The Hospitality, Commercial and Service Employees Union, Local 73 v. 967105 Ontario Limited, 1994 CanLII 9844

Ontario Labour Relations Board

[1994] OLRB Rep. July 897

2933-92-M; 3316-92-R The Hospitality, Commercial and Service Employees Union, Local 73, Trade Union v. 967105 Ontario Limited c.o.b. Sanfords Road­house Restaurant, Employer; The Hospitality, Commercial & Service Employees Union, Local 73, Applicant v. 967105 Ontario Limited, c.o.b. as Sanford's Road­house Restaurants Responding Party

BEFORE: Ken Petryshen, Vice-Chair, and Board Members R. W. Pirrie and H. Peacock.

APPEARANCES: W. Dubinsky, Don Campbell, Linda Ritchie and Lenore Ritchie for the appli­cant; David Sandy Sellers for the responding party.

DECISION OF THE BOARD; July 15, 1994

1. The name of the responding party in Board File No. 3316-92-R is amended to read:

"967105 Ontario Limited, c.o.b. as Sanford's Roadhouse Restaurant".

2. Board File No. 2933-92-M is a Ministerial Reference under section 109 of the Labour Relations Act and Board File No. 3316-92-R is an application under section 64 of the Act.

3. The Hospitality, Commercial and Service Employees Union, Local 73 ("Local 73") claims that 967105 Ontario Limited c.o.b. as Sanford's Roadhouse Restaurant ("Sanford's") is bound to a collective agreement with Local 73 as a result of it having purchased the business of 510412 Ontario Inc. c.o.b as the Waverly Hotel ("the Waverly Hotel"). Local 73 applied to the Minister for the appointment of an arbitrator pursuant to section 46 of the Act. Sanford's denied that it is a successor employer and also denied that it is bound to a collective agreement with Local 73. The Minister referred the following question to the Board for its advice:

Is Sanford's a successor employer and therefore bound by the collective agreement between the union and the Waverly Hotel?

4. By decision dated January 22, 1993, the Board (differently constituted) directed Local 73 to file with the Board an application under section 64 of the Act. This direction was made to ensure that all interested persons were given notice of the sale dispute and to ensure also that the pleadings one would expect in a sale case were filed by the parties. Local 73 filed its application on February 15, 1993 and it was given Board File No. 3316-92-R. The central issue in both matters before us is whether there was a sale of a business from the Waverly Hotel to Sanford's.

5. The Board held a number of days of hearing over a period of time in Thunder Bay to entertain the evidence and representations of the parties. Mr. S. Sellers, the owner of Sanford's, called nine persons to give evidence. Counsel for Local 73 called three persons to testify. In mak­ing its factual determinations, the Board has carefully reviewed the oral and documentary evidence and the submissions relating thereto.

6. Ed Durand owned the business of the Waverly Hotel and operated the business out of leased premises located at 54 North Cumberland Street, Thunder Bay. The Waverly Hotel was licensed to sell beer and liquor and rented rooms. As required by its liquor license, it also provided food to its customers. For a number of years, Local 73 represented all bartending and beverage service persons working in the beverage rooms of the Waverly Hotel. In April, 1991, Local 73 suc­cessfully applied to the Board for a certificate to represent other employees working at the Way­erly Hotel. In August of 1991, the parties amended the collective agreement to cover the recently certified employees. It appears from the evidence that the additional employees were not great in number and that the six full-time and some part-time personnel working in the beverage rooms constituted the core of the bargaining unit.

7. Between February 1991 and May 1991, the members of Local 73 working at the Waverly Hotel engaged in a strike. It appears that the strike was the beginning of the end of the Waverly Hotel. During the strike, Saw Man Inc., which is owned by John Sawchuk, loaned Ed Durand a significant amount of money and got the shares of the Waverly Hotel as security. In October 1991 it was evident to Mr. Sawchuk that he would not get paid. On October 22, 1991 Saw Man Inc. took possession of the Waverly Hotel and its assets. Sawchuk closed down the business and laid off the employees. Sawchuk hoped to re-open the business in a couple of weeks but this never occurred. Since the Waverly Hotel had a lease purchase agreement, Saw Man Inc. bought the building in December, 1991. Under a power of sale, Saw Man Inc. advertised the sale of the busi­ness and the building. Mr. Sawchuk testified that four or five different individuals expressed an interest in purchasing the business of the Waverly Hotel. All of them eventually declined because of the presence of the collective agreement with Local 73. In the Thunder Bay area, it appears that the collective agreement between Local 73 and the Waverly Hotel provided better remuneration and other terms than existed at other unionized hotels. Mr. Sellers was one of the persons inter­ested in buying the business of the Waverly Hotel.

8. Mr. Sellers is a carpenter by trade who operated a small contracting company. Mr. Sell­ers would buy properties, renovate them and then either rent or sell them. Mr. Sellers' wife, K. Corrigan, has experience in the food service industry. Sellers and his wife were interested in obtaining a business in which they could both work. Sellers noticed the advertisement in a newspa­per for the Waverly Hotel and contacted Mr. Sawchuk. Ms. Corrigan's mother lives with Mr. Saw­chuk. After speaking with Sawchuk about the situation and being told about a "union problem", Mr. Sellers contacted Mr. Campbell, Local 73's president and business manager. Campbell advised Sellers that he was interested in getting the business opened. Sellers was particularly interested in Campbell's views on whether Sellers and his wife could work in the business since the collective agreement is very restrictive when it addressed management working. Campbell expressed the view that it was management's job to manage and not to work. Campbell provided Sellers with a copy of the Wayland Hotel agreement which was not as "rich" and did not restrict management from working in the business. Subsequent to meeting with Campbell, Sellers entered into an agree­ment to purchase the business of the Waverly Hotel. The primary focus was on the building but he felt it might be possible to successfully revive the business of the Waverly Hotel after carrying out some minor renovations. The agreement provided for the purchase of the building, goodwill, the right to use the name Waverly Hotel and all licences necessary to operate the business. As a condi­tion precedent in the agreement, the vendor and purchaser were to make reasonable efforts to amend the existing collective agreement or to enter into a new collective agreement upon terms satisfactory to the purchaser and similar to the terms of the Wayland Hotel collective agreement.

9. The agreement of purchase and sale was executed on February 3rd, 1991. Sawchuk set up a meeting for the following day between himself, Sellers, Campbell and union members who had worked at the Waverly Hotel. It is not necessary to detail the discussions at this meeting other than to note that Campbell was not prepared to alter the terms of the existing collective agree­ment. Sellers prepared an offer to Local 73 based on the Wayland Hotel agreement which he sent to Campbell and some of Local 73's members. Sellers was prepared to buy the business of the Waverly Hotel but in his view the business would not be viable unless he obtained some changes to the collective agreement. Most importantly, he felt that the business could not succeed unless he and his wife were able to work in the business. Sellers testified that he did not receive any response from Campbell to his proposal. Sellers believed that a number of employees were prepared to alter the collective agreement but he felt that Campbell was not prepared to let the members decide the issue. This caused Sellers to write to his member in the Provincial Legislature and the Minister of Labour to obtain some assistance. Since the condition precedent relating to the alteration of the existing collective agreement had not been met the sale was not completed. Even if the condition precedent had been resolved, it is not entirely clear that the sale would have been completed since Sellers indicated there may have been difficulty obtaining financing because the bank was not con­vinced that the business was a good risk. Mr. Sawchuk invited Campbell to find someone who was prepared to buy the business but Mr. Campbell apparently was not successful in directing anyone to Mr. Sawchuk.

10. As a member of the carpenters union for many years, Sellers had some difficulty in understanding why he and Local 73 could not reach an accommodation. In order to educate him­self concerning labour relations matters, he did some research. He read a labour relations text by Sack and Mitchell and the Labour Relations Board Reports. He learned that the bargaining rights attached to the business. Since he and his wife were not able to work in the business of the Waverly Hotel, he considered simply buying the building and premises which was his primary focus in any event. On March 23, 1992, Sellers made an offer to purchase the land and building known as 54 North Cumberland Street. He offered to pay $351,000 which was approximately $40,000 less than what he had previously offered to pay for the business. With this offer, Sellers did not pur­chase the right to use the name of the Waverly Hotel, nor the goodwill. None of the licenses previ­ously held by the Waverly Hotel, including the liquor license, were transferred to Sanford's. Although the sale included all fixtures and all chattels located at the property, it did not include any inventory. No rental contracts were transferred and no relationship with suppliers was main­tained with Sanford's. Sellers purchased the building and premises with a view to starting a restau­rant business. Sellers obtained possession on May 1, 1992 and the deal closed on May 5, 1992.

11. Once he gained possession, Sellers carried out extensive renovations on the building. Sellers testified that the value of the renovations he undertook was approximately $300,000. The Board heard considerable evidence relating to the nature and extent of the renovations which we find unnecessary to detail. Suffice it to say that much of the main floor was gutted and the renova­tions that were made were intended for a restaurant environment including an adequate kitchen facility. The kitchen area was expanded considerably and modernized. Although the purchase included the existing chattels, Sellers found that there was very little that was of any use to San­ford's business. On August 10, 1992 Sanford's purchased the goods and chattels of an O'Tooles restaurant. In addition, new goods were purchased. It was the new goods and the goods and chat­tels obtained from O'Tooles which became central to the operation of Sanford's business. The for­mer men's side lounge is where the present restaurant is located. Only a small portion of the other lounge is being utilized by Sanford's. The remaining 1,800 square feet has been listed for rent with a real estate agent. In addition to the main floor Sellers carried out significant renovations on the floors where the rooms are located.

12. Mr. Sellers opened for business on November 9th, 1992 approximately thirteen months after Mr. Sawchuk closed the business of the Waverly Hotel. After six months of renovations, Sell­ers opened up a restaurant which is now the focus of the business activity on the premises. He hired a manager who had training and experience in restaurant management. Sellers advertised for staff and provided the employees he hired with the training needed to work in a restaurant opera­tion. Only one of the employees who had worked at the Waverly Hotel applied for employment at Sanford's. This person was hired and provided with the necessary training. Mr. Sellers testified that he understood that Mr. Campbell advised the former Waverly Hotel employees not to apply for jobs at Sanford's since they would all be returning to work as a group. The focus of the restau­rant business is to attract people to come for lunch and dinner. Sanford's also provides a catering service and had catered an event with 150 people.

13. Thus far we have briefly described the aspects of the business of the Waverly Hotel and the business of Sanford's. The parties called a number of witnesses to testify about the nature of each business, particularly the business of the Waverly Hotel at various periods during its history. The focus of the evidence was on the extent to which each business provided its customers with food and drink. It is unnecessary to set out all of this evidence. A review of the evidence before us leaves one with the following picture of each business.

14. The Waverly Hotel operated a typical hotel operation. It rented rooms to guests for varying periods of time. It appears that some guests at the Waverly Hotel were employees who worked at the Hotel and were provided with a room as part of their compensation. Entertainers were provided with rooms while they were engaged to provide entertainment at the Waverly Hotel. Persons renting or otherwise occupying rooms were not permitted to cook. They were sup­plied with bedding and their rooms were cleaned for them. No more than one person was employed by the Waverly in connection with the rental of rooms. The focus of the business was clearly on the sale of beer and liquor and the provision of entertainment. The evidence suggests that the Waverly Hotel was well-known for the bands it employed to attract thirsty patrons. Prior to closing, the music was country and western and before that it was rock and roll. At other times, the Waverly Hotel showed movies and provided other forms of entertainment in order to attract customers. As noted earlier, the Waverly Hotel provided food for its customers and was required to do so as a condition for maintaining its liquor licence. Although there was a dispute concerning the extent of the food services provided, the Board is satisfied that the main focus of the business of the Waverly Hotel was not in providing food to customers. Customers of the Waverly for the most part went there to drink and to be entertained with live entertainment. Customers did not go there to eat, although some might very well order food while on the premises. It appears that the Waverly Hotel contracted out the provision of food services and that this aspect of its operation was not a primary revenue source if it was a revenue source at all. In the last months of its opera­tion, it appears that very little revenue was generated from the sale of food or the rental of rooms.

15. After completing the renovations, Mr. Sellers rents the rooms as residential premises under the Landlord and Tenant Act. He collects the first and last month's rent and asks for a secu­rity deposit. A fridge and microwave are supplied with each room and cooking is permitted. Ten­ants have access to a coin operated washer and dryer. Tenants clean their own rooms and supply their own bedding. Sanford's applied for and obtained a new liquor license and it obtained a license to provide food services from the City of Thunder Bay. As noted earlier, the focus at San­ford's is on the provision of food to customers. However, as one might expect, the revenue gener­ated from liquor sales is greater than that generated by the sale of food. Sanford's does not provide live entertainment but it does provide televisions, video tables and various other games for its cus­tomers.

16. The relevant portions of section 64 of the Act are as follows:

64.(1) In this section,

"business" includes one or more parts of a business; ("entreprise")

"predecessor employer" means an employer who sells his, her or its business; (~~employeur pr& c~dent")

"sells" includes leases, transfers and any other manner of disposition; (~vend")

"successor employer" means an employer to whom the predecessor employer sells the business. ('employeur qui succ~de")

(1.1) This section applies when a predecessor employer sells a business to a successor employer.

(3) If, when the predecessor employer sells the business, a trade union is the bargaining agent for any employees of the predecessor employer, has applied to become their bargaining agent or is attempting to persuade the employees to join the trade union, the trade union continues in the same position in respect of the business as if the successor employer were the predecessor employer.

17. In support of its position that no sale occurred, Mr. Sellers relied on Thunder Bay Golden Nugget Salon, [1991] OLRB Rep. July 918. Counsel for Local 73 referred us to the follow­ing decisions: Doyles Tavern, [1984] OLRB Rep. Dec. 1700; Krush, [1987] OLRB Rep. Jun. 859, and Accomodex Franchise Management Inc., [1993] OLRB Rep. Apr. 281.

18. Board decisions have interpreted and applied the sale provisions to various fact situa­tions. For our purposes, we will refer to some brief comments contained in a few decisions. In Crown Packers & Realties Ltd., [1988] OLRB Rep. Aug. 752, the Board outlined the nature of the issue as follows:

19. As is usual in this type of case, although we have no difficulty in finding that the predecessor RDM has disposed of 'something" to the respondents, it is more difficult to determine if the sale of that "something" constitutes a sale of a "business". Once again we note that in the past the Board has given a broad and liberal interpretation of the term ~business". As the Board noted in the Metropolitan Parking Inc., case:

A business is a combination of physical assets and human initiative. In a sense it is more than the sum of its parts. It is a dynamic activity, a going concern", something which is "carried on". A business is an organization about which one has a sense of life, movement and vigour. It is for this reason that one can meaningfully ascribe organic qualities to it. However intangible this dynamic quality, it is what distin­guishes a "business" from an idle collection of assets.

In that particular case the Board focused on whether the purchaser had acquired a 'functional economic vehicle".

39. Similarly, a "part of the business" must be a functional vehicle. The sale of 'part" of a busi­ness must be more than simply sale of a part used in the operation of the business and must be a transfer of part of the operation itself. A "coherent and severable part" or a "discrete, cohesive portion" of the predecessor's economic organization sufficient to enable the successor to per­form a discrete, definable part of the functions formerly performed by the predecessor employer must be transferred. To hold otherwise would mean that each disposition of isolated elements of the business would result in a finding under section 63 of the Act.

Most of the cases under section 55 [now section 63] involve an alleged sale of a busi­ness in its totality. Only a few consider the meaning to be ascribed to the words "part of a business". Yet those words pose much more difficulty than the term business itself. Almost anything actually traceable to the predecessor could be regarded as "part" of its business. But it could not have been intended that every minor disposi­tion of surplus assets should give rise to a successorship. To accept this view, would make section 55 the vehicle for extending rather than preserving bargaining rights.

(See Vaunclair Meats Limited, supra, at paragraph 25).

40. After reviewing a number of decisions the Board went on the state:

In each of the cases to which we have referred, the Board found that the predecessor had transferred a coherent and severable part of its economic organization, manage­rial or employee skills, plant, equipment, "know how" or goodwill, thereby allowing the successor to perform a definable part of the economic functions [formerly] per­formed by the predecessor. This economic organization undertook activities which gave rise to employment, and the terms and conditions of employment, together with the union's right to bargain about them, were preserved. The part of the predeces­sor's business which it no longer wished to continue, provided the business opportu­nity which the successor was able to pursue to its own advantage. In all of the cases, there was a transfer of a distinct part of the predecessor's configuration of assets, and no material change in the character of the work performed by employees within that asset framework. There was a continuation of the work performed, the essential attributes of the employment relationship, the skills of employees, and the functional coherence of at least a part of the employee complement.

19. In Miracle Food Mart, Steinberg Inc., [1988] OLRB Rep. July 679 in paragraph 20 the Board stated:

20. In dealing with section 63 applications, the Board has traditionally accorded a liberal mean­ing to both the term "business" and "sells". The Board has recognized section 63 is intended to provide some stability and permanence to collective bargaining rights, to insulate those rights from the vagaries of commercial transactions where the enterprise continues, at least in part. Whether a particular commercial transaction constitutes the "sale" of a "business" or "part of a business" is a factual determination reflecting the totality of the specific circumstances. Various indicia have been noted in the jurisprudence including, the nature of the work, location, physi­cal assets, managerial expertise, goodwill, company name, customer lists, accounts receivable, inventory, restrictive convents, and hiatus in the operation. Moreover, it has been acknowl­edged that particular configurations of factors leading to a conclusion that a "sale" has occurred may differ considerably from industry to industry or between sectors of the economy. In any specific instance, the Board must determine whether what has been transferred is merely a col­lection of assets or an ongoing enterprise (or, at least, a distinct and severable segment of that ongoing enterprise).

21. In his argument, counsel for Local 73 submitted that the facts support the conclusion that Sanford's purchased the business of the Waverly Hotel and he also suggested that the sale transaction was unsuccessfully structured in order to avoid Local 73's bargaining rights. Although perhaps not terribly relevant, it is difficult to conclude from the evidence that Mr. Sellers' objective was to avoid inheriting Local 73's bargaining rights. Mr. Sellers was prepared to purchase the business of the Waverly Hotel and enter into a bargaining relationship with Local 73 as long as he and his wife could work in the business. In his view, the chances of operating a viable business was unlikely unless he and his wife could work in it. Mr. Sellers was quite prepared to be bound to a collective agreement similar to the Wayland Hotel collective agreement. Local 73 determined it could not alter the terms of the collective agreement it had with the Waverly Hotel. From its per­spective, Local 73 may have had sound reasons for taking this position and we are not in a position to be critical of it for the decision it made. However, circumstances do not suggest to us that Mr. Sellers' motivation was in avoiding Local 73's bargaining rights. His goal was to purchase an asset and start a business in which he and his wife could work. As he testified, it became clear to him that that business was not going to be the business of the Waverly Hotel.

22. Was there a sale of a business from the Waverly Hotel to Sanford's? As it has often noted, the Board is required to carefully review the facts in each case and determine whether a sale has occurred. We have no difficulty in accepting the principles of those cases referred to us by counsel for Local 73 but note that the facts in those cases are different from the facts before us. In the "tavern" cases relied upon by Local 73, the purchaser operated a tavern after the transaction, even if there was a hiatus in the operation, and it appears to be of some significance that the liquor licence was transferred from the vendor to the purchaser. In the Accomodex case, which represents a useful review of the Board's jurisprudence, the purchaser bought the lands, buildings and most of the tangible assets of the predecessor employer. Although there was a hiatus of 14 months, the purchaser used the core assets to operate the business of a hotel with jobs that were essentially the same as those in the predecessor's business. Based on the facts before it in those cases, the Board concluded that there had been the sale of a business.

23. Sanford's purchased the land and the building that were firmly a part of the business of the Waverly Hotel. It also purchased some chattels but the evidence suggests that not many chat­tels were utilized by Sanford's and those chattels that were used required refurbishing. No goodwill transferred to Sanford's nor did it purchase the name the Waverly Hotel. Accounts receivable, inventory, necessary licences and managerial expertise were not transferred to Sanford's. There was a thirteen month hiatus from when the business of the Waverly Hotel closed and when San­ford's started operating. The renovations that were performed on the main floor were designed for purposes of operating a restaurant and were not completed to simply upgrade or modernize the premises. Even the rental of rooms is now done in quite a different way than previously. In order to carry on with its business, Sanford's was required to purchase new goods as well as the goods and chattels of an O'Tooles restaurant. It is the purchase of these assets which were critical to the operation of Sanford's business. Although not entirely dissimilar, the evidence suggests that the jobs performed by Sanford's employees require some different skills than those of the employees of the Waverly Hotel. Although each of these factors by themselves is not determinative, they do tend to point to the conclusion that no sale of a business occurred between the Waverly Hotel and Sanford's.

24. In essence, the position of Local 73 is that Sanford's business consists of the provision of food, drink, entertainment and the rental of rooms to its customers which was essentially the busi­ness of the Waverly Hotel. Although certain elements may be common to different businesses, this does not lead one to conclude that they are the same business. The focus of the business of the Waverly Hotel was on high volume beer and liquor sales with live entertainment. The primary focus of Sanford's is on the sale of food to customers who hopefully will also have a drink. The Waverly Hotel operated a hotel business and Sanford's operates a restaurant business and acts as a landlord. The evidence supports assertions of some of the witnesses who testified that in looking at both operations it would be clear that there were two distinct businesses. From the evidence before us, the Board is satisfied that certain assets were transferred from the Waverly Hotel to Sanford's but that an ongoing enterprise was not transferred.

25. As noted earlier, the employees who previously worked at the Waverly Hotel have con­siderable seniority. Many of them have expectations of securing employment with Sanford's at a time when obtaining other employment may be problematic. In dealing with this application, the Board recognized that these practical employee interests are not insignificant. However, after reviewing the particular facts of this case and the submissions, the Board finds that there was no sale of a business between the Waverly Hotel and Sanford's Roadhouse Restaurant.

26. Accordingly, the application in Board File No. 3316-92-R is dismissed. With respect to Board File No. 2933-92-M, the Board advises the Minister that Sanford's is not a successor employer and is not bound by the collective agreement between Local 73 and the Waverly Hotel.