Hotel Employees Restaurant Employees Union, Local 75 v. Hilton Canada Inc. and Sizzling in Toronto, Inc.
[1997] OLRB REP. MAY/JUNE 452
2286-95-R Hotel Employees Restaurant Employees Union, Local 75, Applicant v. Hilton Canada Inc. and Sizzling in Toronto, Inc., Responding Parties
BEFORE: K. G. O'Neil, Vice-Chair, and Board Members O. R. McGuire and P R. Seville,
APPEARANCES: Pierre Sadik and Bobbi Kerwin for the applicant; Brian McLean and Laura Myers for the Toronto Hilton, E. L. Stringer and E. Hollyer for Sizzling in Toronto.
DECISION OF THE BOARD; May 5, 1997
The style of cause is hereby amended to reflect the correct name of the responding parties: "Hilton Canada Inc. and Sizzling in Toronto, Inc."
This is an application for successor rights resulting from the closing of the Trader Vic's restaurant in the Toronto Hilton and the subsequent opening of a steakhouse known as Ruth's Chris in the same premises. The responding party "Sizzling in Toronto, Inc." runs Ruth's Chris. The parties will be referred to below as the union, the Hilton and Ruth's Chris.
The union takes the position that a sale of business has occurred because of the transfer of location and goodwill as well as the relationship of the business of Ruth's Chris to the hotel, The hotel and Ruth's Chris maintain that nothing was left of the Trader Vic's business to be sold, and that all that the hotel did was lease space; neither Trader Vic's nor the hotel sold any of its business,
There were eight days of hearing over the better part of a year during which we heard evidence from four witnesses called by the responding parties. The union called no evidence. The facts are not substantially in dispute. It is their legal characterization which divides the parties.
The Facts
After more than 18 years in the building which is now the Toronto Hilton, Trader Vic's closed on December 23, 1993. It had been losing money and the hotel decided not to renew its lease. For approximately 18 months thereafter, the premises were vacant while the hotel attempted, through a commercial real estate agent, to find a new tenant. The Hilton did not restrict itself to restaurants as prospective tenants. It was searching for any tenant relationship capable of generating a reasonable return. Alternatives considered included using it as an additional ballroom or function room, and leasing it to a private medical service or indoor golf facility. On August 21, 1995 the new tenant opened Ruth's Chris Steak House in the same part of the basement premises previously occupied by Trader Vic's,
The 25 employees who worked at Trader Vic's at the time of its closing were employees of the Hilton and were covered by a collective agreement between the union and the Hilton. A number of these employees were laid off as a result. Some Hilton employees who worked in other restaurants at the Hilton were "bumped' by employees from Trader Vic's who transferred into their positions. The union wishes its bargaining rights to apply to the employees of Ruth's Chris as it did to those at Trader Vic's.
No transaction occurred between Trader Vic's and Ruth's Chris nor were any managers or employees transferred from Trader Vic's or the hotel to Ruth's Chris. However, their relationships with the Hilton are argued to have been similar enough to support a finding of a sale of a business. Thus, we will set out the relevant facts of' the relationship between Trader Vic's and the hotel and compare them to the situation with Ruth's Chris.
The Hilton manages the hotel complex at 145 Richmond Street West under a management agreement with the hotel's owner, Ceasar Park Hotel Investment Inc., formerly Westin Hotel Company Limited (referred to as Westin below). Hilton is Westin's agent. In this capacity, it leases space to various tenants including a beauty salon, news kiosk and a clothing store. When Trader Vic's was in the Hilton premises, it operated under a management agreement between Westin and Trader Vic's, a California based chain. It was one of the agreements taken on when the Harbour Castle and the Hilton hotels were "swapped" in the early 1990's. The agreement specifies that the hotel will pay a management fee to Trader Vic's, and that the relationship was not one of landlord and tenant. The evidence was that Hilton covered all operational expenses for Trader Vic's and was responsible for ensuring that the restaurant made a profit and that its operation met very detailed specifications set by Trader Vic's, Trader Vic's did catering for the Hilton and its guests; food and beverages from Trader Vic's were often sold by Hilton as part of its convention and catering business.
Horst Angelkotter is Hilton's general manager. As to whether a restaurant such as Trader Vic's was integral to the Hilton's business, in terms of its guests needs, Mr. Angelkotter testified there "was always a need for an additional restaurant if you can get one" and he thought hotel guests were a significant portion of Trader Vic's clientele. He said the reason a hotel has a restaurant is to cater to both guests and local customers. At all relevant times the hotel has operated a restaurant on the lobby level, which serves breakfast, lunch and dinner. Neither Trader Vic's nor Ruth's Chris served breakfast, and Mr. Angelkotter considered them "specialized" restaurants. Mr. Angelkotter testified that the hotel needed a specialized restaurant serving dinner; he considered it a plus from a marketing point of view to have Ruth's Chris on the premises as he had initially with Trader Vic's. He thought the marketing department had given a Hilton logo to Ruth's Chris to use, but was not sure if they had used it.
For its part, Ruth's Chris does not consider itself an integral part of the Hilton's business as the chain has its own clientele to whom they market. Ruth's Chris is part of a chain of 48 steak houses with its head office in Louisiana, USA. Ruth's Chris engages in comprehensive marketing for the chain throughout north america which includes advertising in travel publications, newsletters, posters and buttons announcing new restaurant openings and a fan club, "the Steakhouse Gang". The advertising emphasizes the "product" of the steak itself and encourages identification of the name with the image of the steak. Staff are trained to provide a consistently high level of dining experience throughout the chain. The target market is the male professional between the ages of 35 and 65.
Ruth's Chris occupies the space formerly occupied by Trader Vic's, pursuant to an October 1994 lease between Westin and Ruth's Chris negotiated by Hilton. The rent was free for the first year and based on a percentage of sales thereafter. Mr. Angelkotter testified the hotel was selling space and location, and that in return Ruth's Chris also got an association with the Hilton name. Mr. Angelkotter thought it an ideal location for Ruth's Chris because of the association of the two names.
Ruth's Chris was solely responsible for financing, designing and constructing the substantial renovations to the leased space. With the exception of some oven venting, which is built into the building, and built-in refrigerators, the premises were gutted and completely rebuilt from the wall in by Ruth's Chris.
The cost to Ruth's Chris new kitchen equipment alone was approximately $200,000.00, entirely new dining rooms and bar area were built and furnished at a cost of approximately 1.6 million dollars, including demolition and reconstruction. Ruth's Chris insisted on a 10 year lease - longer than the standard three to five year lease with other Hilton tenants - because of the extensive capital investment they were making.
Settling on the Hilton site was the end of a process that had started several years earlier for Lana Duke, the owner of Ruth's Chris Toronto franchise. After an unsuccessful search for an affordable Toronto site in 1991, Ms. Duke abandoned Toronto and instead opened a restaurant in San Antonio, Texas in mid-1992. In late 1993, she revived her search for space in Toronto. A feasibility study and a location analysis were done. Using the same real estate agent as the Hilton, she narrowed the choices to two - the old Trader Vic's space and a free standing location on King St., based on factors such as the size of the kitchen required and the need for it to be downtown. Although Ms. Duke preferred the King St. location, the owner never made an acceptable offer, as a result, she settled on the Hilton, as it was easy for both the local and travelling client to get there. She testified she got space and a downtown location in return for the best rent offered for a Ruth's Chris in North America.
Lana Duke felt the Hilton location was neutral to her business, as long as the customer could get there conveniently, since Ruth's Chris has its own identity. She was of the view that people pick a hotel to sleep in and a restaurant to eat in, noting her view that the Hilton is not associated with fine dining. She said she thought travellers might try the Hilton because the restaurant was in it, rather than vice versa. In other cities, Ruth's Chris' restaurant draw about 60% of their clientele from local businesses and 40% from travellers. They do not want to associate themselves too strongly with any one hotel, for fear of losing the recommendation of concierges at other hotels. But being near the hotels and theatre district was very important to Ms. Duke.
Ruth's Chris is run independently of the Hilton management, unlike Trader Vic's. Hilton employed the staff at Trader Vic's and the management agreement states that Trader Vic's is managing the restaurant on behalf of the hotel. Ruth's Chris' Toronto manager, Elizabeth Hollyer testified that the restaurant considers the Hilton operation mostly irrelevant to its own. They do not associate themselves with the Hilton in their advertising, except to give the location. Ruth's Chris has its own dedicated entrance outside of the hotel served by an elevator from street level that leads directly to the restaurant. An exterior awning and signage has been designed to make the restaurant look like a "stand-alone" operation.
As with Trader Vic's, the presence of the Ruth's Chris restaurant is advertised throughout the hotel and the restaurant is accessible by dialing a four-numeral extension on the telephones in hotel rooms. The same is true for other tenants of the hotel, such as the beauty salon, noting that under the lease, the more money the restaurant makes the more money the hotel makes, counsel for Ruth's Chris did not dispute that hotel staff recommend the restaurant to guests. There is also directional signage in the hotel, paid for half by the restaurant and half by the hotel, as well as posters featuring the "steak shot" on each floor and in the lobby, paid for by the restaurant. There is a button in the hotel elevator indicating "Ruth's Chris Steakhouse - Convention Level".
The uncontradicted evidence from Ruth's Chris reservation records indicate 3 to 6 percent of its clientele were guests of the Hilton for the first month of operation, with minimal business from convention guests, Room service is not available from Ruth's Chris and hotel guests may not charge their bills to their room, The restaurant derives business from guests of other hotels, especially those of first class and luxury hotels. As part of its targeting of the business traveller, Ruth's Chris has invited concierges from other hotels to dine at the restaurant, in the hope they will recommend it.
The first year of Ruth's Chris business generated gross income of approximately six million dollars whereas Trader Vic's had total revenue of just over one million in its last year of business.
The landlord, Westin, owns the hotel parking lot which is operated by Oxford Developments Limited. Ruth's Chris' General Manager negotiated directly with the general Manager of Oxford, with respect to parking arrangements for Ruth's Chris; Hilton was not a party to these negotiations. The resulting arrangement is that Ruth's Chris provides its customers with free parking from 6:00 p.m. to midnight.
The restaurant has ordered incidentals from the hotel, such as name tags. The restaurant also uses the hotel's garbage compactor, for a fee paid to the waste removal company, rather than the hotel. The Hilton gave a discount on rooms to management staff of the restaurant around the time of their opening, and the restaurant gives a discount to Hilton managers. This was seen as a normal part of the landlord and tenant relationship by Ms. Hollyer, the general manager of Ruth's Chris' Toronto.
There was considerable evidence about the value of the location in the basement of the Hilton to Ruth's Chris. The Hilton's general manager thought it was ideal. Ruth's Chris designer and general manager thought it was less than ideal because it was not accessible from the street. The designer said it was a destination location for business travellers, meaning they would look for it, rather than go to it because it was where they were. The location is not conducive to "walk-by" exposure, leading Ruth's Chris to spend more on promotion to overcome the disadvantage. Although it is not necessarily the best physical site it was the best financial deal available, and Ms. Duke had looked over the course of two years. There is also confusion among customers about which hotel it really is, because people do not tend to remember that Hilton and Westin switched properties. Additional staff time is required to deal with deliveries because of the basement location. As well being in the hotel requires more and different fire precautions and training for staff.
At times, such as when there is a lot of equipment to be moved in for a television interview, the hotel door people have been very helpful personally to the manager of the restaurant and she has responded by inviting them to dinner. When Ms. Duke was in town she would make it her business to introduce herself to everyone in the hotel and talk about the restaurant.
One of the issues between the parties was initially whether the hiatus was a deliberate attempt to organize things to avoid the union's obtaining successor rights. There was evidence that Ms. Duke and Mr. Angelkotter discussed the subject of the union's presence in the Hilton and she sought advice on the subject. Ms. Duke testified that unionization is not an issue in New Orleans, and she thought of it as an administrative burden that would make it difficult to run a business. Based on the advice she received, though, she decided to take the risk. In argument, the union did not pursue the theory that the hiatus had been deliberately created.
At the close of the responding parties' case, union counsel renewed a request to require the responding parties to produce further evidence pursuant to section 69(13). This was based on the fact that the only witness called by Ruth's Chris, its general manager, had not been hired until after the transaction alleged to be the sale had been concluded. Both responding parties objected based on the idea that the whole transaction was set out in the lease which had been entered on consent, and that the considerations taken into account by Ruth's Chris were not relevant, and that sufficient evidence was before the Board from the hotel's and Ruth's Chris' witnesses as to the nature of the operations. Further, it was argued that where no unfair labour practice was alleged, whether or not the restaurant wished to be union-free was irrelevant. We ruled as follows in material part:
We have heard and considered the parties' submissions on the union's motion under s.69(13). We are of the view that there are likely facts in the knowledge of the responding party Sizzling in Toronto, Inc. (hereafter "Sizzling") material to the allegation that there has been a sale to Sizzling which have not yet been adduced. These would include facts relating to what, from Sizzling's point of view, was included in the price it was willing to pay for the Hilton premises, particularly in the area of good will and relationship with the hotel. Such facts are relevant, in the Board's view, to the Board's need to determine what the substance as well as the form of the transaction were. Therefore, we direct Sizzling to adduce evidence, pursuant to s. 69(13). of all facts within their knowledge in the areas referred to above.
The Board is not directing what witness Sizzling should produce, but we would underline that it is the best evidence, rather than hearsay evidence, that would be of assistance to the board in its determination.
When the hearing reconvened, Ruth's Chris called Lana Duke, the owner of the Toronto franchise, as a witness.
Essentially Ruth's Chris takes the position that it has merely expanded its business, and that it derived nothing that could be considered part of a business from either the Hilton or Trader Vic's. It needed space to put its pre-existing business in, and it is leasing that from the Hilton, because of the low rent, but it could just have easily been any other downtown space. There is nothing deriving from the Hilton's business that came with the space, and the basement location is more of a liability than an asset. No goodwill came from Hilton or Trader Vie's; Ruth Chris' has its own, in counsel's submission. Simply put, Ruth's Chris was not looking to buy a business, but to lease space, and the Board should not find otherwise.
Further Ruth's Chris takes the position that since there has been no transaction between Hilton and Ruth's Chris, there can be no finding of a sale. Westin is the landlord and Ruth's Chris is the tenant. Hilton Canada Inc. Is merely identified as Westin's authorized representative. Hilton is not a party to the lease. However, the lease which is central evidence of the transaction, defines the landlord as including its authorized representatives and Hilton is specifically named as such in the definition section of the lease. We are not of the view that anything turns on the distinction between the Hilton and Westin for the purposes of this decision.
In sum, submits counsel, Ruth's Chris got nothing out of the transaction other than the lease. This is an expansion of the Ruth's Chris restaurant chain and Lana Duke's holdings from one to two, rather than a sale of a business from either Hilton or Trader Vic's to Ruth's Chris. Counsel refers to Sanfords Roadhouse Restaurant, [1994] OLRB Rep. July 897; Masters Brew Pub, [1988] OLRB Rep. Aug. 827; Calmil Enterprises, [1980] OLRB Rep. April 401; and Thunder Bay Golden Nugget Saloon, [1991] OLRB Rep. July 918 in support.
Counsel submits the location itself cannot be a sale, as illustrated by Sobeys Inc. 96 CLLC 143, 345 (N.B. Labour and Employment Board).
The hotel joins Ruth's Chris in urging a finding that the transaction in question was not a sale of a business, but a landlord and tenant arrangement. Ruth's Chris did not want Hilton's restaurant business, and did not get it in the transaction in the hotel's submission. Many of the things that Trader Vic's had by dint of association with the hotel, such as convention business and room service, Ruth's Chris neither has nor wanted.
Counsel for the hotel says that it is interesting to note that Bill 40's section 64.2, now repealed, was the mind set of the union coming into the application and that their case might have been stronger under that section.
The union pleaded that there is a tremendous amount of goodwill associated with the upscale dining restaurant located in the Hilton, previously the Trader Vic's and now Ruth's Chris, which was transferred from Trader Vic's to Ruth's Chris by the Hilton. The union pleads that Ruth's Chris services the Hilton's need for upscale dining in the same manner as Trader Vic's did before.
At the outset of his argument, union counsel made it clear that it was not their position that Ruth's Chris is relying on the goodwill of Trader Vic's or that they were relying on the location of Hilton as a primary factor. Rather, the union took the position that Ruth's Chris was relying on the location in downtown Toronto as a key asset in the business in two ways. Firstly, Ruth's Chris relies overwhelmingly on business clients and the traveling public. Location is key for that kind of business. Counsel made a twofold argument differentiating the lunch and dinner business. As to the lunch operation, counsel said it is highly analogous to the supermarket line of cases. The success of the business, and just beneath that, the viability of the business, is a function of location and the habit business people have of going to lunch there, The dinner operation uses the location differently because it relies on travelling business people, professionals and upscale travellers. The location being in close proximity to a large number of downtown hotels is responsible for the viability of Ruth's Chris in Toronto.
Detailing his argument on the lunch operation, counsel said that the supermarket analogy is apt. In both cases the business is to sell food which is a generic product, whose equivalent can be found elsewhere. Location thus becomes a very large value for supermarkets and for restaurants. Consumers can find food products throughout the city. Convenience, proximity makes location a key factor and often leads to the finding of a sale of a business. This is said to operate in the same way for Ruth's Chris. Counsel points out that Trader Vic's served lunch and had a viable lunchtime operation that attracted working people from the downtown core. Ruth's Chris has picked up on that and services the same market as did Trader Vic's, serving lunch in close proximity to a certain group of workers. Counsel refers to Dutch Boy Food Markets 65 C.L.L.C. 775 and Miracle Food Mart, [1988] OLRB Rep. July 679 for the general rule and the exception, respectively. In terms of lunch, although Ruth's Chris has changed the operation in a number of superficial ways, the target market, business people wanting to spend between $10.00 and $20.00 for lunch, is not different. Counsel asked that we conclude that Ruth's Chris has purchased that aspect of the business that Hilton had for sale. That is how location is extremely significant in the lunch operation in the union's submission.
As to the dinner operation, the evidence is clear that Ruth's Chris was targeting the business traveler for dinner. In that respect, counsel argues location is a key asset that Ruth's Chris has bought. Transient populations do not have a habit to analogize to supermarkets. The Board has found that factors to be considered in sale of business cases are different in different sectors. Counsel asked that we look carefully at the location analysis which Ruth's Chris had done before it moved into the Toronto market. They were looking at the direct downtown core specifically in the hotel district because of their aim to reach the business traveller. It is not an accident that Lana Duke decided to locate downtown near the hotels. To the employer's argument that the location is not the business, union counsel says it is generally so, but here location is crucial. Counsel underlined that there were only two locations that met with Lana Duke's serious consideration. Both of them had proximity to the downtown hotels. Counsel argued that location would not always be very relevant as in manufacturing where the product goes to the people or in transportation because it moves around. But here where Ruth's Chris has chosen to target the traveller, proximity is very important. Time is a factor and the traveller may be unwilling to seek out a location because of the lack of familiarity with the town. Answering the hotel's argument that they were just selling space as evidenced by the fact that they considered renting to a mini golf outfit, counsel says that the fact that the location would not have been crucial for such a service does not minimize the fact that it was crucial to the restaurant who finally did move in.
Answering the idea that there was no goodwill left from Trader Vic's to be transferred, counsel said that it is irrelevant whether the key item can be associated with the predecessor. Counsel refers to the idea of a nursing home license which is in no way linked to the predecessor, but it is for that sector a part of the business itself. In this type of business, counsel argued that the geographic location made Trader Vic's and Ruth's Chris viable. But counsel underlined that there is a difference between viability and success. In the end, Trader Vic's was not successful as the mix of factors that add up to success, eluded Trader Vic's. Counsel notes that most businesses are sold because they are unsuccessful, but one can not say that a liquor license transferred from a failing business is worthless. It is a necessary element of viability but does not guarantee success. Similarly, location and proximity to downtown allowed the restaurant business to be viable while success depends on other factors. The location was transferred untarnished and unharmed from Trader Vic's to Ruth's Chris. And what gives the location its value is sold untarnished, for full value. The lease shows that Ruth's Chris bought the exclusive right to operate a steakhouse and the right to non-competition. Counsel refers to Dutch Boy Food Markets, cited above, at page 776 for a discussion of such a clause,
As to the idea that Ruth's Chris targets a different market, i.e. a more upscale one, this does not make it substantially different under section 69(5). Counsel refers to Winco Steak n' Burger Restaurants Limited, [1974] OLRB Rep. Nov. 788 at page 793 on this issue as well as Horseshoe Tavern, [1981] OLRB Rep. Sept. 1237, Vivace Tavern Inc., [1982] OLRB REP. Aug. 1224, Krush, [1987] OLRB Rep. June 859 and Colonial Tavern, [1978] OLRB Rep. Sept. 806.
In summation, counsel said that the location equals the business that was purchased and it was at play in two different ways. It operates to Ruth's Chris' advantage in the same way as in the supermarket cases because of proximity and habit for lunch. As to dinner, the location and the proximity to the traveller makes it viable just as it did for Trader Vic's. The intrinsic value of the space was purchased by Ruth's Chris and is part of their business.
Referring to Culverhouse Foods Limited, [1976] OLRB Rep. Nov. 691, counsel says the Board has considered whether the work is identical or similar and it is in this case.
As to the fact that none of the assets of Trader Vic's were sold, counsel says that in the absence of anything else that would be detrimental. However, here where the sale of something very valuable was made, that is not determinative. In this respect, counsel refers to the Three B's Enterprises Ltd. B. C. Industrial Relations Council, decision No. C253/89 dated December 6, 1989, about shifting patterns of taste and Granville Island Hotel and Marina B. C. Industrial Relations Council, decision No. C258/89, dated December 8, 1989 as to renovations.
Addressing the question of hiatus, counsel says that in the middle of a recession the passage of 18 months should not be considered detrimental, referring to Accommodex Franchise Management Inc. [1993] OLRB Rep. April 281 for this proposition. In this respect, counsel notes that parts of a business can be sold and the word "as a going concern" is not in section 69.
In answer to the Board's questions about the role of location in an expansion scenario, counsel answered that Ms. Duke was at great pains to select the location she did, so it comes down to what weight one gives the location as opposed to the expansion. The existing clientele is highly mobile so location is an even more valuable point. The location is identical whichever of the two properties she considered. It is not the basement of the Hilton that matters; its the fact that it was in downtown Toronto close to the traveling public, submits counsel.
In reply, counsel for Hilton said that the supermarket analogy was not apt. Supermarkets draw from within walking distance and the hiatus here would have broken whatever habit remained of going to lunch in that space. Counsel did not find the prices really comparable either. Counsel argued that a supermarket was not as able to completely change its clientele as a restaurant was and submitted that Ruth's Chris, mainly because of its prices, had succeeded in appealing to a different market than Trader Vic's. Another reason the supermarket analogy does not work is because of the number of restaurants in downtown Toronto in counsel's submission. As to the dinner argument and the broad concept of location, counsel argued that in the tavern cases one is always getting two things, the location and the liquor license. He argues that where it is only space a different conclusion is drawn. Counsel underlined that the location cannot be the business because for instance if a travel agency was followed by a restaurant there is no way that it would be concluded to be a sale of a business. Counsel stressed that what has to be bought and sold is an economic vehicle.
In reply, counsel for Ruth's Chris disputed the idea that providing space for the travelling public is part of a business, and argued that is not what the board's jurisprudence stands for. Counsel underlines that Ms. Duke had asked a real estate agent to find space so she could bring the business into Toronto. As to the intrinsic value of the space that counsel says was bought, counsel points out that it was "dirt cheap". Further, counsel says one should find no transfer from Hilton. Hilton was out of that space and so was Trader Vic's and the owner wanted a tenant for the space. Counsel says there is no comparison between the two on the score of food and service.
The basic point, in the restaurant's view, is that there was nothing of a business to be transferred from Hilton or Trader Vic's, it had closed and had stopped a long time ago. There was no continuity that transcended the hiatus. Ruth's Chris opened without anything that Trader Vic's had had. A new self-contained business package was inserted into that space. Counsel further underlines that there is no evidence that the restaurant was set up in a way to subvert the act. Counsel for Ruth's Chris accepts the idea that a hiatus is not determinative but submits it is clearly relevant, and in this case quite significant. Counsel argues that the facts in Accommodex, cited above, were very different, that the business there took the furniture, fixtures and other things to run the same kind of hotel to attract the same customers as the prior hotel.
Distinguishing Culver House Foods, cited above, counsel says that the paper transaction there was the only change in the ownership, nothing changed about the business. Counsel maintained that the nature of the work was not the same at all because of the different way of serving food and drink. As to Three B's Enterprises Ltd, cited above, counsel says it is clearly distinguishable, since they bought all the inventory and various other things as detailed in the aspects of the deal. There was a discernible continuity of business which is not present here. What we have here is the demise of one business and the continuation of another business by way of expansion, in counsel's submission.
Both responding parties also take the position that Ruth's Chris draws its patrons from the many business executives and professionals who tend to frequent high end restaurants rather than the hotel guests. As it was put in the hotel's pleadings, the fact that Ruth's Chris rents space in the Hilton does not provide it with patrons nor does it provide the Hilton with the food and beverage source for its guests. They both assert that the two markets are different. They both assert that it would have been just as easy for Ruth's Chris to have rented space in any of the commercial towers in the downtown core.
Statutory Provisions
This matter was originally filed under the provisions of section 64.2 of Bill 40 but had not come on for a hearing when section 64.2 was repealed by Bill 7. The parties agreed that the matter should proceed only pursuant to Bill 7, section 69 of the current Act, which reads as follows in relevant part:
(1) In this section,
"business" includes a part or parts thereof; ("entreprise")
"sells" includes leases, transfers and any other manner of disposition. and "sold" and "sale" have corresponding meanings. ("vend", "vendu", "vente")
(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, her or its business, the person to whom the business has been sold is. until the Board otherwise declares, bound by the collective agreement as if the person had been a party thereto and, where an employer sells his, her or its business while an application for certification or termination of bargaining rights to which the employer 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 the person were named as the employer in the application.
(5) The Board may, upon the application of any person, trade union or council of trade unions concerned, made within 60 days after the successor employer referred to in subsection (2) becomes bound by the collective agreement, or within 60 days after the trade union or council of trade unions has given a notice under subsection (3), terminate the bargaining rights of the trade union or council of trade unions bound by the collective agreement or that has given notice, as the case may be. if. in the opinion of the board, the person to whom the business was sold has changed its character so that it is substantially different from the business of the predecessor employer.
(8) Before disposing of any application under this section, the Board may make such inquiry, may require the production of such evidence and the doing of such things, or may hold such representation votes, as it considers appropriate.
(12) Where, on any application under this section or in any other proceeding before the Board, a question arises as to whether a business has been sold by one employer to another, the Board shall determine the question and its decision is final and conclusive for the purposes of this act.
(13) Where, on an application under this section, a trade union alleges that the sale of a business has occurred, the respondents to the application shall adduce at the hearing all facts within their knowledge that are material to the allegation.
Was the lease of the Hilton premises the sale of part of a business within the meaning of section 69? On the evidence, there can be little doubt that Ruth's Chris was a viable business on its own, and that this was an expansion of a pre-existing business. Thus, more specifically the question to be answered is whether Ruth's Chris expanded by purchasing part of the Hilton's restaurant business, or whether it did so by simply acquiring the asset of a favorable lease.
Did Hilton sell part of its restaurant business to Ruth's Chris? the elements of the facts which would support such a conclusion are the following. The Hilton has a multi-faceted business which serves two types of guests - those who rent overnight rooms from it, and those who use its other services, such as meeting rooms, the newsstand and restaurants, but who do not stay overnight. When Trader Vic's was present in the Hilton premises, one of the ways Hilton did business was to offer its guests, in this larger sense, an additional restaurant choice - that of an american specialty chain, then with a Polynesian menu and theme. By way of the lease to Ruth's Chris, Hilton is now able to offer the choice of a different American specialty chain - this time an exclusive steakhouse. It was clear from the hilton's evidence, that this was a valuable acquisition from its point of view, and that Ruth's Chris is part of what it offers to the public from its premises, from which it profits financially. Hilton no longer manages the specialty restaurant; Ruth's Chris does that on its own, in a way much different from Hilton's management agreement with Trader Vic's. But turning over the management of a part of a business to someone else is one way one can sell part of a business under section 69. Alternatively, a factual basis for a finding of a sale of part of a business is the fact that a downtown location was a vital part of Ruth's Chris business, something it purchased from Hilton, as detailed in the union's argument above.
The response of the restaurant and the hotel is that the location is an asset, not a part of the business in the sense of section 69, and that only the location changed hands. Put another way, the responding parties see this as a situation where the restaurant and hotel now carry on their separate businesses under the same roof, rather than the hotel having sold part of its restaurant business. Formerly the Hilton co-managed a specialty restaurant with a tenant, now it leases space to a tenant who happens to run a specialty restaurant.
The Board has dealt with fact situations which are very similar, in both Master's Brew Pubs and Thunder Bay Golden Nugget Saloon, cited above, there was a hotel complex where a part of the premises had been used by the hotel for a food and beverage operation. In Master's Brew Pub, cited above, the union argued that the hotel had contracted out one of its food and beverage operations into the space left vacant by the closure of a coffee shop. Rejecting the union's argument that what had been transferred was part of the hotel's integrated food service, the Board found there had not been a sale, where the principals of the new brew pub operation were looking for space in which to put their own enterprise. Rather, the board found that there were two separate parallel businesses and there had been no sale. Similarly, in Thunder Bay Golden Nugget Saloon, cited above, a pub in a hotel had been experiencing declining business and was converted into storage space until leased for the purpose of expanding a pre-existing business.
In each of these cases, the transfer of the location was not considered to be a sale of part of a business, although in each of these cases the same location had previously been used by the hotel to provide food and beverages. This is because it was considered that the successor was a separate parallel business with its roots in its own venture, rather than that of the predecessor. The lease of the space in these cases is seen as the purchase of an idle asset rather than the purchase of part of a business. In Thunder Bay Golden Nugget Saloon, cited above, the board relied on the following passage from Grand Valley Reads' Mixed Concrete Supply Limited, [1981] OLRB Rep. June 663:
The exercise becomes more complicated where, as in this case, the alleged successor has carried on a parallel business. Where the alleged successor has carried on a parallel business the result of the transaction may as easily be an expansion or alteration of his business as the transfer of the alleged predecessor's business. An employment opportunity which flows from an expansion or alteration of a business carried on by the alleged successor prior to the section 55 [now section 69] transaction does not trigger the operation of the section. The union's bargaining rights attach to the predecessor's business and their preservation is contingent upon a transfer and continuation of that business.
In our view, there is no meaningful distinction between the facts of this case, and the two cases discussed above. However, in neither of the above-noted cases did the Board hear an argument framed the way the location argument was made before us. Thus, it is appropriate to consider whether the argument provides sufficient reason to come to a different conclusion, despite the lack of significant distinguishing circumstances.
As well, the Board's analysis as to whether a sufficient "part" of a business has been transferred to warrant a finding of a sale has developed since the time those cases were decided. See cases such as Accommodex Franchise Management Inc., cited above, and Parnell Foods, [1992] OLRB Rep. Dec. 1164, and the cases cited therein, in Parnell Foods, the Board found a sale of part of a business where a correctional institution "contracted in" a food service business to operate a coherent portion of its institutional business. The fact that Parnell was a pre-existing food business did not mean that there was no sale, where Parnell acquired what the bard found to be "virtually all of the organizational capacity to provide the food services ... much more than a venue". Although Parnell arose under the Crown Transfer Act, the analysis is also applicable under section 69 of the Labour Relations Act, since the purpose of the statutory provisions is the same: to avoid the disruption of bargaining rights where the ownership of the business or part thereof changes. See also the Supreme Court of Canada's decision in Syndicat national des employés de la Comnmission scolaire regionale de l'outaouais (CSN) v. Union des employés de service local 298 (FTO), Bibeault et al., 1988 CanLII 30 (SCC), [1988] 2 SCR 1048.
The union's location argument is based on an analogy to the board's supermarket jurisprudence, See for example Dutch Boy Food Markets, cited above. In such supermarket cases, location has taken on added significance, based on the concept of goodwill deriving from the habit of people shopping at a particular location. Here we are asked to analogize to the habit of businesspeople eating out in the downtown area, or the effect of proximity to the travelling public who find themselves in a certain area of the city, and are unfamiliar with the rest of the city. The idea is that the downtown location is an essential part of Ruth Chris's viability, and therefore is part of the business.
There can be no doubt that an appropriate location is essential to the viability of a restaurant such as Ruth's Chris. And the board's jurisprudence demonstrates that an asset, or a key employee, can be so important to a business that it takes on the aspect of a severable part of the economic vehicle. In such cases, the asset or assets (such as the location or the liquor license or the two together) create goodwill, or some intangible that take the asset out of the plane of the inanimate or idle, and into the domain of a part of a business. The union points here to the studies done for Ruth's Chris which indicated the best business strategy was to open in the central area near the main business generators -hotels, theater, shopping, offices and sporting events, As union counsel says, it should not then be considered a coincidence that the restaurant ends up in a hotel like the Hilton - and that the location should be considered sufficiently key to be considered part of the business.
Accepting, without so finding, for the purpose of argument, that restaurant location is sufficiently analogous to supermarket location, there is a more basic difficulty with the union's argument. If it is part of the Hilton's business that has been sold, it has to be the Hilton location that has the intangible, the good will, associated with it. The burden of the union's argument is that it is not the Hilton location in particular, but the fact that the Hilton location is a downtown location which engenders this goodwill. In our view, this analysis takes the idea of location as part of a business beyond the point where it is identifiably connected with the specific business of the Hilton, and associates it instead with the ensemble of business activity in the downtown area. In our view, this is a point beyond the limits of the meaning of the section in that, whatever the part of the business, it must be able to be traced specifically to the predecessor business - rather than to any of many similarly located businesses.
We note as well, that the supermarket cases are not universal in finding that the location is part of the business. There are a number of cases including a pre-existing parallel business in the same supermarket where a sale has not been found. See for example New Dominion Stores, [1989] OLRB Rep. May 473 and Miracle Food Mart, [1988] OLRB Rep. July 679.
Here the evidence is clear that only the location was transferred. The total asset configuration did not change hands, nor any sufficiently significant part thereof, as in Accommodex Franchise Management Inc., [1993] OLRB Rep. April 281 where a hotel was purchased after a significant hiatus and a sale was found. Nor did any managerial or other expertise, or any other part of Hilton's or Trader Vic's business pass to Ruth's Chris. The evidence about the small amount of traffic from the Hilton and the differences in revenue indicate that the business being operated is Ruth's Chris rather than a part of the Hilton's. We put no importance on the oven venting and built in refrigerators, as they were both part of the building and incidental to the business. As well, we do not view factors such as the advertising and use of the garbage compactor as elements which bespeak the sale of a business any more than a landlord and tenant relationship.
The fundamental question is whether the location alone is a sufficiently coherent and severable "part" of the Hilton's business, in the sense of its economic organization, to trigger a sale of a business. In the end, having carefully considered the arguments made, as well as the newer caselaw, we are not persuaded that it is. These facts are quite different from Parnell Foods, for example. Here the organizational capacity to operate the restaurant came not from the Hilton, but from the pre-existing business. What Hilton provided was the venue. The appropriate view of the facts, in light of the Board's previous jurisprudence, is that Hilton carried on a restaurant business with Trader Vic's, which it ceased in 1993, During that time it used the basement premises as an asset in that part of its business. When Trader Vic's closed, the premises became an asset in Hilton's leasing portfolio. Ruth's Chris then rented that space as an asset to continue and expand its business, rather than purchasing part of the Hilton's restaurant business.
It is appropriate to note in closing that the hiatus in operations is not of significance in the above finding, We adopt the analysis of the board in Accommodex Franchise Management Inc., cited above as to hiatus at para. 75.
As well it is appropriate to address the fact that much of the hearing was taken up with attempts to show that Ruth's Chris was more upscale than both Trader Vic's and and the Hilton. This was done with evidence for example that the "product", the steak, was unlike anything Trader Vic's had to offer and that the restaurant targets a narrower band of elite customers. In our view little turns on the distinction between the types of food or these differences in the market served. The hotel operates as a first class hotel, as set out in the lease. Both restaurants were specialized, and not inexpensive. The fact that the prices at Ruth's Chris are higher, even a lot higher, is not something that changes the legal effect of the facts, It is certainly not sufficient to constitute a substantial change in character pursuant to section 69(5) had we found a sale to have occurred. Although we accept that Ruth's Chris is targeting the truly affluent, little turns on this. See Colonial Tavern, [1978] OLRB Rep. Sept. 806.
For the above reasons, the application is dismissed.