[1990] OLRB Rep. August 855
1367-89-R United Brotherhood of Carpenters and Joiners of America, Local 494, Applicant v. Kent Acoustics Limited, City Acoustics Limited, J.L. Acoustics Ltd., Respondents
BEFORE: Ken Petryshen, Vice-Chair, and Board Members G. 0. Shamanski and P. V. Grasso.
APPEARANCES: David McKee and Jim Caron for the applicant; Arthur Barat for J. L. Acoustics Ltd.
DECISION OF THE BOARD; August 13, 1990
These are applications in which the United Brotherhood of Carpenters and Joiners of America, Local 494 ("Local 494") seeks declarations and other relief under sections 1(4) and 63 of the Labour Relations Act against Kent Acoustics Limited ("Kent"), City Acoustics Limited and J.L. Acoustics Ltd. ("J.L.").
During the course of the hearing, Local 494 advised the Board that it was no longer seeking relief against City Acoustics Limited. Accordingly, these applications insofar as they relate to City Acoustics Limited are dismissed. Local 494 also advised the Board during the course of the hearing that it was no longer requesting relief under section 63 of the Act. Accordingly, these applications are dismissed to the extent they rely on section 63 of the Act.
The issue the Board is left with is whether Local 494 is entitled to relief under section 1(4) of the Act against Kent and J.L. Rene Alarie, the president of J.L., gave evidence as did James Caron, the business representative for Local 494. In determining the facts, the Board has carefully reviewed the evidence and the parties' submissions relating thereto.
Kent operated as an acoustic and drywall contractor from a location in Chatham, Ontario until 1981. Rene Alarie started working for Kent as an installer in approximately 1976, and in 1977 he purchased all of the shares of Kent from R. Flamminio and became the president of Kent. Alarie held the shares personally until 1978 when they were transferred to R.B.A. Holdings Limited, a corporation controlled by Alarie and his wife. In essence, Alarie was the owner of Kent between 1977 and 1981. During this period Kent was basically performing work in the residential and commercial sectors. Most of the commercial work Kent did was in Chatham while the work performed by Kent in Windsor was essentially residential. Kent also performed some work in the Sarnia area.
Given that Kent was a relatively small contractor, it is not surprising that Alarie had complete control of the business. He was responsible for obtaining work for the company and he hired the persons employed by Kent. Kent employed anywhere from 10 to 15 installers who were paid on an hourly basis. Most of the individuals who worked for Kent, however, did so on a sub-contract basis, which is apparently common in this industry, particularly in the residential sector. Kent was bound to the Carpenters' Provincial Agreement and to a residential collective agreement with Local 494 covering certain work performed in the residential sector in the Windsor area.
Given the condition of the economy in 1981, Kent experienced a drop in volume and had accumulated approximately $300,000 in bad debts from general contractors. Alarie closed Kent down in 1981. The equipment owned by Kent, which was not extensive given the nature of the business, was sold to different persons and the proceeds were used to pay off debts. In 1985, Kent's Certificate of Incorporation was cancelled and the corporation was dissolved for default in complying with the Corporations Tax Act.
In 1981, Alarie moved to Alberta and until 1984 he was employed as a general superintendent for a construction company. Between 1984 and 1987, Alarie owned and operated a tavern outside of Winnipeg, Manitoba. In late 1986, Norman Lachance, a drywall installer who had worked for Kent as a subcontractor, contacted Alarie in Winnipeg and asked him if he wanted to purchase a part of J. Lopes Acoustics Ltd. (“Lopes"). Lopes was an acoustic and drywall contractor formed in 1985 and located in Sarnia, Ontario. Lachance worked in the field for Lopes and J. Lopes did the estimating and the paper work. When J. Lopes considered quitting, Lachance contacted Alarie to see if he was interested in taking over from J. Lopes. After further discussions, Alarie purchased the share from J. Lopes in January 1987. In April 1987, Alarie moved to Sarnia and took over the operation of Lopes. In February 1988, Alarie changed the name of J. Lopes Acoustics Ltd. to J.L. Acoustics Ltd. and in February 1989 he purchased the other share from Lachance to become the sole owner of J.L. J.L. closed its Sarnia office in June 1989 and moved to Windsor. For ease of reference, the remainder of this decision will not distinguish between Lopes and J.L. and will simply refer to Alarie's business as J.L.
Prior to Alarie's involvement, J.L. did not have a lot of work per year in dollar value. In January 1987, J.L. had a few contracts and Alarie agreed in cross-examination that these contracts were of little value without someone of his experience running the business. Alarie also acknowledged that there was some advantage to purchasing a share in J.L. rather than starting a new company since J.L. had a charter and the red tape associated with establishing a company had already been completed. When Alarie arrived in Sarnia in April 1987 he ran J.L. He attempted to obtain work and he did the estimating and the work in the office. He also hired the persons working for the company and he dealt with customers. Lachance continued to simply work in the field.
J.L. obtains its work from general contractors and works in the Sarnia, Windsor and to some extent, in the Chatham areas. Prior to moving to Windsor, J.L.'s work was essentially evenly split between Windsor and Sarnia. J.L. performs work in both the residential and commercial areas, with the majority in the residential category. At least 80% of the work it does in the Windsor area is residential. Between 1987 and 1989, J.L. has had six commercial jobs in the Windsor area. Since J.L. does not employ any hourly-paid employees, its work is performed by subcontractors. J.L. owns two cars, four trucks, power and bench saws and Hilty guns. The subcontractors provide the majority of their own hand tools.
The essence of Local 494's position is that Alarie is the key element in the business activities of Kent and J.L. Local 494 argues that it is Alarie's expertise and experience in the acoustic and drywall areas which gave life to Kent and gives life to J.L. Local 494 maintains that the preconditions to granting section 1(4) relief are present in this case and that the circumstances warrant the exercise of the Board's discretion in its favour. Alarie operated a business in Local 494's area between 1978 and 1981 and Local 494 has recently discovered that Alarie is operating essentially the same business in its area. Local 494 submits that these circumstances should cause the Board to grant it the relief it seeks. Counsel for J.L. argues that the facts should lead the Board to dismiss this application.
Section 1(4) of the Labour Relations Act provides as follows:
1.-(4) 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.
The following comments of the Board in Brant Erecting and Hoisting, [1980] OLRB Rep. July 945 are worth reiterating:
Section 1(4) was enacted in 1971 and deals 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. Where such legal entities carry on related business activities under common control or direction, the Board is empowered to pierce the corporate veil. Section 1(4) ensures 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 vehicle(s) through which that activity is carried on. Legal form is not permitted to dictate or fragment a collective bargaining structure; nor will alterations in legal form undermine established bargaining rights. In this respect the purpose of section 1(4) is similar to that of section 55 [now 631 which preserves the established bargaining rights and collective agreement when a "business" is transferred from one employer to another. Section 55 [now 63] has been part of the scheme of the Act since the mid 1960's. Neither remedial provision requires a finding of anti-union animus; their primary application is to bona fide business transactions which incidentally undermine or frustrate established statutory rights. Since the two sections are complementary, it is not unusual, as in the present case, for an applicant to rely on both.
Section 1(4) does not require that related business activities under common control or direction be carried on simultaneously or contemporaneously. This issue was clarified in 1975 by the addition to section 1(4) of the phrase "whether or not simultaneously". The amendment reflects a legislative recognition that the essential unity and identity of an economic activity (which gives rise to employment) may be preserved even though the legal vehicles through which the activity is carried on will not operate simultaneously; and, business may be effectively transferred from one corporate entity to another, without any of the indicia of a "transfer of a business" which might trigger the application of section 55 [now 631. This is especially the case in the construction industry where many of the employers will not have the permanence or investment in fixed plant and equipment characteristic of a manufacturing concern. A small construction company can move from jobsite to jobsite or place to place, assembling tools, equipment and a labour force as required after it has made a successful bid. There may be no established economic organization, labour force or configuration of assets. A single principal may have several companies which are used, more or less interchangeably, so that bidding is done and work performed through whichever company is convenient. In such circumstances there may be an effective transfer of business between related businesses without any apparent disposition of assets, inventory, trade names, goodwill, employees, etc. Similarly, where capital requirements are minimal and business relationships transitory. it is relatively easy to wind up one business, and create another one which carries on essentially the same business as before. Indeed there will often be good commercial reasons for doing so unrelated to any express desire to undermine the union's bargaining rights. The earlier company may have run into financial difficulties, or lost its reputation, or there may be legal, accounting or tax advantages in establishing a new vehicle through which the business, or related business activities can be conducted. Again, it is quite possible to do this without a clear and concrete disposition between the two firms so as to call section 55 [now 63] into play. To ensure that the industrial relations status quo is preserved, the Legislature has provided that where two employers carry on related economic activities, under common control and direction, whether or not simultaneously, they can be treated as one for the purposes of the Act. However, it should be noted that section 1(4) is discretionary. The Board need not make a 1(4) declaration even when the conditions precedent are present; and has not done so, for example, where a trade union is seeking to extend rather than preserve its bargaining rights.
On the facts before us, the Board is satisfied that the three conditions precedent to granting section 1(4) relief have been met. Kent and J.L. are engaged in related activities and are under common control and direction. Kent was and J.L. is an acoustic drywall contractor performing work in the commercial and residential sectors of the construction industry. The kind of work performed by Kent is essentially identical to the work performed by J.L. From 1978 to 1981, Alarie owned and was in complete control of the operations of Kent. From April of 1987, Alarie owned 50% of J.L. and in February 1989 he became the sole owner of J.L. The evidence discloses that even when he owned 50% of J.L., Alarie was in control of the business, with Lachance essentially content to simply work in the field as an installer. These aspects of the evidence clearly indicate that Kent and J.L. are engaged in related activities under the common control and direction of Alarie. The more difficult issue is whether this is an appropriate case for the Board to exercise its discretion in favour of granting Local 494 the relief it seeks.
In Ian Somerville Construction Ltd., [1988] OLRB Rep. Oct. 1022, the Board was confronted with a similar issue given a 5½ year gap between two businesses that were related and under common control and direction. In that case, the key principal of both companies did not buy an existing business but simply started another business 5½ years after ceasing the first business. The Board's comments concerning the exercise of its discretion are as follows:
The economic activity of ISCL that gave rise to a collective bargaining relationship with Local 27 is. in effect, now carried on by 671860. The two entities are engaged in related activities under common control and direction. We are unable to discover any labour relations reason in these circumstances for concluding that the bargaining rights of Local 27 should not attach to the "definable commercial activity" simply because that activity is carried on through another legal entity 5½ years after ISCL ceased operating. If Robert Somerville revived ISCL in 1987 to carry on the work now performed by 671860, there would be no question that the bargaining rights of Local 27 would continue. The fact that Robert Somerville elected not to revive ISCL but rather to utilize another corporate vehicle to carry on a related business 51/2 years later is not a compelling reason to decline to exercise our discretion in Local 27's favour. After reviewing all of the circumstances, including the 5½ year gap, we find that this is an appropriate case to exercise our discretion in favour of granting Local 27 the relief it seeks.
On behalf of Local 494 it is argued that no material distinction exists between the facts in this case and those in Ian Somerville Construction Ltd., supra. In the Board's view, this assertion is essentially correct. When Alarie bought his share in 1987, J.L. had very little business. As Alarie noted in his evidence, J. Lopes was planning on quitting the company and would not have had any interest at that time in securing additional business. In any event, it appears as if Lopes' operation never did have much of a volume. Alarie agreed with the suggestion that buying into J.L. was useful since one could avoid the "red tape" involved in setting up a new company. He also agreed with the suggestion that whatever contracts J.L. had at the time he purchased his share had little value without his expertise and business experience. We do not have in this case a situation where Alarie purchases an established business of significant size which he operates. Rather, the evidence discloses that Alarie is merely buying a shell of a business with certain assets that have very little value without his involvement. In reality, the circumstances here are not unlike a situation where Alarie creates a new company to carry on a related business.
As one might expect with a small contractor, J.L.'s success will be determined not by what Alarie inherited from Lopes but by what he will contribute to the business. Given his virtually complete control of the business, its future depends on his ability to estimate jobs, hire competent personnel and his dealings with general contractors.
Local 494 had bargaining rights for an acoustic and drywall business operated by Alarie in southwestern Ontario until 1981. It has recently discovered that Alarie is again operating an acoustic and drywall business in southwestern Ontario by means of a different legal entity. The Board is satisfied that in the circumstances of this case, Local 494 is not attempting to extend its bargaining rights by means of a section 1(4) application but is attempting to preserve bargaining rights which it has for Kent. The Board finds that this is an appropriate case to exercise its discretion in favour of granting Local 494 the relief it seeks.
Accordingly, the Board hereby declares that Kent Acoustics Ltd. and J.L. Acoustics Ltd. constitute one employer for the purposes of the Labour Relations Act. The Board also declares that IL. Acoustics Ltd. is bound to the Carpenters Provincial Agreement and to the collective agreement which Local 494 has covering residential work within the City of Windsor and the Counties of Essex and Kent. In accordance with the position of Local 494 taken during argument, these declarations are effective from the date of this decision.