplicity of suppliers, no one product being inordinately dominant in the business. Mr. Grocer will provide operating manuals to prescribe the marketing plan or system aforesaid and explain their use to the Dealer, and advise and assist the Dealer in:

(a) setting up a bookkeeping system and procedures;

(b) establishing inventory and quality controls;

(c) planning point of sale and neighbourhood advertising and promotional programs; and

(d) analyzing the efficacy of same from time to time;

Provided that the Dealer provides an adequate flow of relevant financial information to Mr. Grocer, as requested by Mr. Grocer, Mr. Grocer will analyze the Dealers's operations from time to time and compare the Dealer's operating results with those of Mr. Grocer's other franchised dealers and from such analysis and comparison advise and offer assistance to the Dealer and such other of Mr. Grocer's franchised dealers with respect, where possible, to reducing their costs, and improving their sales, margins and profits for their mutual benefit.

In exchange for this assistance, the franchisee pays a royalty in the amount of 3.85 per cent of net sales. The franchisee is also obliged to pay an advertising fee amounting to 0.75 per cent of net sales (article 3.4). These monies are to be applied towards the advertising and promotion of the Mr. Grocer marketing concept "in such manner and at such times as Mr. Grocer deems appropriate" (articles 3.4 and 3.5). The franchisor must provide to Mr. Grocer a weekly statement of retail sales (article 3.3).

23. All products and services offered for sale by a franchisee which are listed in Mr. Grocer's published price book must be obtained from Mr. Grocer. Products or services not available from Mr. Grocer may be acquired from another source only with the approval of Mr. Grocer as to both the nature of the product or service and the source of supply (article 8). The wholesale prices to be charged by Mr. Grocer to a franchisee for products or services are subject to change without notice (article 9). Mr. Grocer publishes a retail price book; a franchisee may charge less than specified in this book but not more (articles 12.1(m) and (n) and 13). Among the other obligations of the franchisee are the following:

(1) to carry on business in an "efficient, reputable and business like manner" for its own benefit and also for the benefit of other franchisees (article 12.1(a));

(2) to render to the public "courteous efficient and prompt service" (article 12.1(d));

(3) to keep the premises in a "clean, healthful and attractive condition in accordance with Mr. Grocer's operating manual" (article 12.1(e));

(4) to require employees to wear "the uniforms which are specified by Mr. Grocer" and to ensure "such uniforms are kept in a clean and attractive condition" (article 12.1(f));

(5) to keep the premises open for business "during such hours and on such days as may be required by Mr. Grocer's head lease, if any, ... and otherwise. . . during such hours and on such days as retail stores within the municipality ... are generally open for business (article 12.1(g));

(6) to maintain a balanced variety of merchandise having a total value... of not less than [$180,000]" (article 12.1(h));

(7) to provide "an adequate flow of relevant financial information to Mr. Grocer as requested by Mr. Grocer for the purposes of analysis" (article 12.1(i));

(8) to participate in "such merchandising and advertising programs as Mr. Grocer deems appropriate" (article 12.1(m));

(9) not to "borrow money or obtain credit" without the prior consent of Mr. Grocer (article 12.1(1));

(l0)not to be associated in any way with any other retail food store other than at the premises covered by the agreement during its term (article 14.1(a)); and

(11 )not to use the Mr. Grocer trademark in advertising without the prior approval of the franchisor (article 6.2(c)).

Mr. Grocer may inspect the store at any time during business hours to ensure the franchisee's premises and operations "are maintained at a high level consistent with Mr. Grocer's goodwill associated with the [Mr. Grocer trademark] and consistent with the quality required by the [franchise agreement]" (article 6. 13).

24. The franchisee is described at several places in the agreement as an "independent franchised dealer". Mr. Grocer may require the franchisee to notify the public that it is an "independent proprietor". The franchisee may not contract on behalf of Mr. Grocer or pledge its credit (article 7). The agreement also states "nothing herein nor any acts of. . . parties hereto shall be construed to mean . . . the parties are carrying on business as a joint venture, in partnership as principal and agent . . . or under any relationship other than as independent contractors" (article 27).

25. The franchise agreement runs from July 6, 1983 to July 5, 1985 (schedule A). The franchisee may at its option extend the agreement for three additional one-year terms. In the event the agreement is extended in this way, the royalty and advertising fee are to be as then fixed by Mr. Grocer and the agreement is to be otherwise amended to correspond with the Mr. Grocer's current franchise agreement, save as to "any amendment which would vary substantively the rights and obligations of the parties" (article 24 and ryder A). The lease is for a five-year term but may be terminated by the franchisee if it elects to terminate the franchise agreement. The agreement carefully defines Mr. Grocer's right to require the franchisee to vacate the premises forthwith for failing to comply with its contractual obligations. This power may be exercised on the first occasion when the franchisee breaches certain obligations. In the event any other undertaking is violated, the franchisor must serve notice of default for a first or second violation of any particular obligation and allow the franchisee an opportunity to cure the defect; a third contravention is cause for immediate termination (article 16). By contrast, the franchisee may terminate the agreement on thirty days notice for any reason (preamble). However, the franchisee may not transfer any part of the business carried on under the agreement without the consent of Mr. Grocer — which consent may be unreasonably withheld (article 22.1). Penrose must hold a majority of the shares in Penmarkay. Neither he nor his partners can sell their shares without the approval of Mr. Grocer; article 22.4(b) of the franchise agreement provides:

22.4 If the Dealer is a corporation then:

(b) The Guarantor and the Dealer covenant and agree that no transfer by sale, assignment, pledge, gift or otherwise and no allotment and issuance of any shares in the capital stock of the Dealer or any corporation which controls the Dealer, directly or indirectly, will be made, except with the prior written consent of Mr. Grocer.

Upon termination of the agreement, the franchisee may not be associated with any retail food store for a period of six months within a radius of one mile of the store previously operated under the agreement (article 14.1(b)).

26. Approximately 75 per cent of Penmarkay's supplies are received directly from Mr. Grocer and most of the rest from approved suppliers. However, Penmarkay has not slavishly adhered to the franchise agreement, making occasional purchases from suppliers not approved by Mr. Grocer. According to Gerald Penrose, his store is open for slightly less hours in a week than are other supermarkets in the area. Penmarkay carries an inventory valued at $140,000 — less than the $180,000 minimum specified in the agreement. By December 1983, Penmarkay had not yet received an operating manual from Mr. Grocer. The computer payroll system offered by Mr. Grocer through the Toronto Dominion Bank is not utilized by Penmarkay.

27. Gerald Penrose compared his former job as manager of a Dominion store with his present position as a franchisee. Penmarkay now decides what merchandise to stock whereas a store manager, "by and large", follows the directions of Dominion's merchandising office. At Dominion, all hiring is carried out by the personnel office, and only the district manager can fire an employee, but Penmarkay hires and fires its own staff. A Dominion district manager plays a major role in determining the number of people who work in a store; Penmarkay sets its own staff levels. As a Dominion store manager, Penrose was paid a salary which was supplemented by a profit-sharing scheme of some type; he no longer receives a salary and all of the profits of Penmarkay accrue to him and his partners.

28. By the end of April, 1984, there were twenty-one or twenty-two Mr. Grocer stores in operation — including the model store at Markham where Dominion is the franchisee and continues to apply the collective agreement. All of the existing Mr. Grocer stores are in premises formerly occupied by Dominion. The time lapse between the closure of a Dominion store and the reopening of the premises as a Mr. Grocer store has ranged up to six months. Larry Gee testified Willett has a right of first refusal on any site abandoned by Dominion; according to Milford Sorenson, Willett is under no obligation to utilize any such site and has no say in Dominion's decision to close one of its stores. To date approximately fifty Dominion stores have been closed. Of those not franchised, eleven were sold to competitors — one in Ontario; landlords have blocked the assignment of several leases from Dominion to a Mr. Grocer franchisee. Over eight hundred full-time employees and more than eight hundred part-time employees have been laid off by Dominion. The combined work force of all Mr. Grocer stores numbers about six hundred. Approximately four hundred of these Mr. Grocer employees formerly worked at Dominion; some of them were on layoff when hired by a franchisee. Gee testified the plan is to open 25 to 30 Mr. Grocer stores each year; he estimated that in the end between 30 and 40 Dominion stores will have been converted to Mr. Grocer outlets. According to Sorenson, Willett is pursuing two other types of sites in addition to those formerly occupied by Dominion: greenfield locations not presently used as a grocery store and stores affiliated with competing wholesalers. Sorenson testified on April 9th that two stores then being supplied by a competitor had agreed to convert but neither had yet made a binding commitment; by the end of April, one conversion was under way. A majority of the current franchisees are former Dominion store managers, according to Sorenson. Gee estimated this figure at 75 per cent; he testified that one half of those concerned moved directly from Dominion to a Mr. Grocer franchise. (Two of the existing Mr. Grocer stores are at sites previously covered by a collective agreement between Dominion and the United Food and Commercial Workers (UFCW)). Before Mr. Grocer was created, the UFCW had two collective agreements with Dominion in Ontario —one covering two stores and the other five. The two Mr. Grocer franchisees have now negotiated their own collective agreements with the UFCW. At least five IGA franchisees have separate collective agreements with a local of the Retail, Wholesale & Department Store Union.)

29. There are several provisions in the current master agreement between Dominion and Local 414 which reflect its scope of application to a large number of stores. The right of employees to move between stores has already been mentioned. Leaves of absence for periods longer than three days must be approved by the personnel manager at head office. Disputes over the scheduling of holidays for department managers are to be resolved by the district manager. A grievance committee is established for each area, not for each store. Disciplinary grievances are handled by the district manager rather than the store manager; all other grievances pass into the hands of the district manager at step two in the grievance process. There is a single negotiating committee made up of nine employees drawn from all stores.

II

30. The legal issues posed by these facts have already been identified. As noted above, Penmarkay did not dispute that a sale of a business had occurred within the meaning of section 63. Counsel for Penmarkay sought to escape both the union's bargaining rights and its collective agreement under section 63(5). Conceding there had been no substantial change in the work performed by employees, counsel relied upon the transformation of a store that was an integral part of Dominion's chain into a single-store operation owned by Penmarkay. He contended a province-wide collective agreement which was negotiated for a chain of stores was totally inappropriate for Penmarkay. In this regard, counsel cited several parts of the old contract: inter-store transfer rights, grievance and negotiating committees comprised of employees from several stores and the role played by management representatives above the level of store manager. Counsel also observed that this agreement defines the bargaining unit so as to include department managers, positions filled by Mr. Penrose's partners at Penmarkay. Counsel for the union contended that Penmarkay was not entitled to relief under section 63(5) because there had been no change in the work performed. In the event that the section 1(4) application fails, counsel conceded that the collective agreement should be interpreted so as to take account of both the substitution of Penmarkay for Dominion and the reduction in the number of stores operated by the employer.

31. Counsel for the union described the application under section 1(4) — to treat Dominion, Willett and Penmarkay as one employer — as the "bedrock" of his client's case. Unlike successor rights, a section 1(4) declaration would preserve the union's province-wide bargaining rights which apply not only to stores presently operated by Dominion, but also to stores opened by it in the future. Counsel submitted that a consolidated bargaining structure furthered not only the interests of employees but also the public interest in industrial peace and uniform terms and conditions of employment. Turning to the relationship between Dominion and Willett, counsel emphasized the role played by Dominion's board of directors and executives in the launching of the franchise scheme and referred us to Dominion Stores Limited, [1978] OLRB Rep. Nov. 1013 and Radio Shack, [1979] OLRB Rep. July 689. As to the relationship between Willett and Penmarkay, several decisions were cited in support of the proposition that common ownership is not a prerequisite to the application of section 1(4): Evans Kennedy Construction Limited, [1979] OLRB Rep. May 388; Kustom Insulation Ltd., [1979] OLRB Rep. June 531; and Donald A. Foley Ltd., [1980] OLRB Rep. Apr. 436. We were urged to apply the test of real economic control enunciated in J. H. Normick Inc., [1979] OLRB Rep. Dec. 1176. Counsel suggested that we ought to issue a section 1(4) declaration because the franchisor would otherwise be a ghost at the bargaining table by virtue of its ultimate control over the profitability of the franchisee. We were also referred to McGuire, "The Labour Law Aspects of Franchising" (1971), 13 Boston College LR 215 and White and Zaid (eds), Canadian Franchise Guide (Don Mills: Richard De Boo, 1983). Counsel for the union stressed Willett's part in the financing of Penmarkay and the provisions in the franchise agreement relating to the operation of the Penmarkay store.

32. Counsel for Penmarkay reminded us that there was no overlap in ownership, directors or officers between Penmarkay and Willett or Dominion. He also contended that neither Dominion nor Willett exercised any control over labour relations at Penmarkay. We were referred to two decisions in which the NLRB declined to treat a franchisor and franchisee as one employer because the former exercised no control over the latter's labour relations: Southland Corporation, 170 NLRB 159 (1968) and S. G. Tilden Inc., 172 NLRB 752 (1968). Counsel also relied upon Victoria Dodge, [1984] 1 CLRBR 37 in which the British Columbia Labour Relations Board refused to issue a related employer declaration in the context of a franchise; the Board found that the franchisor did not control the franchisee because it could terminate their relationship on thirty days notice. Counsel for Penmarkay urged us to exercise our discretion under section 1(4) by refusing to issue a declaration on the same grounds as he sought relief under section 63(5). Counsel for Dominion and Willett contended that these two companies are not under common control or direction; he relied upon Diversey (Canada) Limited, [1978] OLRB Rep. Sept. 814. Referring to Diversey (Canada) Limited, supra, and Brant Erecting and Hoisting, [1980] OLRB Rep. June 16, counsel also contended that the activities of Dominion and Willett are not associated or related, as Dominion operates a chain of retail stores and acts as a holding company for several mining firms, whereas Willett wholesales supplies to independent grocers and franchisees. As to the relationship between Willett and Penmarkay. counsel submitted that the franchisor exercised no control over the franchisee's retail operations or labour relations; the right of the franchisee to terminate the relationship on thirty days notice was again emphasized. Counsel also argued that the activities of Willett and Penmarkay are not associated or related. In addition, he submitted that treating all franchisees as one employer would produce labour chaos because each would be determined to shape its own labour relations; he also contended that Dominion and Willett ought not to be compelled to bargain together because they are competitors.

33. There remains to be summarized the arguments relating to the section 89 complaint alleging a violation of sections 50, 64, 66 and 67. Counsel for the union contended that one of the reasons Dominion decided to embark upon a franchise scheme was to unilaterally obtain relief from the collective agreement. He argued that this conduct amounts to an unfair labour practice, relying upon Westinghouse Canada Ltd., [1980] OLRB Rep. Apr. 577 and International Association of Bridge, Structural and Ornamental Ironworkers, [1982] OLRB Rep. Oct. 1487. Counsel for Dominion and Willett contended that labour costs played no part in the initiation of the franchise scheme, a decision which was made only after Dominion decided to close the stores in question.

III

34. When a business is sold, the general thrust of section 63 is to preserve both bargaining rights and contractual commitments by substituting the successor employer for its predecessor. However, the Board may grant relief to the successor if the character of the business undergoes a substantial change, pursuant to section 63(5):

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.

35. Only a change that bears upon labour relations can trigger section 63(5). The introduction of a new menu and decor in a restaurant may have great significance for customers but is not a reason to terminate a collective bargaining relationship. See Winco Steak N' Burger Restaurants Limited, [1974] OLRB Rep. Nov. 788. Conversely, the Board has suggested such a relationship may be terminated when there is a radical change in the work performed by employees. In Winco Steak N' Burger Restaurants Limited, supra, the test was put this way:

36. The implementation of subsection 5 of section 55 [now 63] involved the revocation of the remedial effects otherwise flowing from the provisions of section 55 [now 63] of the Act following the sale of a business. Having in mind the fact that subsection 5 runs against the flow of the general intent of the section, the Board takes the view that the words "substantially different" must be viewed by the Board in the formulation of its opinion as involving a fundamental difference affecting the nature of the work requirements and skills involved in the business to the extent that continued representation by the trade union would be inadequate, inappropriate or unreasonable in all the circumstances of the particular case under review.

See also Jimmy'Z II, [1977] OLRB Rep. Sept. 572 and Vivace Tavern Inc., [1982] OLRB Rep. Aug. 1224.

36. But not all changes that affect labour relations give rise to section 63(5) relief. Often the successor's business differs in size from the one formerly operated by the predecessor because it sold only a part of its business, — as occurred in the instant case. A collective agreement negotiated for the original business is rarely a perfect fit for the portion sold. Yet the general thrust of section 63 is to continue a collective bargaining relationship in this context, despite the reduction in the scope of the business; section 63(1 )(a) makes this clear by explicitly stating a "business" includes "a part thereof'. In Vaunclair Meats Ltd., [1981] OLRB Rep. May 581, in precisely this context, the Board refused to wipe out a collective agreement simply because there might be problems in implementing it (at paragraph 30):

Every collective agreement negotiated for a "whole" will be more or less appropriate when applied to a part. Job descriptions may need to be modified, and some may be entirely redundant. Grievance procedures may be too simple or too complex. Contractual provisions respecting union stewards or safety committees may not fit well in the new circumstances. If the agreement provides a means for dealing with these issues, it must be followed. If it does not, then the employer can probably act unilaterally.

To these comments we add one remark. As conceded by counsel for the union, a strict literal interpretation of the collective agreement must yield to a commonsense reading that takes account of the change in both the identity of the employer and the scope of the bargaining unit.

37. In the case at hand, there has been no change in the nature of the work performed. With the above observations concerning how the collective agreement is to be administered in mind, we decline to grant relief under section 63(5).

IV

38. We turn now to the related employer aspect of this case. Section 1(4) states:

Where, in the opinion of the Board, associated or related activities or businesses are carried on, whether or not simultaneously, by or through more than one corporation, individual, firm, syndicate or association or any combination thereof, under common control or direction, the Board may, upon the application of any person, trade union or council of trade unions concerned, treat the corporations, individuals, firms, syndicates or associations or any combination thereof as constituting one employer for the purposes of this Act and grant such relief, by way of declaration or otherwise, as it may deem appropriate.

39. The discretionary power to treat two or more entities as one employer can only be exercised where two criteria are satisfied: the entities concerned must be under "common control or direction" and they must carry on "associated or related activities". When both of these criteria are met, the Board issues a section 1(4) declaration if there are sound industrial relations reasons for doing so. Standing alone phrases like "common control or direction" and "associated or related activities" are linguistically capable of bearing more than one interpretation. Is one to look to "control or direction" over business matters in general or over labour relations in particular? Should the focus be on the setting of general policy or the making of day-to-day decisions? Does "control or direction" imply the ultimate legal authority that resides in ownership of a business? Presumably the words "associated or related activities" connote a connection different in nature than that inherent in common control or direction. Several types of association or relationship spring readily to mind. An interchange of employees between two enterprises is one possible way of tying them together. Next there is the functional nexus between firms whose production processes are integrated — for example, a pulp mill that supplies raw material to a box factory. Two commercial entities serving the same market demonstrate another sort of link. Which type of connection is to be the litmus test? The only way to answer these questions and to assign a precise meaning to the statutory criteria is by reference to the policy objectives underlying the statutory language.

40. Section 1(4) is designed to accomplish at least three purposes:

(1) One objective is to prevent the erosion of bargaining rights. Take a case in which a union is certified to represent the employees of a firm; as soon as certification is granted, the proprietor redirects work to another enterprise. Treating both corporations as one employer preserves the union's bargaining rights. The large numbers of cases in this category include Dominion Stores Ltd., supra; Radio Shack, supra, and Great Atlantic and Pacific Company of Canada, [1982] OLRB Rep. Mar.

(2) Section 1(4) also removes roadblocks to viable structures for collective bargaining. For example, on an application for certification, the Board may include the employees of two companies in a single unit. See Walters Lithographing Company, [1971] OLRB Rep. July 406 and Diversey (Canada) Ltd., supra. For a case in which a related employer declaration was issued at the instance of management, see Bright Veal Meat Packers Ltd., [1981] OLRB Rep. Mar. 247.

(3) Another function of section 1(4) is to ensure that the union representing employees is able to deal directly with the person or company possessing real economic control over them rather than with someone else who is their employer in name only. See J. H. Normick Inc., supra, and Don Mills Bindery Inc., [1983] OLRB Rep. Dec. 2008.

41. These legislative objectives — preservation of bargaining rights, viable collective bargaining structures, and direct dealings between bargaining agent and the entity with real economic power over employees — illuminate the meaning of the dual criteria found in section 1(4). Consider first "common control or direction" in the context of an alleged erosion of bargaining rights. To construe this criterion as requiring a nexus through ownership would be to preclude the fulfillment of legislative objectives, as illustrated by Evans-Kennedy Construction Limited, supra. Mr. Kennedy was the major shareholder and active manager of Evans-Kennedy, a unionized general contracting firm. On Mr. Kennedy's advice, Ms. Potter, a close personal friend with no knowledge of the construction industry, incorporated a general contracting company called Celtic of which she became the sole owner; again at Kennedy's suggestion, Potter hired Evans-Kennedy's former field superintendent to be Celtic's general manager. Evans-Kennedy's personnel did all of Celtic's administrative work, accounting, purchasing and bid preparation, and Celtic utilized Evans-Kennedy's equipment. Kennedy decided what work Celtic would sub-contract and to whom; he also redirected one customer from Evans-Kennedy to Celtic. Evans-Kennedy was paid for its services by Celtic on a "cost plus" basis, but Ms. Potter was protected against any loss by an understanding that this payment would never exceed the amount Celtic received from a client. Celtic was owned by Ms. Potter. But the company was created at Kennedy's suggestion and served as a vehicle through which Evans-Kennedy operated union-free. The Board issued a section 1(4) declaration to preserve the bargaining rights that initially bound only Evans-Kennedy by extending them to Celtic. See also Kustom Insulation Ltd., supra, and Donald A. Foley Ltd., supra.

42. When the objective is to preserve bargaining rights in cases involving a parent company and a subsidiary, the "common control or direction" criterion has been interpreted not to require parental management of either the offspring's day-to-day affairs or its labour relations. The reason is obvious. A unionized parent company which sets general business policy for all members of the corporate family and reaps the rewards of their activities ought not to be allowed to circumvent bargaining rights by diverting customers to a non-union subsidiary. Two companies — a parent corporation and its wholly-owned subsidiary — were the subject of a section 1(4) declaration in Dominion Stores Limited, supra, even though a manager employed by the offspring was in charge of regular day-to-day decisions and there was no evidence of the parent being involved in the subsidiary's labour relations. The parent had advanced a start-up loan to the subsidiary, approved its capital plan each year, and reviewed its operating results on a quarterly basis; policy decisions on general business matters were made by a vice-president of the parent corporation. In Diversey (Canada) Limited, supra, there was no coordination of either the day-to-day management of operations of a parent company and a subsidiary — 60 per cent of which was owned by the parent — or the establishment and administration of labour relations policy at the two companies. Despite this separation, the existence of common directors, officers and financial control led the Board to conclude the statutory test was satisfied. See also Radio Shack, supra.

43. A company purporting to be the employer and another exercising overwhelming economic power over it have been treated as one in order to facilitate meaningful collective bargaining, even though there was no overlap in ownership. In J. H. Normick Inc., supra, the union applied to be certified as bargaining agent for employees engaged in cutting and skidding timber in Midlothian township. The timber rights were owned by J.H. Normick Inc. ("Normick") and the cut trees were processed in its plants. Normick contended the cutters and skidders were not its employees. Each of them was party to a contract with Leo-Paul Turgeon who in turn was under contract to Normick. Mr. Turgeon hired them on the recommendation of Normick for whom they had previously worked. Normick paid Turgeon at a piece-rate and — without consulting him — fixed the piece-rate at which he paid the cutters and skidders. The count by which payment was made at both levels was verified by Normick. Normick supplied all equipment required by Turgeon and transported the skidders owned by the employees. For a time, Normick also provided supervisory and bookkeeping services. The contract between Normick and Turgeon could be terminated by either of them on thirty days notice. The Board found Turgeon to be under Normick's control.

44. This decision was followed in Don Mills Bindery Inc., supra. This case arose out of a decision of Thorn Press Limited ("Thorn Press"), a company offering a full range of printing and related services, to close its bindery department. The bindery foreman, on his own initiative, incorporated Don Mills Bindery Inc. ("Don Mills"), rented from Thorn Press the space previously occupied by its bindery department — on a month-to-month lease — and hired its former employees. He used the equipment owned by Thorn Press — valued at $250,000 —rent-free at its pleasure. Thorn Press had previously performed 90% of its bindery work on its premises; Don Mills did 80% of this work. Binding for Thorn Press constituted more than 90% of Don Mills' business. Don Mills was paid for this work at competitive rates — less a 5% service charge in lieu of rent for the use of Thorn Press' equipment. In this case, unlike J. H. Normick Inc., there was no evidence that anyone except the nominal employer was directly involved in hiring employees or in determining their terms and conditions of employment. However, Thorn Press was held to exercise effective control over Don Mills. The Board stressed the high percentage of Don Mills' work done for Thorn Press, the use of its premises and equipment, and its ability to terminate the arrangement on short notice. In neither of these cases was a section 1(4) declaration necessary to preserve bargaining rights. The union in J. H. Normick Inc., had none for the township in question. In Don Mills Bindery Inc., the union had been certified to represent the employees of Thorn Press, but the Board noted these bargaining rights could have been preserved by finding a sale of a business to have occurred. The purpose of a section 1(4) declaration in both cases was to bring about collective bargaining between employees and the entity exercising real economic control over their working lives.

45. The "associated or related activities" test has also been liberally construed. When bargaining rights are at risk, firms have been found to meet this standard on the grounds that they served the same market. Two companies were found to be engaged in "associated or related activities" in Valdi Inc., [1979] OLRB Rep. Aug. 833 because both sold groceries to consumers. See also Evans-Kennedy Construction Limited, supra. This interpretation recognizes that bargaining rights are eroded by shifting customers from one firm to another — even though there is no interchange of employees between the two or any integration of their production processes.

46. This criterion has been applied in a different way when the objective is to foster direct dealings between a union and the entity with real economic power over them. In J. H. Normick Inc., supra, Normick's wood processing plants were found to be "associated or related" to Turgeon's tree cutting and skidding operation because the two businesses were functionally integrated, one supplying raw material for the other. The Board recognized that two firms need not produce the same product for one to effectively control the other.

47. Dominion and Willett are obviously under "common control or direction". Dominion owns Quintana Inc. which in turn owns Willett. As Willett's board of directors is inactive, Dominion's directors review Willett's capital plans and operating results. Executives at Dominion played a large part in deciding in late 1982 to launch a franchise scheme through Willett. See Dominion Stores Limited and Diversey (Canada) Limited, supra.

48. The dealings between Willett and Penmarkay are much more difficult to characterize. There is a sphere of commercial activity within which Penmarkay is its own master. Penmarkay decides what merchandise to order — subject to its obligation to buy from either Willett or approved suppliers, to participate in promotional campaigns, and to carry a balanced inventory exceeding a specified minimum value. Penmarkay may set its own retail prices — subject to both a ceiling and to participation in promotional campaigns. In-store merchandising is controlled by Penmarkay. Penmarkay sets its own staff levels, hires and fires its employees and establishes their terms and conditions of employment.

49. But Willett's brooding presence is graphically illustrated by the pro forma —produced by the franchisor during negotiations with Penrose — viewed against the background of the franchise agreement and lease. By fixing wholesale prices and maximum retail prices, Willett effectively determines Penmarkay's margin — or gross profit — on each case of merchandise. Total gross profit is a function of not only the profit per unit but also the number of units sold. Penmarkay can enhance its sales by selecting the appropriate products, by displaying them in an attractive way, by reducing its "shrink", etc. Willett is also involved in fixing the level of many of the expenditures that fill the gap between Penmarkay's gross profit and its net profit: including (1) the franchise royalty, (2) the advertising fee, (3) rental for both premises and equipment, and (4) interest payments on the $50,000 loan. On the pro forma, these four expenses constitute approximately one third of all costs — income tax aside — to be paid out of gross profits in the second and subsequent years. Willett's power to fix the margin on a case of groceries together with its influence over the enumerated expenditures strongly affects the amount Penmarkay can afford to pay its employees. The part played by Willett is dramatically illustrated by the changes shown on the pro forma from the first year to the second. Willett took the view that Penmarkay was bound during its first year of operation by the collective agreement negotiated by Dominion. Labour costs for this period are estimated to be 10.5 per cent of sales. To allow an adequate net profit in that year, Penmarkay's rent ($7,000) was heavily subsidized by Willett. In the following year after the agreement has expired, a much higher rent ($68,000) is payable. Labour costs are predicted to drop 8 per cent so as to maintain roughly the same net profit. There would be no net profit if labour costs stay above 10 per cent with the higher rent and everything else unchanged. Penmarkay will be under strong pressure to bring its labour costs into line with the pro forma estimate in order to be profitable. There will of course be more room to manoeuver on hourly rates than on labour costs as a percentage of sales. By increasing labour productivity, Penmarkay could raise its wage rates correspondingly with no impact on profits; productivity could be enhanced by careful hiring, effective supervision, efficient scheduling, etc. But the point at which higher wages reduce profits is soon reached.

50. The influence Willett exercises over its franchisee is thrown into relief by comparing Penmarkay with a truly independent grocer. A small independent has only limited control over how much is spent for supplies, rent, etc; and consumers are willing to pay only so much. In short, market forces put a lid on the wage rate which an independent can afford to pay and remain in business. But there is an important difference between an independent grocer and Penmarkay. The influence exercised over an independent comes from diffused sources —suppliers, landlord, consumers and others — and the independent decides how to respond to these market signals. In the case of Penmarkay, all of these influences are funnelled through Willett; it sets maximum retail prices and, on the other side of the balance sheet, wholesale prices, rent, etc. These determinations are made with a labour cost target in mind — a target selected by Willett to further its own interests. The cumulative effect of all of the decisions made by the franchisor leaves little discretion to the franchisee in setting terms and conditions of employment.

51. Willett also plays another role. It designed the benefit package offered to franchisees through Confederation Life. Although not obliged by the franchise agreement to adopt this plan, Penmarkay has done so for the obvious reason that there are economics of scale to be realized by applying the same package to a number of stores. But the result is that management control over the shape of the package is shared among Willett and several franchisees. Willett played the dominant part at the outset and will probably do so in future.

52. In our view, Penmarkay is controlled or directed by Willett within the meaning of section 1(4). We have consciously focused upon the influence which Willett exercises over Penmarkay pursuant to the franchise agreement. As the agreement is likely to remain in force for some years, the life of the franchise is our temporal frame of reference; the absence of any common control after the franchise comes to an end is not relevant to our present determination. Nor are we persuaded that Penmarkay's right to terminate the franchise on thirty days notice negates Willett's control during its term. Viewed in the context of the entire arrangement, this legal right is subject to very real constraints. Termination of the franchise would leave Penmarkay with few options. No part of Penmarkay's business may be transferred without Willett's consent which may be unreasonably withheld; Penrose and his partners cannot sell their shares without approval from Willett. Given these constraints, the right to terminate does not offset the persuasive influence Willett is able to assert over Penmarkay. Our conclusion is consistant with the Board's ruling in J. H. Normick Inc., supra, where both parties could cancel their contract on thirty days notice. Without commenting on Turgeon's right to terminate, the Board said: "the power of Normick to terminate on short notice is a compelling indicia of economic control". We respectfully decline to follow the British Columbia Labour Relations Board's decision in Victoria Dodge, supra, holding that a franchisee's right to terminate on thirty days notice precludes control by the franchisor.

53. Dominion, Willett and Penmarkay are engaged in associated or related activities. As to Willett and Penmarkay, their operations are functionally integrated. Taken together, Willett as wholesaler and Penmarkay as retailer compete with Dominion whose major activities are distributing and retailing groceries.

54. Having found these three corporations to satisfy the dual criteria contained in section 1(4), ought we to exercise our discretion by declaring them to be one employer? Is this outcome consistent with the purposes underlying the statute? At this point in time, a section 1(4) declaration is not required to preserve bargaining rights insofar as Penmarkay is concerned. Such rights would be fully protected by declaring Penmarkay to be a successor to Dominion. As a successor employer, no less than as a related employer, Penmarkay would be obliged to both recognize the union and apply the current contract at any stores operated within the geographic boundaries of the bargaining unit.

55. Declaring Penmarkay, Willett and Dominion to be a common employer would bring the franchisor to the bargaining table. The franchisor would then be required by section 15 to meet with the union and to bargain in good faith; it would be subject to the economic sanctions normally faced by an employer in the course of collective bargaining. In this way, the union would be afforded an opportunity to persuade the franchisor to expand the franchisee's margin or to reduce the franchise fees in order to permit higher wages. A forum would also exist for discussions about the structure of the benefit package. In short, the union would have access to the real locus of power as it did when the store in question was operated by Dominion. The logic of the Board's decisions in J. H. Normick Inc. and Don Mills Bindery Inc., supra, provide one reason for issuing a section 1(4) declaration.

56. There is another, secondary reason for granting this relief rather than leaving the union to deal separately with several successor employers. When operated by Dominion, the store on Burnhamthorpe Road was part of a province-wide bargaining structure. A change in legal form, such as a franchise scheme, which does not shift the seat of real economic control ought not to break up a bargaining structure created by the parties through the process of collective bargaining. In other words, the province-wide bargaining structure merits preservation primarily because it is the status quo fashioned at the bargaining table. A consolidated structure also has public interest attractions, given the existence of common control. A proliferation of bargaining units increases the risk of unnecessary work stoppages. The likelihood of a strike occurring grows with the number of rounds of negotiations. And centralized bargaining is more likely to be conducted by professionals whose experience may enable them to avoid pitfalls. Industrial unrest may be heightened by competitive bargaining between two unions; and several small units enhance the probability a rival union will appear on the scene. A broadly-based structure may lower the cost and thereby enhance the availability of insurance and benefits plans. Finally, the existence of a single unit facilitates equitable treatment of employees doing the same job. A related employer declaration could only serve to increase the probability that broad-based negotiations will continue. On an application for certification, the Board has used section 1(4) to create a viable bargaining structure. In our view, the

preservation of a consolidated bargaining structure created by the parties is an equally compelling reason for a related employer declaration.

57. By involving Willett directly in labour relations, a section 1(4) declaration might reduce somewhat the autonomy franchisees would otherwise enjoy. But even in the absence of a section 1(4) declaration, the franchisor will be a very influential ghost at the bargaining table. And a related employer ruling need not prevent Willett from agreeing with franchisees not to invade territory now ceded to them. Moreover, Willett and Penmarkay would remain free to bargain for different terms for Mr. Grocer employees than apply at stores operated by Dominion.

58. The conclusion we have reached ought not to surprise the labour relations community in Ontario. White and Zaid, supra, at 2-626, recognized the potential of section 1(4) in the context of franchising:

This broadly drafted subsection was enacted to deal with situations where the economic activity giving rise to employment or collective bargaining relationships regulated by the Act is carried out by or through more than one legal entity. The Labour Relations Board is empowered to pierce the corporate veil where such legal entities carry on related business activities under common control or direction. The provision is designed to ensure that the institutional rights of a trade union and the contractual rights of its members will attach to a definable commercial activity rather than the legal vehicles through which that activity is carried on. There is no doubt, in proper circumstances, that a franchised operation could fall within the ambit of the section and a franchisor and some or all of the franchisees be deemed to constitute one employer for the purposes of the application of the Labour Relations Act.

Turning to the American scene, we are not inclined to follow in the footsteps of the National Labour Relations Board. As there is no analog to section 1(4) in the National Labour Relations Act, an "alter ego" doctrine has been fashioned by the Board to pierce the corporate veil, as an interpretative gloss on the statute. See Morris (ed.), The Developing Labor Law (Washington: Bureau of National Affairs, 1983), at 735-740. For obvious reasons, an administrative agency may be reluctant to extend very far a concept developed without legislative approval. Moreover, we believe the National Labour Relations Board, in the cases cited above, has drawn a false dichotomy between control of labour relations and general economic control. The latter often entails the former as this Board recognized in the other cases discussed above.

59. We have decided to issue a section 1(4) declaration for two reasons: to facilitate meaningful collective bargaining between employees and those exercising real economic control over them; and to maintain a consolidated bargaining structure.

V

60. Counsel for the union sought the following relief under section 1(4):

(1) a declaration that Dominion, Willett and Penmarkay are one employer;

(2) a declaration that Willett and Penmarkay are bound by the collective agreement negotiated by Dominion;

(3) a direction that all three companies comply with the collective agreement;

(4) damages for all union members who have suffered losses through a contravention of the collective agreement; and

(5) a direction requiring the recall of all employees improperly laid off or terminated.

In support of these requests, counsel referred us to the Board's power, pursuant to this section, to "grant such relief, by way of declaration or otherwise, as it may deem appropriate". We declare that Dominion, Willett and Penmarkay are one employer within the meaning of the Act in respect of the Mr. Grocer franchise. We further declare that Willett and Penmarkay were bound by the collective agreement negotiated by Dominion. The union's entitlement to the other remedies requested hinges upon an assumption that the collective agreement has been violated. We believe that whether a violation has occurred is a question best left to arbitration.

61. This disposition of the section 1(4) application renders the union's section 63 proceeding entirely redundant. From a remedial point of view, the section 89 application is now largely superfluous. The damages sought for any contravention of the collective agreement can be recovered in arbitration. Even if the unfair labour practice complaint succeeded, we would not grant the request for an order directing Dominion and Willett to inform all prospective franchisees that they would be bound by a subsisting collective agreement. The legal position of a franchisee depends upon the application of sections 1(4) and 63 to the particular situation. For example, the case of an independent grocer with an existing business who became a Mr. Grocer franchisee would raise very different considerations than this application. The only other relief sought under section 89 is a declaration of a violation and either a posting or a mailing. In these circumstances, we decline to address the merits of the section 89 complaint.

DECISION OF BOARD MEMBER JAMES A. RONSON;

I

1. By this decision, the Ontario Labour Relations Board concludes that its enabling legislation deems ALL franchise operations to be under common control and direction as between franchisor and franchisee. The facts of this case dictate that conclusion, for I doubt that any franchise relationship is more at arms-length than that found between Dominion Stores Ltd. ("Dominion"), Willett Foods Ltd. ("Willett"), and Penmarkay Foods Ltd. ("Penmarkay").

2. Furthermore I feel my colleagues have failed to address one of the fundamental issues in this case. Together with its application under section 1(4) of the Act, the applicant union also alleged: (a) unfair labour practices against Dominion and Willett (sections 50, 64, 66 and 67 of the Act); and (b) a sale of a business from Dominion and Willett to Penmarkay (section 63 of the Act). It seems to me that sections 63 and 1(4) are mutually exclusive and if there has been a bonafide sale within the meaning of section 63, then there can be no finding of common control as defined in section 1(4). We must first determine if there was an arms-length transfer to a new employer. If there was no arms-length transfer or if there was a sham transaction then section 1(4) and the unfair labour practice charges come into play (i.e., was there an attempt by Dominion and Willett to escape from the terms of the collective agreement with the union). In my opinion one thing is certain from the evidence — there was a transfer or sale of part of a business to Penmarkay. Penmarkay admitted such a sale, the union alleged it, and Dominion and Willett by their actions treated the franchise to Penmarkay as a sale under section 63.

3. The application of section 1(4) by the Board requires a finding of actual or defacto control. There is no actual control of Penmarkay by Dominion or Willett. What are the facts that could result in a finding of de facto control?

II

4. THE NEGOTIATIONS: Gerald Penrose is the sole director and shareholder of Penmarkay. Previously he had been employed by Dominion for thirty-five years, ending up as one of its premier store managers responsible in part for opening "flagship" stores in new shopping plazas. He retired in February 1983.

5. In March 1983 Willett approached him to "sound him out" about becoming one of the first franchisees for its Mr. Grocer system. In late March at his retirement party, he mentioned the concept to various people and three of his ex-colleagues asked if they could come in with him. Wayne Hamilton would be meat manager, Mike Forgione the produce manager, and Frank Wetzlaar the grocery manager. The plan was that eventually they would "buy in" as shareholders. After further discussion it was agreed that Mr. Penrose would take fifty-two shares and each of the others would be entitled to buy sixteen shares each. Mr. Penrose strongly objected to the suggestion that he stole these men from Dominion. He knew their ability, he needed ability for his franchise to succeed and they wanted to work with him. It was a "heavy" decision for them as they would have to leave the Dominion pension plan and "I couldn't disclose their names to Willett or Dominion while they were deciding".

6. Negotiations with Willett continued to May 26, 1983, when an impasse was reached. Mr. Penrose wasn't satisfied that the franchise terms were fair to him. He refused to provide his home and other assets as collateral for a line of credit from the bank. He was willing to provide only his personal guarantee to the bank. He was also concerned about royalties, about earned cash rebates ("ECR's") and about what input Willett would have into his operations. He was unwilling to have anyone in Dominion or Willett telling him what to do — as he put it "NO WAY, NO WAY, I RETIRED!".

7. Mr. Penrose was so upset with the negotiations that he returned the documents and "walked away" from the deal. He told Willett that, "I wasn't prepared to fill someone else’s pocket." Through new negotiators, Willett put out peace feelers and talked Mr. Penrose back to the table. They needed his expertise for one of their first Mr. Grocer franchises to be successful and serve as a sales model for others. Mr. Penrose got the answers to his questions and the deal that he wanted. He gave his personal guarantee to the bank and Willett ended up as guarantor of the debt. When asked if it was normal to get such a guarantee he said it was not "but I wouldn't mortgage my home for something that was untried. I was willing to try it but not at the risk of my future and my wife’s future."

8. Mr. Penrose understood during negotiations that he would have to pay his employees the wage rates and provide the benefits as set out in the collective agreement between Dominion and the union.

9. Thus Mr. Penrose went into competition with Dominion. He felt he could make a success by providing a cleaner store, better service and closer contact with his customers.

10. It is a rare happening, I think, when a franchisee can and does say "take it or leave it." Mr. Penrose got the bargain that he wanted, and not what Willett wanted to give. I find no evidence of superior bargaining power by Willett, but quite the opposite. Defacto control cannot be found in this set of negotiations.

III

11. THE BUSINESS RELATIONSHIP BETWEEN DOMINION, WILLETT AND PEN MARKAY: Dominion has no business dealings with Penmarkay. Dominion and Willett have no actual control over the day to day business of Penmarkay. Mr. Penrose runs his own business — he hires and fires staff, sets hours of work and deals with all labour relations matters in the store. He determines the price at which he will sell the goods that he has purchased from Willett. Apart from the franchise arrangement it is like any other business operated by a sole entrepreneur. The result is that defacto control by Willett and Dominion, if present, must be found in the franchise documents.

12. Willett and Penmarkay have entered into the usual and ordinary type of franchise arrangement. Willett provides location, facilities, product, merchandising concept and knowhow (although Mr. Penrose and his key employees are so experienced that they have little need of the latter). I do not intend to get into the "nuts and bolts" of the documentation —that would only be another examination of a standard franchise arrangement — and the majority have already conducted that examination. From my experience representing franchisees before coming to the Board, this franchise arrangement is very equitable in its treatment of the franchisee. We were told that the franchise agreement itself was drafted using an IGA franchise agreement and a Chrysler automobile dealership agreement as precedents.

13. Both Willett and Penmarkay exercise control over the duration of the arrangement. Upon certain occurrences Willett may take back its franchise from Penmarkay. Similarly Penmarkay may terminate the arrangement upon thirty days notice. The restrictions on Penmarkay are not out of the ordinary, they may be found in many, if not most, tied-supply contracts, licence arrangements, dealership contracts and distributorships. The dependence that Penmarkay has on Willett is no different from that where a parts manufacturer produces all its product for one automobile manufacturer, or that of a soft drink bottler on the supplier of its flavour extract (to mention only two examples).

14. The inferences and conclusions that my colleagues take from the documentation indicate a confusion between ordinary business practice and control over labour relations. This is not a situation where the documentation sets the franchisee up as little more than a store manager. Mr. Penrose and his key employees have complete control over how and how much the business will profit. They are obligated to buy product from Willett, but with the margins found in the grocery business, the market also constrains Willett to price the product so that the franchisee will be able to remain competitive with IGA, Dominion, Loblaws, Zehrs, Gordons, etc..

15. There is an interaction between Willett and Penrose that the majority are ignoring in their desire to maintain the status quo. For instance, my colleagues stress the fact that Mr. Penrose cannot sell his shares in Penmarkay, without the permission of Willett. That is just not so — Mr. Penrose can sell his shares whenever he wants. What he cannot do is transfer the franchise without Willett's consent. And it should come as no surprise that Willett wishes to exercise that sort of control over the franchise arrangement. Again, by way of example, it is no different from the control found in a licensing arrangement or a sales dealership.

16. Dominion, Willett and Penmarkay treated the franchise arrangement as a sale within the meaning of section 63 of the Act. It is unfortunate that my colleagues take this evidence of compliance by Dominion, Willett and Penmarkay with section 63 and use it as evidence contra those parties in order to form the basis for a declaration under section 1(4). If it wasn't for section 63, Dominion, Willett and Penmarkay would not have done what they did — how can such compliance then serve any purpose in determining the issue of common control?

17. Turning to the American scene, better minds than mine have considered these issues at the National Labor Relations Board, and have come to the opposite conclusion from the Board. It will come as some surprise to the labour relations community that the Board does not think our legislature had the "alter ego doctrine~~ in mind when it enacted section 1(4) of the Act. It will come as no surprise that the Board has ignored the American experience again, when it does not suit its purposes. As to what "a false dichotomy between control of labour relations and general economic control. The latter often entails the former. . . " (paragraph 58 of the majority award), means, I leave it to the reader to work out this semantic puzzle.

18. To me, the business arrangements between Willet and Penmarkay do not constitute defacto control pursuant to section 1(4) of the Act.

IV

19. There is one other area that deserves comment. Facing massive financial losses Dominion decided to close a substantial number of stores. Deliberations began over whether Willett would begin the Mr. Grocer franchise concept to protect and expand its wholesaling base during tough economic times. After the first decision had been made, Dominion and Willett advised the union about it. No doubt at that time they were mindful of what the Board had to say in the Westinghouse case.

20. When Mr. Collins for the union first heard that stores would be closed and there was talk of franchising, his reaction was "don't franchise them as Dominion stores". The reply by Mr. Toma of Dominion was, "You've got it." Subsequently Dominion and Willett sought to open negotiations with the union about the franchises by presenting a draft collective agreement to the union. Mr. Collins reply was "one agreement, for all of the stores together and also covering all new stores." He flatly refused to submit a counter offer to Dominion and Willett.

21. The applicant union does not want to bargain individually with each franchisee. The union has nothing to lose by coming to the Board to obtain an order for all-inclusive bargaining. Counsel for the union was quite clear on this point — he argued that the status quo must be maintained during the life of a collective agreement unless the union agreed to changes. As I recall the reasoning in Westinghouse there was no contemplation that this Board would assist a union to obtain what it could not get in bargaining over a business closure. To the contrary, the board felt that labour relations policy would be best served by having the parties deal with the issues. But the majority decision indicates an unbridled desire by the Board to maintain the status quo despite the union refusal to face the consequences of a financial disaster and bargain over the issues.

V

22. I would find that: a) There has been a sale of a part of a business from Dominion and Willett to Penmarkay; b) Given the previous case law of the Board, the application by Penmarkay pursuant to section 63(5) of the Act cannot succeed; and c) The applicant union fails in its application pursuant to sections 1(4) and 89 of the Act.