[1991] OLRB Rep. September 1051
2132-90-R International Brotherhood of Painters and Allied Trades, Local Union 1590, Applicant v. 715329 Ontario Ltd., c.o.b. as Gallant Painting and 615823 Ontario Inc. c.o.b. as Lindsay Maintenance Services Painting Division, Respondents
BEFORE: Louisa M. Davie, Vice-Chair, and Board Members J. Lear and C. A. Ballentine.
APPEARANCES: Larry Steinberg and R. Last for the applicant; Brett H. Kirkpatrick for 715329 Ontario Ltd., c.o.b. as Gallant Painting and D. Brent Labord and Jim Lindsay for 615823 Ontario Inc. c.o.b. as Lindsay Maintenance Services Painting Division.
DECISION OF LOUISA M. DAVIE, VICE-CHAIR AND BOARD MEMBER C. A. BALLENTINE; September 25, 1991
- This application was originally brought pursuant to both sections 1(4) and 63 of the Labour Relations Act ("the Act"). At the conclusion of the evidence the applicant (hereinafter referred to as the Union) requested leave of the Board to withdraw that portion of its application brought under section 1(4) of the Act in which it had sought a declaration that the respondents (hereinafter referred to as Lindsay Maintenance and Gallant Painting) were one single employer for purposes of the Act. The Board granted such leave. Accordingly, the only matter which remains to be determined is the successor employer application namely whether there has been a "sale" of a "business" from Gallant Painting to Lindsay Maintenance pursuant to section 63 of the Act.
The Facts
Until late 1989, Gallant Painting was in the painting business. More specifically its business consisted of maintenance painting of existing structures primarily at petrochemical complexes in the Corunna and Sarnia areas of the Province of Ontario.
The principal shareholder of Gallant Painting is Mr. John Gallant. He is also a director of the company. Mr. Gallant has been in the painting business in excess of thirty years. Although not always incorporated, Gallant Painting had been in business for approximately twelve years.
In the fall of 1989 the union was certified to represent the employees at Gallant Painting. Mr. Gallant did not want to continue to operate his business if he was required to recognize the bargaining rights of the trade union and therefore determined to cease operations. There is no doubt that Mr. Gallant's decision to close up shop was solely and directly related to the fact that his company had been organized by the Union.
Gallant Painting finished up its work on its existing contracts and discontinued operations in the last months of 1989. It did not bid upon any more work and did not perform any painting work in 1990.
While Gallant Painting was operating its maintenance painting business, John Gallant was in every sense of the word the boss and "key man" in the business. He operated the business from his home. He hired and fired employees, determined wage rates, bid on jobs, prepared bids and generally ran the day to day operations.
The two primary customers of Gallant Painting were Nova Petrochemicals Inc. ("Nova") at its "Petrosar" location, and Dupont Canada Inc. ("Dupont"). Mr. Gallant estimated that approximately 50 percent of the work of his company was performed for Nova, the remainder for Dupont. The company had been performing maintenance painting at Nova for approximately ten years prior to the cessation of its operations.
In the maintenance painting business work is typically obtained through the bid and tender process. Tenders are let by customers and contractors bid for the maintenance painting work available from time to time. When Gallant Painting ceased operations there was one less company competing for the available work. The evidence discloses that a number of companies sought to fill the vacuum created by Gallant Painting's departure by bidding upon work (or similar work) which had previously been let to Gallant Painting.
One such company was Lindsay Maintenance.
Lindsay Maintenance commenced operations in January 1985. Its sole shareholder and director is Jim Lindsay. Prior to the events which gave rise to this application Lindsay Maintenance was in the maintenance business operating primarily as a mechanical maintenance contractor. The substance of its business operations was the service, repair or retrofit of heating, ventilation and air-conditioning units. The business did perform other maintenance work including plumbing, minor carpentry, sheet metal, structural steel and painting work. Lindsay Maintenance was not however in the painting business. The painting it did perform was painting which was necessarily incidental to its other business operations and represented approximately 5 to 10 percent of its business operations.
Lindsay Maintenance has a number of customers for whom it regularly performs maintenance work. One of its larger customers is Nova from whom it obtains in excess of 30 percent of its business (approximately 20 percent from its "Petrosar" petrochemical division and 12/13 percent from Nova Corporate). In addition, it does a substantial amount of work for the Lambton County Separate School Board (18 percent).
Jim Lindsay has worked at the Nova Petrosar site (either as an employee of other contractors or as a member of his own business) since 1972. His company Lindsay Maintenance has worked at the site since the company's inception in 1985. Mr. Lindsay is regularly at the site. Given his level of success in bidding and retaining contracts at that site we have no hesitation in concluding that Mr. Lindsay and his company are well-known and enjoy an excellent reputation at Nova.
We also have no hesitation in concluding that both before and after the events which gave rise to this application Jim Lindsay was and remains the boss at Lindsay Maintenance. He hires and fires employees, determines wage rates, deals with customers and their complaints, determines which jobs the company will bid on and then prepares those bids, and generally oversees the operations of the business.
In the circumstances of this case the issue to be determined however is whether Jim Lindsay's decision to fill the void created by the cessation of the business of Gallant Painting by starting up a painting division at Lindsay Maintenance resulted in a "sale" of a "business" from Gallant Painting to Lindsay Maintenance pursuant to section 63 of the Act. That issue is in large part a factual one which requires a close examination of the events and circumstances surrounding the establishment and operation of the painting division at Lindsay Maintenance.
In early 1990 Jim Lindsay became aware that Gallant Painting was going out of business though a conversation he had with Albert Falloon the contract administrator for the maintenance department at Nova. Mr. Lindsay pursued the matter further. He spoke to others. He investigated the matter to determine if painting work was available or whether tenders for the year had already been let by Nova. He attempted to determine the value of any contract yet to be let by Nova and considered the availability of interior painting work at the Lambton County Separate School Board. Ultimately, Mr. Lindsay decided that the establishment of a painting division within his company was a viable business opportunity provided he could obtain some painting contracts from Nova and the School Board. In particular Mr. Lindsay considered the fact that Nova and the School Board were already customers with whom he was familiar. If he added a painting division he could offer these customers a full range of maintenance services.
Having decided that this was a viable opportunity to make money and expand his business, Mr. Lindsay contacted Mr. Gallant. Although he did not personally know Mr. Gallant, Mr. Lindsay was aware that John Gallant had been in the painting business and, more specifically in the painting business at Nova. He knew Mr. Gallant was familiar with the Nova Petrosar site. Mr. Lindsay readily acknowledged that he was entering a business opportunity with which he was not "totally familiar" and he needed someone with expertise. Mr. Gallant was that someone.
After Jim Lindsay contacted John Gallant the two men met and discussed the matter. Mr. Lindsay explained his plans to "start up the painting division". He discussed with John Gallant his requirements for a Division Manager. Ultimately, the two men agreed that Lindsay Maintenance would employ John Gallant as the Division Manager of its Painting Division at a weekly salary. In addition, Mr. Lindsay indicated to Mr. Gallant that a season end bonus might be forthcoming depending upon the success of the business. It is Mr. Lindsay's usual practice to pay a season end bonus to employees. Such a bonus is dependent upon the profitability of the operations.
Mr. Gallant did not contribute any capital or equipment to assist in the start-up of the painting division. He does not have a share or other interest in Lindsay Maintenance. All money required to start up the painting division came from Jim Lindsay through personal arrangements he made with his bank. Throughout his employment with Lindsay Maintenance Mr. Gallant has been paid a regular weekly salary. He has not received any bonuses from the company.
Mr. Lindsay described John Gallant's duties as including site supervision, liaison, and assisting Mr. Lindsay in the preparation of bids. Mr. Gallant was to ensure that jobs were completed in accordance with the contracts received by ensuring that sufficient materials and personnel were on site to do the job. He was also to "help me [Jim Lindsay] in the estimates. I required some expertise which I did not have." Mr. Gallant described his duties in similar terms stating he was "to organize jobs. Go out and find jobs". At another point in his evidence Mr. Gallant stated quite simply that "he hired me to take care of the painting department". That "taking care of' includes the on-site supervision of employees, the purchase of materials needed to complete the job including the authority to sign cheques for such material, and assistance in the preparation of tender bids.
Mr. Gallant commenced work at Lindsay Maintenance in the spring of 1990. With respect to supervisory duties of employees the evidence establishes that Mr. Lindsay was responsible for hiring all employees employed in the painting division and determining the wage rates to be paid to those employees. Mr. Gallant was responsible for the on site supervision of employees. Many of the employees came to Lindsay Maintenance Painting Division through word of mouth when the fact that Lindsay Maintenance would be operating a painting division became generally known. A small number of the employees who came to work for the painting division were persons formerly employed at Gallant Painting. In addition, some summer students hired were former Gallant Painting summer student employees. These summer students are generally family members of Nova employees. As Mr. Lindsay explained it makes "business sense" to hire the sons and daughters of Nova employees. When hiring persons who had previously worked for Gallant Painting Mr. Lindsay did consult with Mr. Gallant. Other than this consultation however all hiring was done by Jim Lindsay.
Lindsay Maintenance did not take over any existing contracts, accounts payable or accounts receivable from Gallant Painting. Neither did it purchase any assets or equipment from Gallant Painting. It did on occasion borrow a blaster (a relatively inexpensive piece of equipment used to perform maintenance painting work of the sort done by Gallant Painting) from John Gallant.
In the first year of its operations all of the work done by the Lindsay Maintenance Painting Division was for Nova. The total value of this work was approximately 300,000 dollars and represented four successful bids. In addition to its four successful bids at Nova, Lindsay Maintenance was unsuccessful in bidding for two maintenance painting contracts at Nova including its very first bid to that company. It also unsuccessfully bid for certain work at the Lambton County Separate School Board and at Gliss Limited.
The process of bidding for work and the circumstances surrounding the actual preparation of bids at Lindsay Maintenance was detailed in the evidence. In particular we heard the evidence of Mr. Jack Peacock, the senior purchaser at Nova who is responsible for determining which contractor's bid will be accepted for the painting work to be performed.
Mr. Peacock testified that Nova sends out its request for tender to four or five different contractors whom Nova has determined are capable of satisfactorily performing the work. Nova solicits competitive bidding from such contractors. Mr. Peacock testified that a "qualified contractor" with the lowest bid is awarded the contract.
To become a "qualified contractor" at Nova, a contractor is "investigated". Nova determines from the contractor's past performance (either as a direct contractor to Nova or as a subcontractor to a general contractor working at the Nova site) if the contractor is capable of performing the type of work required. That determination is normally made in a meeting by a team of Nova personnel which includes Mr. Peacock and Mr. Albert Falloon. As a mechanical maintenance contractor it was Mr. Falloon with whom Mr. Lindsay regularly dealt while bidding and performing mechanical maintenance work at Nova.
Mr. Peacock's evidence discloses that the usual process of placing qualified contractors upon the bidder's list was not followed by Nova in the case of the Painting Division of Lindsay Maintenance. Upon being advised by Mr. Gallant that he was going to be the manager of the Painting Division at Lindsay Maintenance and that some former employees would be working for that division, Mr. Falloon and Mr. Peacock determined to put the company on its bidder's list. We find that Mr. Gallant told Mr. Peacock of his status at Lindsay Maintenance and the experience of his crew in order to be put on the bid list and thereby obtain work for Lindsay Maintenance.
Mr. Peacock testified that the stability of Lindsay Maintenance (as indicated by its past performance) and the expertise of Mr. Gallant together with the knowledge that he would be working with some of his former employees caused Nova to place the company on its bidder's list for its maintenance painting work. Mr. Peacock testified that Lindsay Maintenance Painting Division would not have been placed on the bidder's list at Nova at the time it first commenced operations if it had not been for the fact that Mr. Gallant had been hired by Lindsay Maintenance to run the painting division. Mr. Peacock also considered Mr. Gallant's reference to some of his former crew returning to work at the site. Mr. Peacock acknowledged that if Lindsay Maintenance had hired someone else who was equally experienced it could have been found to be "qualified" and placed on the bidders list.
From the evidence we conclude that although Lindsay Maintenance Painting Division was not guaranteed to receive any work from Nova merely because it employed John Gallant, the fact that it employed John Gallant enabled it to be put on the bidder's list and provided it with an opportunity to obtain jobs where it was the lowest bidder. Its mere presence on the bidder's list did not guarantee any work but did provide the painting division with the opportunity to successfully bid upon and eventually acquire approximately 300,000 dollars worth of work.
At Lindsay Maintenance the bids for available maintenance painting work at Nova were originally prepared by Jim Lindsay. After he prepared the bids and completed his calculations Mr. Lindsay discussed the bid with Mr. Gallant to ensure the bid was appropriate. Mr. Lindsay consulted with Mr. Gallant to ensure that nothing had been overlooked or miscalculated. Mr. Lindsay readily acknowledged that he required Mr. Gallant's expertise in order to be confident that his bid was appropriate and eventually that the work was properly carried out in accordance with the prepared bid.
Mr. Lindsay testified that reliance upon or use of Mr. Gallant's expertise was no different than his reliance upon or use of the expertise of his other employees. For example he testified that he prepared all the bids for the mechanical maintenance and painting maintenance work in the same fashion. In his view a prudent, sensible business man surrounds himself with experienced, competent employees in whom he has confidence and to whom he can turn for assistance. Consulting with others in the preparation of bids, whether those bids are mechanical maintenance or maintenance painting bids is part of a system of checks and balances at Lindsay Maintenance which ensures that Mr. Lindsay can be confident in the bids his company makes. It is Mr. Lindsay however who has the final say in determining the work to be bid upon and amounts of the bid. After Mr. Lindsay had made his final decisions on the bid, the bid was typed up, signed by John Gallant as General Manager of the Painting Division and submitted to Nova.
Finally we note that when Gallant Painting went out of business the maintenance painting contracts which it had performed in previous years were sent out for tender to other companies. This is typical of a business where maintenance contracts are let on a yearly basis and tendered every year. At Nova, in addition to the Painting Division of Lindsay Maintenance, a number of other companies successfully bid upon work which had previously been performed by Gallant Painting.
Lindsay Maintenance did not bid upon any jobs at Dupont the other major customer for whom Gallant Painting had performed 50 percent of its work. The evidence discloses that the bulk of the Dupont work which had previously been let to Gallant Painting was obtained by a newly created company formed by a former Dupont employee who also hired some former Gallant Painting employees.
Submissions of the Parties
Do these facts disclose that there was a "sale" of a "business" from Gallant Painting to Lindsay Maintenance?
The respondents assert not and argue that the evidence discloses no more than the fact that a pre-existing company which had by and largely operated as a general maintenance contractor offering full service maintenance seized upon an opportunity to expand its own business when Gallant Painting went out of business. The respondents rely upon British American Bank Note Company Limited, [1979] OLRB Rep. Feb. 72 in support of their position that the trade union's bargaining rights attach to a predecessor's "business" and not the work being performed by that business. Thus, the fact that Lindsay Maintenance Painting Division now performs some of the work which in the past had been performed by Gallant Painting is not critical. This is especially true when considered in the context of the bid oriented nature of the maintenance painting business where contracts are let on a yearly basis to the lowest bidder. That Lindsay Maintenance Painting Division obtained some work which had formerly been performed by Gallant Painting is not critical is highlighted by the fact that all of the work previously performed by Gallant Painting at Dupont went to another contractor, and the fact that at best Lindsay Maintenance acquired only a portion of the work at Nova. Other contractors also acquired work at Nova.
The respondents also relied upon Twin Electric, [1986] OLRB Rep. September 1320 in support of the submissions that there was no disposition of anything from Gallant Painting to Lindsay Maintenance. There was no transfer or sale of assets, inventory, tools or work. It was asserted that the definition of "sells" in section 63 contemplates a transfer for consideration. In the circumstances of this case the essential ingredient of consideration was missing as nothing passed between the two corporate entities. The hiring of an employee such as John Gallant does not constitute consideration and does not amount to a disposition of a business. Counsel asserted that in circumstances such as these it is inappropriate to in effect accept that bargaining rights attach to an individual.
The applicant argued that the business of Gallant Painting rested in its principal asset John Gallant. He was the "key man" in the business. When John Gallant left the business of Gallant Painting and joined Lindsay Maintenance he took with him that primary asset and applied it to the benefit of Lindsay Maintenance. It was John Gallant's expertise, experience and skill which enabled Lindsay Maintenance to set up and operate the Painting Division. Although Lindsay Maintenance could perhaps have acquired that expertise from some other source, the fact that it did not do so is important. In addition to his expertise, John Gallant brought with him to Lindsay Maintenance the added advantage of someone who knew the Nova site, the Nova personnel, the procedures, the type of work to bid and the type of work to be done. As a result Lindsay Maintenance was able to be put on Nova's bidder's list and subsequently obtain work.
The applicant submitted that in acquiring the skill, contacts and reputation of John Gallant, Lindsay Maintenance acquired the "business" of Gallant Painting. In this type of bid oriented business the most important assets of the business are the ability to bid and estimate jobs and the ability and expertise to carry out those jobs. Without John Gallant Lindsay Maintenance did not have these assets. The transfer of those assets brought these circumstances within the purview of section 63 of the Act. In making these submissions counsel relied upon Deluxe Electrical Contractor Ltd., [1990] OLRB Rep. Nov. 1135, Ably Concrete Floor Limited, [1991] OLRB Rep. May 579, Stucor Construction Ltd., [1987] OLRB Rep. April 614, Construction PH Grager Inc. [1985] OLRB Rep. Feb. 233.
Decision
Section 63 of the Act states:
(1) In this section,
(a) 'business" includes a part or parts thereof;
(b) "sells" includes leases, transfers and any other manner of disposition and "sold" and "sale" have corresponding meanings.
(2) Where an employer who is bound by or is a party to a collective agreement with a trade union or council of trade unions sells his business, the person to whom the business has been sold K until the Board otherwise declares, bound by the collective agreement as if he had been a party thereto and, where an employer sells his business while an application for certification or termination of bargaining rights to which he is a party is before the Board, the person to whom the business has been sold is, until the Board otherwise declares, the employer for the purposes of the application as if he were named as the employer in the application.
(3) Where an employer on behalf of whose employees a trade union or council of trade unions, as the case may be, has been certified as bargaining agent or has given or is entitled to give notice under section 14 or 53, sells his business, the trade union, or council of trade unions continues, until the Board otherwise declares, to be the bargaining agent for the employees of the person to whom the business was sold in the like bargaining unit in that business, and the trade union or council of trade unions is entitled to give to the person to whom the business was sold a written notice of its desire to bargain with a view to making a collective agreement or the renewal, with or without modifications, of the agreement then in operation and such notice has the same effect as a notice under section 14 or 53, as the case requires.
Included in the Board's jurisprudence under section 63 are a number of "key man" cases including those referred to by counsel for the applicant. None of the cases are particularly helpful as it is clear that each case generally turns on its own facts. Certainly there are a number of cases in which the movement of a key person to a new entity did not attract labour relations consequences pursuant to section 63 of the Act (see for example Jen Ry Utility Contracting Co. Ltd., [1984] OLRB Rep. Dec. 1724, Braneida Mechanical Service Ltd., [1981] OLRB Rep. Aug. 1102, Rivard Mechanical, [1981] OLRB Rep. May 550). Those cases are distinguishable from the facts and circumstances in this case. The facts before us are also distinguishable from the "key man" cases referred to by counsel for the applicant in which labour relations consequences did attach to the acquisition of the services of a key person by the successor employer. In each of the cases referred to by the applicant an additional factor was present. Thus in Stucor Construction Ltd., supra, and Deluxe Electrical Contractor Ltd., supra, the successor also acquired certain fixed assets and equipment from the predecessor. In Construction P. H. Grager Inc., supra, the predecessor undertook not to compete with the successor and assumed an ownership role with the successor. In Ably Concrete Floor Ltd., supra, (a case which most closely resembles the facts before us) the predecessor transferred work to the successor and the successor performed or completed existing contracts of the predecessor. In determining whether there was a "sale" of a "business" for purposes of the Act in this instance therefore we find it useful to briefly review the principles which underline the application and interpretation of section 63.
Section 63 is a remedial provision of the Labour Relations Act the purpose of which was succinctly summarized by the Board in Aircraft Metal Specialists Ltd.,[1970] OLRB Rep. Sept. 702 and the Tatham Company, [1980] OLRB Rep. March 366. In the Tatham Company, supra, the Board referred to Aircraft Metal Specialist Limited, supra, in paragraphs 19 and 20 and stated:
19……
"The purpose of section 47a [now section 55] [now section 63] becomes important in assessing the various fact situations that arise. Section 47a operates on a number of levels. The first level, of course, is to prevent the subversion of bargaining rights by transactions which are designed to get rid of the union. We have encountered situations where there are transactions between various corporate entities which are in effect ‘paper transactions’, and are a form of corporate charade engaged in for the purpose of eliminating the trade union. In this type of case the Board has liberally interpreted section 47a to preserve the bargaining rights and has attempted to look beyond 'paper transactions' to achieve that purpose. See, e.g. Kern's Masonry, [1964] OLRB Rep. Dec. 382 and Trenton Riverside Dairy, September 1964 (1964) 2 C.L.S. 76-1005.
A further and important purpose of section 47a is to preserve the bargaining rights with respect to work which has accrued to the benefit of the employees as a result of their union becoming the bargaining agent through certification or voluntary recognition. Once the union has been recognized with respect to a particular business the union then obtains a right to bargain with respect to wages, hours and other conditions of employment in that business. The right to participate in the business and its functions in that manner is in the nature of a vested right and section 47a allows the union to pursue that bargaining right when all or part of the business is sold. In making determinations under section 47a therefore, the Board is interested in maintaining the bargaining rights where the sale involves a continuum of the business."
Section 55 [now section 63] prevents the destruction of bargaining rights or a dislocation of the collective bargaining status quo, by transforming the institutional rights of the union and the collectively bargained rights of the employees into a form of 'vested interest" which becomes rooted in the business entity, and like a charge on property, "runs with the business." To accomplish this objective, the statute gives a very special meaning to the word "sale", envisages that bargaining rights can be continued in a severable "part" of a business, abrogates the notion of privity of contract, and eliminates the significance of the separate legal identity of the new employer.
As noted, section 63 is designed to preserve bargaining rights where there is a "continuum of the business". (See also Thunderbay Ambulance Services Inc., [1978] OLRB Rep. May 467.) The broad and liberal interpretation which the statute has given to the term "sells" as including "any other manner of disposition" underscores the purpose of the section. Regardless of legal form, and regardless of the actual physical transfer of fixed assets, inventory or equipment, customer lists, accounts receivable or the like, for labour relations purposes a "business" or "part of a business" may nonetheless have been "transferred" or "disposed" of in "any other manner".
Given the remedial purpose of section 63, the primary focus of the Board in applications under section 63 is what is the "business" of the predecessor to which the bargaining rights have become attached or "vested". Rather than focusing upon the legal forms and commercial transactions which surround the circumstances which gave rise to the section 63 application, the Board looks to the predecessor's "business" and determines if this has been "disposed" of in some manner to the successor or if there has been a continuum of that business by the successor. Have the essential elements of the predecessor's "business" been transferred to the successor thereby enabling the successor to continue the business? (See for example Grand Valley Ready-Mixed Concrete Supply Limited, [1981] OLRB Rep. June 663)
The determination as to what constitutes the "business" of the predecessor is not an easy task. The Ontario Labour Relations Board Reports contain a multitude of cases involving section 63 applications. It is however impossible to extract from these cases a single factor or element which is always determinative. The difficulties surrounding the factual determinations which the Board must make are compounded by the fact that the elements or factors which are significant in each case can vary with the business context. As a result, there are very few "text book" cases. As was noted in The Tatham Company Limited, [1980] OLRB Rep. Mar. 366:
The issue of employer successorship arises out of a seemingly endless variety of factual settings, with each new case presenting some of the factors considered relevant to the resolution of prior cases while arising out of materially altered, entirely omitted, or newly-added facts which arguably should affect the decision on the merits. Much of the confusion which attends successorship results from the facility with which each case can be distinguished on its facts from all former cases; but to dismiss the confusion so lightly would be to disregard the fundamental differences inherent in the various business contexts in which the successorship issue arises. Factors which may be sufficient to support a 'sale of business' finding in one sector of the economy may be insufficient in another. In some industries, a particular configuration of assets - physical plant machinery and equipment - may be of paramount importance; while in others it may be patents, 'know-how', technological expertise or managerial skills which will be significant. Some businesses will rely heavily on the goodwill associated with a particular location, company name, product name or logo; while for other businesses, these factors will be insignificant. The Labour Relations Act applies equally to primary resource industries, manufacturing, the retail and service sector, the construction industry and certain public services provided by municipalities and local authorities. In each of these sectors the nature of the business organization is different, yet in each case section [631 must be applied in a manner which is sensitive to both the business context and the purpose which the section is intended to accomplish.
A "business" is the totality of the undertaking. A "business" may include such tangible assets as tools, equipment, machinery, physical buildings together with such less tangible assets as skilled management and operating personnel and intangibles such as goodwill (see Metropolitan Parking Inc., [1979] OLRB Rep. Dec. 1193). A "business" must be distinguished from the work performed or carried out by the business. This is particularly true in circumstances such as the present which involve a business which obtains its work by being the successful bidder on contracts which are regularly sent out for tender (either public tender or invited tender).
Although from a labour relations perspective the importance of a "business" is the jobs that it provides for employees, the mere continuity of work performed is not always sufficient to found a section 63 declaration. For this reason although we have considered it, we have not attached critical or undue importance to either the fact that Lindsay Maintenance is now performing work formerly performed by Gallant Painting at Nova, or the fact that another company is performing substantially all of the work formerly performed by Gallant Painting at Dupont. In this regard we concur with the statements of the Board in Metropolitan Parking Inc., supra, where it referred to the decision of the Canada Labour Relations Board in N.A. B. E. T. v. Radio CJYC Ltd. et. al., [1978] 1 Can. L.R.B.R. 565 and stated at paragraph 36.
But continuity of the work done is not sufficient alone to satisfy section 144. There must be some nexus between two employers other than the fact that one employed persons to do certain work that the other now does or will do, before one can be declared the successor of the other. Otherwise a loss of work to a competitor employer would result in a successorship. There must be some continuity in the employing enterprise for which a union holds bargaining rights as well as continuity in the nature of the work. The two go hand in hand. [emphasis added]
A continuity of the work and/or the employees is significant, but it is not always sufficient, to sustain a finding of successorship. This Board adopted a similar view in British American Bank Note Co. Ltd., [1979] OLRB Rep. Feb. 72 - a case which, like the present one, involved the consequences of a loss of a contract:
There are limits, however, to the extent to which section 55 can be used to preserve collective bargaining rights. It is clear that the provisions of this section do not attach bargaining rights to the work being performed by a business but only to the business itself. While this distinction may not be easy to draw in some cases, it is essential that it be maintained since section 55 cannot be interpreted as guaranteeing to a bargaining agent an absolute right of property in work performed by its members. Section 55 serves only to preserve bargaining rights that have become attached to a business entity so that when that business entity is transferred, either in whole or in part, those bargaining rights survive and bind the successor employer.
The focus of section 55 is the business entity - the employer's total economic organization - not simply the work which the employees perform.
- Our focus in the instant application is to determine whether there has been a disposition of the essential elements of a particular business from one employer to another. As the Board stated in Metropolitan Parking Inc., supra, at paragraph 38:
Is the transfer, if any, from the predecessor merely incidental, or is it integral, to the successor's ability to produce the goods or supply the services formerly produced by the predecessor?
And further, at paragraph 44:
For a transaction to be considered a "sale of a business" there must be more than the performance of a like function by another business entity. There must be a transfer from the predecessor of the essential elements of the business as a block or as a "going concern". A business is not synonymous with its customers or the work it performs or its employees. Rather, it is the economic organization which is used to attract customers or perform the work. The Legislature could have provided for the continuation of bargaining rights whenever there is a continuity of the work performed, but it did not do so. Bargaining rights are continued only when the employer transfer his business. The use of the active verb and possessive pronoun is not insignificant.
What then are the essential elements of the business? What is its "total economic organization?" The evidence confirms that the maintenance painting business is a bid oriented business. In this type of business the essence of the business resides in the experience and expertise of its management personnel. To be financially successful the essential elements of the maintenance painting business are the expertise to price and bid upon jobs, and the skill and ability of personnel who can perform the job within the limits of a successful bid (see for example, P. H. Grager, supra, and Stucor Construction Ltd., sup ra). It is not the tools or physical assets which are the "essence" of the painting maintenance business. It is the skill, experience and expertise of its key management personnel.
We find that at Gallant Painting the essential elements of the business resided with John Gallant. At Lindsay Maintenance, for the Painting Division these essential elements continue to reside with John Gallant. In so finding we acknowledge that at Lindsay Maintenance, Jim Lindsay is the boss, the person with ultimate control. We also acknowledge that Jim Lindsay might have expanded his existing operations and entered into the painting maintenance business without John Gallant. Indeed the respondents have argued that Lindsay Maintenance merely extended or expanded its own parallel business. As indicated herein we do not accept that assertion.
Although it is true that Lindsay Maintenance might have started from scratch gradually building up the kind of skill, experience and expertise and knowledge enjoyed by Gallant Painting, it did not do so. Lindsay Maintenance might have hired someone with skills, know how and experience similar to those of Mr. Gallant to assist it as it slowly built up the business to the level of expertise and recognition enjoyed by John Gallant and Gallant Painting. The fact remains however, that it did not do so.
Lindsay Maintenance saw an opportunity when Gallant Painting suddenly ceased operations. As Mr. Lindsay testified he decided to take advantage of that opportunity. One way Lindsay Maintenance took advantage of the opportunity was by acquiring the skills and expertise of John Gallant. In so doing, Lindsay Maintenance also acquired the built-up experience, familiarity, reputation and personal contact of John Gallant and Gallant Painting.
For the critical period of its start-up operations, Lindsay maintenance Painting Division relied upon and took advantage of its primary asset, John Gallant. That John Gallant was an asset of such considerable value is attested to by the evidence of Mr. Peacock which establishes that Lindsay Maintenance was put on the bidders' list because the acquisition of John Gallant's services made Lindsay Maintenance a "qualified contractor".
By hiring John Gallant, and thereby acquiring the key asset of his business, Lindsay Maintenance obtained the critical ingredient which it otherwise lacked to be put on the qualified contractors bidder's list at Nova. By hiring John Gallant it was placed on the bidders' list and given the opportunity to bid upon work-an opportunity it did not otherwise have.
Lindsay Maintenance did not get put on the bidders' list at Nova when it did because of Jim Lindsay's entrepreneurial qualities, his undoubted initiative or his own personal reputation. Lindsay Maintenance got its "foot in the door", its "leg-up" in the maintenance painting business because it acquired and was able to use the skill and reputation of John Gallant. Lindsay Maintenance acquired John Gallant's skill and experience not only in bidding and acquiring jobs, but also his expertise and know how in field operations. It obtained his ability to organize materials and man power to ensure the job was performed within the bid price.
In this way the operation of the Painting Division at Lindsay Maintenance differs from the manner in which Lindsay Maintenance handles the mechanical maintenance contracts it acquires. Mr. Lindsay is a refrigerator and air-conditioning mechanic who holds both an electrician's and gas fitter's licence. For the mechanical maintenance contracts acquired by Lindsay Maintenance he has the personal skill, expertise and experience necessary to make him a successful contractor. In addition, as a prudent, sensible business man he undoubtedly uses all the resources available to him to properly bid mechanical maintenance jobs and perform those bids upon which he is successful. Those resources include his employees who perform the mechanical maintenance jobs and his site supervisors/foreman.
However, when it came to starting its new maintenance painting business Mr. Lindsay could simply not rely upon his own skill, expertise and experience or those of his existing personnel. It was a new venture for Lindsay Maintenance to embark upon this line of work. Although it had done some maintenance painting work in the past, a new undertaking of the size contemplated required the special skill and experience of an expert - at least until Mr. Lindsay learned the ropes. That expertise came from Gallant Painting to Lindsay Maintenance in the form of John Gallant. That expertise got the new business at Lindsay Maintenance off the ground allowing it to extend its operations into an area of the maintenance business in which it had not previously performed much work. This was not simply an expansion of Mr. Lindsay's existing business. It was an entirely new undertaking, one in which the company had not previously been involved and one with which Mr. Lindsay was not "totally familiar". The "roots" of the maintenance painting division at Lindsay Maintenance spring from John Gallant.
The respondents have argued that there was no consideration. We do not agree. In our view consideration can be found in the very hiring of John Gallant. Put simply in the traditional language of purchase and sale, Lindsay Maintenance bought the skill, expertise and reputation (and all that came with those assets as referred to herein) of John Gallant. With these assets and a promise to apply them to the benefit of Lindsay Maintenance John Gallant bought his employment. It is therefore unnecessary for us to decide whether consideration is or is not a necessary ingredient for a successful section 63 application.
The respondents also argued that the only thing that passed between the two corporate entities was John Gallant - a person who is a mere employee of the alleged successor Lindsay Maintenance in the same manner as the Lindsay Maintenance mechanical supervisors/foremen. We do not agree. Lindsay Maintenance didn't simply hire John Gallant. It acquired his expertise and reputation and used those to obtain the very things Gallant Painting previously had - the most important of which was a place of Nova's bid list and therefore the opportunity to bid upon Nova work.
In our view this is not simply an acquisition of a "key man" case for the facts taken in their totality disclose much more. Lindsay Maintenance acquired Gallant Painting's "goodwill" for any goodwill of that company came by reason of its owner John Gallant and the Gallant name. It acquired some of Gallant Painting's employees - those who apparently had previously worked at the Nova site. It occasionally borrowed equipment from John Gallant. It acquired one of Gallant Painting's two major customers. In this regard we are of the view that Lindsay Maintenance was not merely servicing its own existing customer. Rather it was put on this customer's bid list for maintenance painting work. It did not previously have a place on that bid list and had not previously done that type of work. Although Lindsay Maintenance may not have needed John Gallant to "introduce" it to Nova as a customer, it did need and use John Gallant to get its name on the maintenance painting bid list of that customer.
For all of these reasons and given the purpose and rationale of section 63 we find that for labour relations purposes the events which gave rise to this application constitute a "sale" of a "business" pursuant to section 63 of the Act.
That business however forms only a part of the totality of the business of Lindsay Maintenance. That in our view is a matter which the Board can consider in the exercise of its discretion under section 63(3) and 63(4) and more specifically in defining the "like bargaining unit" referred to in section 63(3). The Board raised this matter with the parties.
The applicant submitted that in the event the Board found that the business of Gallant Painting had been sold to Lindsay Maintenance it sought only to preserve its existing bargaining rights in relation to the Painting Division of Lindsay Maintenance. Although the union has been certified to represent all employees of Gallant Painting in the City of Sarnia, Moore Township and Sarnia Township, save and except non-working foremen and persons above the rank of non-working foreman, sales, office and clerical staff, the union acknowledged that in actual fact it represented only painters and painters' apprentices at Gallant Painting. Apparently Gallant did not employ any persons in any other non-managerial employee classifications. Although invited to do so by the Board counsel for Lindsay Maintenance did not make any submissions with respect to the application of either sections 63(4) or 63(6) of the Act to the facts in the event the Board determined that a "sale" of the "business" had taken place.
In the result therefore we find and declare that there has been a sale of a business from Gallant Painting to Lindsay Maintenance within the meaning of section 63 of the Act. We further declare that as result of such sale the International Brotherhood of Painters and Allied Trades, Local Union 1590 is the bargaining agent for all employees of Lindsay Maintenance employed in its painting division, save and except non-working foremen and persons above the rank of non-working foreman, sales, office and clerical staff. The bargaining rights which the union acquired for the employees of Gallant Painting were limited to employees not engaged in construction. The bargaining rights which we have herein declared it holds for employees employed in the painting division of Lindsay Maintenance are similarly restricted to "non-construction" employees. Having regard to the provisions of section 63(3) the trade union is entitled to give notice of its desire to bargain with a view to making a collective agreement with respect to those employees for whom we have declared it is the bargaining agent.
DECISION OF BOARD MEMBER J. LEAR; September 25, 1991
I dissent.
In this application we are asked to determine that the employment of a manager to develop and control the operations of a newly-established painting division of an already firmly-established and successful mechanical maintenance company constitutes the sale of a business as defined by section 63 of the Act. The question arises because the manager, John Gallant, formerly operated his own business, Gallant Painting, employees of which the applicant union was certified to represent in the fall of 1989. Shortly thereafter, in the belief that unionization would cause his company to become uncompetitive, Mr. Gallant closed down his business.
In February, 1990, becoming aware of a void, and therefore of a business opportunity, in the type of work done by Gallant Painting, and realizing that this work was a natural extension of the operations already undertaken by himself, Jim Lindsay, owner of the mechanical maintenance company, Lindsay Maintenance, assessed the value of the opportunity. Having pursued exhaustive enquiries with prospective customers (only some of them former clients of Gallant Painting) to evaluate potential work volumes, and with his insurers, accountant, the Workers' Compensation Board, and finally his bankers, Mr. Lindsay concluded that a viable opportunity indeed did exist to expand his business successfully. He realized, however, that he would need someone to manage that new division, partly to supplement his own not-too-extensive painting experience, partly because he was greatly committed already to running his $0.8 million annual m mechanical maintenance business. At this point he appreciated Mr. Gallant and offered him employment as manager of the new painting division.
The majority has decided these circumstances constitute transfer of a portion of Mr. Gallant's former business and, therefore, a sale as contemplated by the wording of section 63. 1 do not agree.
What, in fact, did Lindsay Maintenance acquire from Gallant Painting? A new employee, John Gallant by name, to head up its newly-opened painting division as General Manager. Nothing, absolutely nothing, else. John Gallant brought with him his management knowledge and experience. But that is exactly what any person recruited as a "Manager" is expected to bring to his or her new employer. Why would anyone recruit a complete novice as manager if the intention is to improve or to further develop a business?
The question which is crucial to the whole issue is, in employing John Gallant to do this job did Lindsay Maintenance acquire more than it could have gained either by employing an experienced manager recruited from another painting company or by using its own depth of experience? In a finding under section 63, Mr. Gallant's contribution would need to be shown as something unique which neither of the alternatives could have provided. I do not believe the evidence confirms the existence of anything unique.
In Metropolitan Parking Inc., [1979] OLRB Rep. Dec. 1193, the Board stated at paragraph 38:
Is the transfer, if any, from the precedessor merely incidental, or is it integral, to the successor's ability to produce the goods or supply the services formerly produced by the predecessor?
[emphasis added]
In Grand Valley Ready-Mixed Concrete Supply Limited, [1981] OLRB Rep. June 663, at paragraph 19, the Board referred to the need to identify essential elements involved in an alleged transfer:
The answer is to be found in an examination of the two business organizations which existed prior to the transaction. In most section 55 [now section 63] applications, whether involving the alleged sale of a whole business or a part thereof, the nature of the alleged predecessor's business organization provides the ultimate answer. The Board identifies its essential elements and determines if sufficient of these have been transferred to the successor as to allow the business and the employment which it generates to continue. ... However, if ... assets have been disposed of which are peripheral or unrelated to the business organization to which the bargaining rights at issue attach, the Board will not find that there has been a sale of a business within the meaning of the section.
[emphasis added]
What "essential elements", then, did John Gallant bring from his previous business and were these integral to the success of Lindsay Maintenance in supplying the services formerly supplied by Gallant Painting? In total, 4 can be identified:
Management of a painting enterprise.
An introduction to his former clients.
An expertise in estimating for industrial painting.
A guarantee his employment would enable Lindsay Maintenance to qualify as a painting contractor with Nova.
Each will be examined in turn.
The management. The ability to manage a painting enterprise does nothing to support the notion of a "sale". Mr. Lindsay needed to hire this ability only because of his own commitment to running the mechanical side of his business; in a pinch, he could have operated without a painting division manager. Also, he could have employed anyone with management expertise - for the purpose only of managing there was no requirement for a painting background.
The introduction. Although he did some work for others at times, Mr. Gallant testified that almost invariably his total annual work volume was shared equally between Dupont and Nova. He did not effect an introduction of Lindsay Maintenance to Dupont, where the type of work he had been doing had been taken over by a former Dupont employee, using Gallant's former painters. It appeared Lindsay had no chance of an entry there. To the other client, Nova, Mr. Lindsay needed no introduction. He was an employee there from 1972 until 1985, when he left to set up his own business doing the very work, and most of it for Nova, that he had performed there as an employee. Though for mechanical business purposes he did not often deal directly with Mr. Peacock, Senior Purchasing Officer at Nova, who handled painting contracts, Mr. Lindsay was well-known to Mr. Peacock. So for introductory purposes Mr. Gallant brought nothing to Lindsay Maintenance.
The estimating. Mr. Gallant certainly brought with him painting estimating skills. Any other experienced painting manager would have brought them, too. Painting is highly labour-intensive, requiring few and readily-available materials and little equipment. In addition, although no evidence was presented on this point it is my experience that many of the factors which introduce a high degree of uncertainty and speculation into some aspects of estimating, such as ground conditions and stability, equipment suitability, deployment, and availability, material delivery and sub-trade scheduling, are absent from painting. In such a labour-intensive trade where average outputs are, within reason, quite predictable, it is the hourly labour rate which is the very essence of the bid. It is significant that painters formerly employed by Mr. Gallant quit Mr. Lindsay's employment after complaining about the rates of pay.
In its first year of operation, 4 out of 6 painting bids by Lindsay Maintenance to Nova were successful - a success ratio of 66%. The usual number of bidders - we were told from 3 to 5 -should have given a success ratio ranging down from 33% to 20%. This ratio is much more indicative of low labour rates than of any margin of skill in the estimating process itself. To illustrate further Mr. Lindsay's tight control of labour costs, we were told his success rate on mechanical work for Nova, where a good proportion of the mechanical bidding is based on quoting a fixed labour rate per hour for future work to be done as required, was a remarkable 90%, though once more 3 to 5 bids were said to be the norm. Again, this rate of success must be attributed to a strict attention to labour costs. Add to this that about 5% to 10% of Lindsay Maintenance's annual volume of work was already in painting, that apart from being fully capable of successfully bidding that work Mr. Lindsay had taken estimating courses and maintained his own reference library of estimating books, and that records of production standards for painting are readily available. Mr. Lindsay, too, is a practical and versatile entrepreneur and appears to have an intuitive grasp of workplace lore; within his mechanical operations he has carried out electrical, plumbing, carpentry, structural steel and refractory bricklaying works, as well as the heating, ventilating and air-conditioning normally associated with the 'mechanical' reference. He was, then, far from incapable of estimating quantities of paintwork production, and it is not difficult to believe that Mr. Lindsay would have been quite successful in bidding for paintwork from Day 1 without any expert assistance. In my opinion, what Mr. Gallant gave to Mr. Lindsay in estimating for paintwork was confidence, rather than knowledge, and could not represent any part of a "business" acquisition.
The guarantee. Did Mr. Gallant's employment guarantee a place on the Nova painter bidding list for Lindsay Maintenance? There is no doubt Nova does maintain a list of "qualified" bidders, though there is a certain vagueness about how one becomes qualified. Obviously, reliability, financial stability and the ability to carry out a painting operation would be prerequisites. Beyond these, Mr. Peacock, who normally lets painting contracts for Nova, testified in cross-examination that a "qualified" contractor was "one who was investigated and whose past performance suggests he can do what we require". He further testified that qualification was determined by a team, and that in the case of maintenance contracts the team included Mr. Falloon, Maintenance Contract Administrator, and himself. However, in the case of the Lindsay painting division there was no formal team meeting. Instead, Mr. Falloon and himself, knowing Mr. Gallant was its manager, and that some of Mr. Gallant's former employees would be working for it, decided between themselves to add Lindsay to the list. This is the sole item of evidence which could maybe demonstrate that Lindsay Maintenance truly benefited from an "essential element" of Mr. Gallant's former business. Significantly though, Mr. Peacock added that "perhaps the stability of Lindsay Maintenance influenced our decision a bit, knowing John (Gallant) was not off on his own somewhere". As a testimonial to the value Nova placed on the overall integrity and reliability of the Lindsay organization, probably the second part of that statement carries a far greater import than the first. Again, when asked if it was fair to say that if he not known Mr. Gallant was going to Lindsay with some of his former crew, Lindsay Maintenance would not have gone on the "qualified" list, although Mr. Peacock said "at that point in time that would be a correct statement", he also conceded "if Lindsay (paint division) had been in existence and qualified and put in the most competitive bid he would have got the job whether John (Gallant) was there or not". Such comments hardly support the contention that Jim Lindsay could not have developed his painting division as quickly as he did without the use of John Gallant. (emphasis added)
Considering what was required for qualification, clearly Lindsay Maintenance lacked nothing except a broader experience in painting than it had already. The question is, given the undoubted high regard in which Lindsay Maintenance was held by the Nova people, given its record of success, stability and reliability in the diverse variety of work items it tackled on the project. given that Nova clearly required a dependable painter to fill a void and to ensure a genuinely competitive atmosphere following the departure of Gallant Painting from the scene, would Nova have qualified Lindsay Maintenance to bid on painting work, even if John Gallant, or any other experienced painter for that matter, had not come on board? On the balance of probabilities, I do not believe that with its long experience of the competence of the Lindsay organization Nova would have said "No". The employment of Mr. Gallant as manager simply gave Nova a comfortable feeling about the thing.
I have made no direct comment on the employment of former Gallant employees by Lindsay Maintenance. Although it can be argued that those who joined Lindsay did so because Mr. Gallant attracted them there, an argument of equal merit is that these were simply part of a pool of painters in an area where the opportunity for employment which had diminished with the closure of Gallant Painting had now opened up again with the creation of the Lindsay painting division. This has no bearing at all on the "sale" consideration.
None of the cases to which we were referred was of assistance in reaching a decision in this one. All others included at least one material consideration or one positive feature of control which formed part of a transfer. This case involves nothing but an experience. It is for this reason that the background Mr. Gallant brought to his position as an employee of Lindsay Maintenance has to be carefully analysed and critically appraised to establish its true worth in the context of both the construction activity trade and location in which he operated.
As an aside, it should be noted that the construction industry includes a vast majority of small entrepreneurial enterprises, many of which fail to survive over the long term. Given that the circumstances in this case relate to the opening of a new division by Lindsay Maintenance, and are thus a little unusual, the majority decision does, nevertheless, carry the implication that bargaining rights may attach to a person who becomes no more than an employee of another company. It is of concern that this decision may seriously restrict the opportunities of unionized employers whose companies have failed or closed down to obtain future employment with a non-unionized company.
Having set out above and examined in detail all of the "essential elements" of the transfer of business, there is nothing to convince me that anything which could be considered to be in the nature of a sale as contemplated in section 63 ever took place. Accordingly, I would have dismissed the application brought by Painters', Local Union 1590.