[1995] OLRB Rep. August 1141
2907-94-R United Food and Commercial Workers International Union Local 175, Applicant v. Zellers Inc., Woolworth Canada Inc., Responding Parties
BEFORE: Kevin Whitaker, Vice-Chair, and Board Members S. C. Laing and Pauline R. Seville.
APPEARANCES: Kelvin Kucey for the applicant; Wallace Kenny, Frank McGurk and Linda Hunter for Zellers Inc.; no one appearing for Woolworth Canada Inc.
DECISION OF THE BOARD; August 17, 1995
What this case is about
This is an application under section 64 of the Labour Relations Act. The applicant seeks a declaration that the respondent Zellers Inc. (referred to in this decision as "Zellers") is bound by the collective agreement between the applicant and the respondent Woolworth Canada Inc. (referred to in this decision as "Woolworth").
The substance of the case is that Woolworth who had a collective agreement with the applicant, terminated a lease in a shopping mall in a small regional centre. The landlord of the mall who has had an ongoing business relationship with Zellers, pursued Zellers as a new tenant. Zellers and the landlord negotiated a new lease and expanded the store. With the exception of the premises and five employees, nothing of Woolworth's ended up in the hands of Zellers. There were no direct or indirect dealings between Zellers and Woolworth around the transaction. For reasons which follow, this application is dismissed.
The Facts
The facts are not in dispute. Woolworth did not appear. Zellers called as its principal witness Frank McGurk ("McGurk"), Director of Real Estate and Development for both Zellers and "The Bay". The applicant called as its only witness Antoinette Ferguson, a litigation clerk employed by Woolworth. The applicant did not call any evidence to contradict the evidence of McGurk. Credibility is not an issue.
Woolworth has for a number of decades, operated what has been described in the evidence as a "junior department store" at 500 Railway Street in Kenora. The store has most recently operated under the name "Woolco". Until it closed, Woolco was the only department store in the Kenora area. The store was located in a mall owned by First Commercial Management Inc. (referred to in this decision as "Commercial"). The principal of Commercial is Thaddeaus L. Charne, Q.C. ("Charne").
In 1984, the applicant was certified as the bargaining agent for all employees of Woolworth at 500 Railway Street in Kenora. During the last round of collective bargaining, the applicant became aware of the fact that the Woolco store in Kenora would be closed. The applicant and Woolworth concluded their collective bargaining. They reached an agreement concerning the payment of severance to the employees working at 500 Railway Street in Kenora. The agreement also confirmed Woolworth's commitment to encourage any new retailer who might occupy the premises in Kenora to hire former Woolworth employees.
In January of 1994, Charne on behalf of Commercial contacted McGurk. The purpose of the contact was to solicit Zellers as a prospective tenant for the site occupied by Woolworth. The Woolco store was scheduled to close in 1994 and Commercial wanted to obtain a new tenant as quickly as possible.
Zellers and Commercial negotiated the terms of a lease between January and May of 1994. The lease was different from the one that had existed between Woolworth and Commercial. McGurk testified that neither Zellers nor Commercial wanted the old lease between Woolworth and Commercial to continue. Both Zellers and Woolworth have standard form leases which vary in a number of ways. McGurk testified that the Woolworth lease would not allow Zellers to meet their objectives. In his view, Commercial might be "slightly better off' with the Zellers lease.
According to McGurk, Woolworth ceased operations in April of 1994. Zellers took possession of the premises in late July or early August of 1994. Zellers assumed the tenancy in what was described by McGurk as "broomswept clean". This means that the space was empty of all merchandise, fixtures or moveables and was literally broom swept.
It was McGurk's uncontradicted evidence that there were no dealings either directly or indirectly between Zellers and Woolworth concerning the disposition of the tenancy by Woolworth. Woolworth did not receive any compensation or consideration from Zellers for relinquishing the tenancy. There was no evidence to suggest that Woolworth profited at all by abandoning the lease with Commercial. There was however some evidence that Zellers and Woolworth had directly negotiated a departure by Woolworth at the behest of Zellers in another mall in another province. In that situation, McGurk stated that unless Zellers paid Woolworth some money, the latter would not leave the tenancy. This situation was contrasted with the dealings between the parties concerning the Kenora location. In Kenora, Woolworth had make a unilateral decision to leave without regard to what might happen to the vacated premises.
Between July of 1994 and the spring of 1995, Zellers undertook a major renovation and expansion of the premises in Kenora. Approximately 5.3 million dollars was spent. The floor space was expanded by over a third from 55,000 to 74,350 square feet. Zellers built new walls, ceilings and roof. New lighting, electrical, mechanical and heating and air conditioning systems were installed. New furnishings, fixtures and merchandise were procured in keeping with Zellers guidelines in place throughout its approximately 300 stores nation-wide.
Before opening, Zellers hired approximately 100 employees. The employees were hired directly from the local community without any involvement on the part of Woolworth. Approximately 5 employees who had formerly worked for Woolworth were hired by Zellers. Former Woolworth employees were not given preference, and all applicants were assessed on their own merits according to standards adopted by Zellers nation-wide.
Zellers opened its doors to the public in Kenora in November of 1994. This opening predated the expansion of the floor space which did not occur until the spring of 1995. McGurk testified that both Zellers and Commercial could not afford to miss the winter holiday sales period when 60 to 80 per cent of yearly sales would normally be done.
McGurk was asked questions by both Counsel concerning the value to Zellers of the location in Kenora, and the goodwill that might have passed from Woolworth to Zellers as a result of occupying the same premises. In McGurk's view, Zellers would have done just as well in Kenora at any other location as long as there was parking, visibility and street access. He stated that the specific location was of no value to Zellers and they could have built a free standing store that would have done just as well as long as it had parking, visibility and street access. McGurk also stated that there would be no goodwill passing through to Zellers from Woolworth. He emphasized the distinctions between the way in which the two companies do business and the fact that Zellers has a distinctive way of marketing itself nation-wide. McGurk did however concede that both Zellers and Woolco carried on the same type of business, and that the work done by employees on a day to day basis would be the same for the two companies.
Counsel for the applicant spent much of his cross examination exploring the relationship between Zellers and Charne. It was conceded by Zellers that there was a close business relationship between Charne and Zellers and that they had entered into a joint venture whereby they each owned a half interest in a mall in another province. It was also the case that Charne was a landlord for Zellers in at least five other properties. McGurk testified that Zellers had close relationships with a number of other landlords, and that with 300 stores in the country, there were other landlords with as many as 19 leases with Zellers. McGurk said that in the past, Zellers had owned property jointly with other landlords although in the nine years in his present position, the joint venture with Charne was the first of this type that he had been involved in. McGurk was clear however, that throughout the negotiations over the Kenora property, Charne acted in his own interest as would any other prospective landlord.
Analysis
The threshold question to be determined is whether there was a sale of a business. The Act defines the terms "business" and "sale" broadly so as to include entities and transactions which bear little resemblance to their counterparts at common law. As the Board has noted in many cases, the purpose of these broad categories is to ensure that the integrity of the collective bargaining process is not undermined by changes in the form of the enterprise. Having said that however, it is also clear that the two categories have their limits. "Sale" does not include all transfers or dispositions, nor does the term "business" refer to all undertakings or forms of production.
In Accomodex Franchise Management, [1993] OLRB Rep. April 281, the Board stated that a "business" is a commercial vehicle rationally constructed to produce certain goods or services for a defined market. In St. Leonard's Society of Metropolitan Toronto, [1993] OLRB Rep. Jan. 56, the Board described its conception of "business", as an instrumental one as opposed to a functional one. Put plainly, this means that the business consists of various components such as employees, assets, body of work etc. and the relationships that exist between the constituent components. This instrumental formulation of "business" is contrasted with what has been described in the jurisprudence as the "functional" formulation, referring only to the purpose of the business or the the work itself which is performed. Support for this distinction is drawn from the Supreme Court of Canada in Syndicat national des employes de Ia Commission scolaire regionale ed l'outaouais (CSN) v. Union des employes de service local 298 (FTQ), Bibeault et al. 1988 CanLII 30 (SCC), 2 SCR 1048. Relying on the same authority, the Board has observed in Parnell Foods Limited [1992] OLRB Rep. Dec 1164, that the instrumental as opposed to the functional approach has now been adopted in all Canadian jurisdictions.
The significance of the Board's adoption of an instrumental analysis is that the applicant must demonstrate that something more has been disposed of from the predecessor to the successor employer than simply the function of performing the same work. The applicant must go further and prove that an operational entity consisting of constituent components and particular relationships between those components has passed from predecessor to successor employer. There are of course varying degrees to which this may occur and the term "business" in section 64(1) is defined to include one or more parts of a business. As the Board noted in Accomodex at paragraph 58, the more the successor employer's ability to carry on business is derived or is dependent upon things which were acquired from the predecessor employer, the more likely a transfer of a business has taken place.
The applicant relied on a number of Board decisions dealing with the retail food industry. It argued that this industry was analogous to the department store industry and for that reason, the same set of assumptions applied in those cases should be applied in this case. There are a number of cases dealing with the retail food industry where the Board has found that the elements of store location and premises were such a fundamental aspect of the predecessor employer's business that a disposition of those assets determined a sale of a business. In Dutch Boy Food Markets, 65 CLLC 16,051,the Board stated:
The success of a food supermarket is dependent, on large measure, upon the support of the people who live in the area in which the store is located. Accordingly, any goodwill consists in the habit of customers of the vendor continuing to patronize the food market located on the same premises.
The remarks in Dutch Boy referred to above have been relied on in a number of subsequent Board cases dealing with the retail food industry (see for example More Groceteria Limited, [1980] OLRB Rep. April 486, and Canada Safeway Limited, [1986] OLRB Rep. November 1498). In each case however, the Board made a finding of fact that the specific location of the business was an integral component of the predecessor business.
In the case before us, the only aspect of Woolworth's business which made its way into the hands of Zellers, was the physical location of the premises. The premises were however occupied under a lease with terms that varied from the lease that had existed between Commercial and Woolworth. It was also the case that Zellers virtually rebuilt the space and expanded it by over a third. Significantly, none of the merchandise, inventory, fixtures or furnishings belonging to Woolworth passed to Zellers. Very few former Woolworth employees ended up working for Zellers. Those that did had to compete for positions as any other new hires would have, with no advantage gained from the fact that they had formerly worked for Woolworth.
On the issue of the significance of the particular location to Zellers' business, we have only the uncontradicted evidence of McGurk. He testified that the specific location was of no value to Zellers. As long as they had parking, road access and visibility, they could have done as well in any location in the Kenora area. This assertion was not challenged by the union and no evidence was lead to the contrary.
Where the only tangible thing disposed of by the predecessor employer is the location, the significance of the location for the successor employer is of central importance. In a small regional centre where the successor will have no local competition, McGurk's evidence in this regard makes intuitive sense. If a consumer in Kenora wishes to patronize a department store, that consumer will presumably go to wherever the one department store is located. The same reasoning might not apply in a larger centre where a number of malls exist, each with their own department store tenant competing for business in the same geographic market. In those circumstances, consumers may be drawn to a particular geographic location and the retail food store assumptions might make more sense.
On the evidence before us, we cannot find as a fact that the specific location of the business was an important or critical element of either Woolworth's or Zellers business. On a similar set of facts in a case dealing with the same parties in British Columbia, the Board there came to the same conclusion. (F. W. Woolworth Co. Limited-F. W. Woolworth CIE Limitee and Zellers Inc. and United Food and Commercial Workers International Union Local 1518 unreported decision of the British Columbia Labour Relations Board BCLRL No. B231/95 dated June 16, 1995).
The applicant also argued that the transaction was less than arms length because of the close business relationship that existed between Zellers and Commercial. The applicant suggested that Commercial in effect acted as an agent for Zellers in its dealings with Woolworth. We find that on the evidence, Commercial acted in its own interest as would any other owner of retail mall property. There is little doubt that the interests of Commercial and Zellers would overlap, but again it would appear that in any commercial tenancy agreement, the landlord would presumably wish to have a successful tenant to safeguard the landlord's interest in the tenancy. McGurk testified on this point that although his relationship with Charne was a close business relationship, it also was the case that Zellers had a number of similar relationships with other landlords. Certainly there were landlords who held more Zellers stores properties than Commercial. On the facts, we cannot find that Charne or Commercial were acting as agents of Zellers in dealing with Woolworth. In fact, it would appear that Woolworth unilaterally decided to discontinue its business in Kenora. Whatever negotiations took place following that decision between Woolworth and Commercial did nothing to alter that very fundamental decision.
Accordingly, the Board finds that in the circumstances of this application, a sale of a business did not take place within the meaning of the Act. For this reason, the application is dismissed.