[1985] OLRB Rep. January 44
3077-83-R Locals 1316 and 1946 of the United Brotherhood of Carpenters and Joiners of America, Applicant, v. Candesco (1978) Ltd., 551067 Ontario Limited carrying on business as Interspace Interior Contracts and ECI Ltd., Respondents.
BEFORE: R. A. Furness, Vice-Chairman, and Board Members S. Cooke and W. H. Wightman.
APPEARANCES: D. McKee, Magnus Graham and Rick Harkness for the applicant; W. G. Posthumus, W. Guthrie and H. Karnotzki for 551067 Ontario Limited carrying on business as Interspace Interior Contracts and ECI Ltd., no one for Candesco (1978) Ltd.
DECISION OF THE BOARD; January 4, 1985
The applicant has applied for relief under section 1(4) of the Labour Relations Act. In the alternative, the applicant has alleged that there has been a sale of a business within the meaning of section 63 of the Act. The applicant sought a declaration that the respondents are all one employer within the meaning of section 1(4) of the Act. The applicant further sought a declaration that there had been a sale of a business from Candesco (1978) Ltd. ("Candesco") to 551067 Ontario Limited carrying on business as Interspace Interior Contracts ("Interspace") and ECI Ltd. ("ECI"). The applicant further sought a declaration that Interspace is bound by the Carpenters' provincial collective agreement in the industrial, commercial and institutional sector of the construction industry.
William Guthrie is the president of Interspace and is also the president of ECI. Interspace was incorporated on May 5, 1984, and ECI was incorporated on January 10, 1984. Harold Karnotzki and William Guthrie are the sole directors and equal shareholders in Interspace and ECI.
In 1978, two corporations known as Candesco Interiors Limited and Span Design and Construction Limited were amalgamated to form Candesco. Mr. Guthrie was the majority shareholder in Candesco with his wife owning about one and a half per cent of the shares and Mr. Karnotzki owning about six per cent of the shares. Candesco operated a wood manufacturing plant with its own employees and was also involved in general contracting of interiors of commercial premises. Sixty per cent of its interior work was in retail stores with the balance of the interior work in bars, hotels and restaurants. Mr. Guthrie and his wife co-signed for loans from the Royal Bank of Canada to Candesco. In April of 1983, Candesco was not able to meet its trade debts. The Royal Bank of Canada appointed a receiver and Candesco's business was liquidated. Candesco did not have sufficient assets to satisfy the Royal Bank of Canada, and Mr. Guthrie and his wife have been sued for a large amount of money. By 1983, Mr. Karnotzki had worked for Candesco and its earlier constituent entities for fifteen years. Candesco remains inactive and in receivership.
In 1983, Mr. Guthrie found himself in debt to the Royal Bank of Canada and with no means of income. He had to find a way to make a living. He approached Mr. Karnotzki and inquired if he would be interested in starting a venture in the field they knew best on the basis of being equal partners. Mr. Karnotzki was agreeable and the two men decided that the way to approach the new venture was to conduct their business on a consulting basis without having to be responsible for the payment of contractors. In this way they would not have any credit responsibilities because any credit involved would be the credit of the clients and suppliers. With these concerns and objectives in mind the two men commenced their consulting operations in May or June of 1983.
From the outset, Mr. Guthrie was very fortunate. A long time friend was building a restaurant at the Terminal Building on the waterfront in Toronto. The friend was aware of Mr. Guthrie's circumstances and the two men were given the job of designer and project manager for the restaurant in May or June of 1983. Their role was to design the project on behalf of the owner and their fees were to consist of three per cent of the budgeted cost of the design work and a management consulting fee of seven per cent of the total value of the project. They were to produce budgets and indicate costs based on their best experience. Eventually they were to manage the project and arrange for bids. They gave certificates for the work as it progressed so as to let the owner know how much to pay suppliers and contractors. The owner told them how much to spend and they prepared budgets showing the costs and how the project should be developed. Part of the responsibility of Interspace was to see how the job should be done and to ensure prices which were obtained. The owners would issue payments as the jobs progressed.
Interspace gave monthly statements to the owner and these statements served as the basis for draws to the contractors. The cheques were issued directly to the suppliers. Most of the suppliers have written contracts with the clients. While Interspace does not have any employees on the job, it does employ a secretary and a draftsman. The average value of a job undertaken by Interspace is between $90,000 and $100,000. Virtually all of Interspace's contracts have been performed on the basis of a fee of ten per cent for design and management. An exception has been made due to the relative smallness of a project. In the performance of a job in connection with a small clothing store in Brandon, Manitoba, Interspace received a cheque from the customer and disbursed the amounts due to the suppliers and contractors with an accounting of the monies to the client. On the latter job, Interspace informed the contractors that they were entering into contracts with the owners and that Interspace was the contract manager for the contracts. The contractors were informed that they would be paid by the owners through Interspace.
Mr. Guthrie and Mr. Karnotzki in January of 1984 found it necessary to use their own carpentry installation company when it was unable to find a suitable carpentry installation company in its own field. ECI was established and then incorporated because they could not find a suitable contractor to install woodwork for interiors. ECI may perform work and have employees on the jobs managed by Interspace. On January 25, 1984, some two weeks after its incorporation, ECI entered into a voluntary recognition agreement with The Ontario Provincial Council, United Brotherhood of Carpenters and Joiners of America, on its own behalf and on behalf of the United Brotherhood of Carpenters and Joiners of America and its affiliated bargaining agent Local 1256 (the "Union"). In this agreement, ECI recognized the Union as the sole and exclusive bargaining agent of all journeymen and apprentice carpenters, other than millwrights, employed by ECI in the Province of Ontario and engaged in the industrial, commercial and institutional sector of the construction industry. ECI and the Union further agreed that the agreement constituted a voluntary recognition agreement under the Labour Relations Act and that ECI would be bound by the Carpenters' provincial collective agreement made between the Carpenters Employer Bargaining Agency and the Union. ECI did not know at the time of incorporation that it would be signing a collective agreement.
ECI has employed members of the United Brotherhood of Carpenters and Joiners of America under the terms of the provincial collective agreement on a number of projects, for example, in Sarnia and Hamilton. Interspace has operated on jobs with a supervisor who acts on behalf of the client. The persons who act as supervisors are self-employed persons who contract themselves out for such work and may perform carpentry work during the interior installations. The supervisors are paid by Interspace on behalf of the client at a rate of between twenty-two and twenty-five dollars an hour.
Candesco was bound to the Carpenters' provincial collective agreement and previously worked as in interior general contractor. A division of Candesco formerly engaged in design work but did not do consulting work. Candesco used to perform carpentry work under the terms of the Carpenters' provincial collective agreement and used to subcontract electrical and plumbing work and any other non-carpentry work required to perform a job.
Prior to the project at the Terminal Building, Interspace and the client involved in that project proposed a form of contract to govern their relationship. The form of contract was approved by the client and his lawyers. However, the form of contract was never executed either by Interspace or the client. The proposed form of contract retained the design manager to perform professional services and construction management services at the project. The client appointed the design manager his authorized limited agent to award contracts for the client's account covering the furnishing of materials and/or labour by trade contractors and suppliers for various parts of the project, also to purchase and/or rent for the client's account the necessary materials, tools, equipment and supplies required for the project. All materials and labour contract awards and supply purchases and rentals were to be in the name of the client and the client was to be required to pay for same upon presentation of invoices by the design manager. The client was to be required to pay the design manager a fee for design of the project of a percentage of the actual costs of the project and a fee of a percentage of the total value of the project for basic services of supervising the project and obtaining subtrades and contractors for the work. The client was also to be responsible for the reimbursement of the actual amount of all disbursements which were chargeable to the client under the provisions of the form of contract. The client was to be bound by the design manager's progress certificates and certificates confirming work. While the purchase orders might not have stated that Interspace was acting as the agent for the client, it was the evidence of Mr. Guthrie that the suppliers knew they were dealing with the client and not Interspace.
In cross-examination, Mr. Guthrie explained that once Candesco was in receivership it was very difficult to obtain credit and that bonding was not required for the manner in which Interspace was conducting its affairs. He informed the Board that he and Mr. Karnotzki looked for a way for clients to pay the draws. In awarding subcontracts, Interspace relied upon the knowledge of Mr. Guthrie and Mr. Karnotzki of contractors regarding their ability and reliability. Some of the projects undertaken by Interspace have been based upon an exchange of correspondence and without the existence of a formal contract. On other occasions, projects have been performed by Interspace without a contract on the basis of mutual trust between Interspace and the client.
There is no dispute that Candesco went into receivership as a result of financial problems and that Mr. Guthrie and his wife were financially responsible for the unsatisfied portion of Candesco's debt to the Royal Bank of Canada. In these circumstances, it is easy to appreciate that Mr. Guthrie's credit standing suffered as a result of the commercial failure of Candesco. He decided that his best chance of earning a living was to explore ways of continuing in the field he knew most about, namely, the furnishing and installation of the interiors of commercial premises. In operating Candesco, Mr. Guthrie had been virtually the complete owner. Candesco had been operating a wood manufacturing plant with its own employees and had been engaged in the general contracting of the interiors of these commercial premises with its own employees.
Mr. Guthrie had decided that he could remain in his preferred field provided he did not have to try and obtain credit and was not responsible for payments to the contractors' suppliers. To this end, he decided to go into business with a former employee and very minor shareholder of Candesco, Mr. Karnotzki. The new business arrangement which was contemplated and entered into was on a basis of equal shares in a business which was eventually to be incorporated as Interspace. Whereas Candesco was formerly operating a business of designing, manufacturing and installing interior premises, Interspace limited its activities to design and consulting work for potential clients and preparing budgets and estimating costs and managing projects on behalf of the clients. The arrangements between the clients and Interspace in fact made it clear that contractors and suppliers were entering into contracts with the client and not with Interspace. The supervisors were paid by the clients after they had submitted their accounts to the clients. The clients contracted the work to be performed after consulting Interspace. The clients presently (and Candesco formerly) contracted out the electrical and plumbing work. The clients presently (unlike Candesco) contracted out the carpentry work. The time came, however, on a project in Sarnia when Interspace was unable to find anyone to perform the work required by the client. On that occasion, ECI performed the carpentry work and entered into a voluntary recognition agreement which bound it to the Carpenters' industrial, commercial and institutional collective agreement.
The Board has frequently recognized and stated that the meaning to be given to the word "business" in section 63(1)(a) depends upon the facts in each case. The business is the entire undertaking and includes physical assets such as equipment, premises, location, management, personnel, trade marks, accounts receivable, lists of customers, inventory, assignment of contracts and goodwill. To this end the Board has considered the extent to which elements of an existing business have or have not been transferred. The position of the Board was summarized in Culverhouse Foods Limited, [1976] OLRB Rep. Nov. 691 at page 698:
En route to a determination of the above essential questions the cases offer a countless variety of factors which might assist the Board in its analysis: among other possibilities the presence or absence of the sale or actual transfer of goodwill, a logo or trademark, customer lists, accounts receivable, existing contracts, inventory, covenants not to complete, covenants to maintain a good name until closing or any other obligations to assist the successor in being able to effectively carry on the business may fruitfully be considered by the Board in deciding whether there is a continuation of the business. Additionally, the Board has found it helpful to look at whether there is a continuation of the business. Additionally, the Board has found it helpful to look at whether or not a number of the same employees have continued to work for the successor and whether or not they are performing the same skills. The existence or non-existence of a hiatus in production as well as the service or lack of service of the customers of the predecessor have also been given weight. No list of significant considerations, however, could ever be complete; the number of variables with potential relevance is endless. It is of utmost important to emphasize, however, that none of these possible considerations enjoys an independent life of its own; none will necessarily decide the matter. Each carries significance only to the extent that it aids the Board in deciding whether the nature of the business after the transfer is the same as it was before, i.e. whether there has been a continuation of the business.
None of Candesco's assets or employees were transferred to Interspace or ECI. There was no evidence of any continuation of the manufacturing formerly performed by Candesco. Similarly, there was no evidence of the transfer of any goodwill, trade marks, existing contracts or lists of customers to Interspace or ECI. In the absence of a sale of even the assets of the insolvent Candesco, the Board is not prepared to find that there was a sale of a business from Candesco to Interspace and ECI within the meaning of section 63.
The applicant has also requested relief under section 1(4) of the Act and has alleged that the respondents are all one employer. 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.
Where associated or related businesses are carried on by more than one entity under common control or direction, the Board may treat the entities as constituting one employer for the purpose of the Act and grant such relief by way of declaration or otherwise as the Board may deem appropriate. In Brant Erecting and Hoisting, [1980] OLRB Rep. July 945, the Board stated at page 949:
It is not necessary to have shared participation in a common business endeavour or even contemporaneous economic activity. The relationship between the business entities is a functional rather than a temporal one. Businesses or activities are "related" or "associated" because they are of the same character, serve the same general market, employ the same mode and means of production, utilize similar employee skills, and are carried on for the benefit of related principals. If these criteria are met, two businesses may be "related" within the meaning of section 1(4) even though their activities are carried on through different or corporate vehicles and are not carried on simultaneously.
In the instant application Interspace and ECI are engaged in different businesses. Neither Interspace nor ECI manufactures the products which were formerly manufactured by Candesco. However, while ECI is engaged in performing interior carpentry work which was formerly performed by Candesco, Interspace is engaged in consulting and contract management work which was never performed by Candesco. Interspace does not serve the same general market as Candesco. The same is true with respect to employing the same mode or means of production and utilizing similar employee skills. There is no doubt that Interspace and ECI are carried on for the benefit of related principals. There is also no doubt that with respect to the performance of interior carpentry work, the applicant is in the same position with ECI that it was in with respect to Candesco. The purpose of section 1(4) is to preserve and to prevent the erosion of bargaining rights and not to extend bargaining rights. See ElIwall and Sons Construction Limited, [1978] OLRB Rep. June 535. The applicant possesses bargaining rights for the employees of ECI engaged in carpentry work and does not possess bargaining rights for any similar but non-existent employees of Interspace. The Board accepts the present method of business engaged in by Interspace as having evolved as a practical necessity from the insolvency and receivership of Candesco. If the Board were to extend the provincial collective agreement to Interspace, it would be tantamount to compelling Interspace to restructure its business.
While Interspace and ECI are carried on for the benefit of related principals, the various criteria referred to earlier do not lead the Board to conclude that it should make the declaration under section 1(4) which has been requested by the applicant. In our view, Interspace on the one hand and Candesco and ECI on the other hand are or were not carrying on associated or related activities. While ECI is carrying on a business which is associated or related with some of the work formerly carried on by Candesco, ECI is bound by the same provincial collective agreement to which Candesco is a signatory. A declaration by the Board with respect to Candesco and ECI would not confer, on the evidence before the Board, any additional rights on the applicant which it does not presently enjoy with respect to ECI.
For the foregoing reasons, this application is dismissed.