1906-98-ES National Automobile, Aerospace, Transportation and General Workers Union of Canada (CAW-Canada) and its Local 396 on behalf of the employees named in Schedule “B”, Tabs 1, 2 and 3, Applicant v. Zettel Metalcraft Ltd., Zettel Manufacturing Limited, 506165 Ontario Limited cob Trillium Metal Stamping, and Ministry of Labour, Responding Parties.
BEFORE: Patrick Kelly, Vice‑Chair.
APPEARANCES: Frank Luce, Dan Clark and Helen Maynard appearing on behalf of the CAW; I. A. Duncan, Daniel Zettel and M. Van Bodegom appearing on behalf of the responding parties; Murray Klein appearing on behalf of the Ministry of Labour.
DECISION OF THE BOARD; August 10, 2000
1This is a reference from an arbitrator pursuant to section 64.6 of the Employment Standards Act, R.S.O. 1990, c.E-14, as amended (“the Act”). However, the matter came before me in the form of a section 67 application for review of an Employment Standards Officer’s refusal to issue an Order to Pay.
Background
2In an arbitration decision, dated August 14, 1997, involving Zettel Metalcraft Limited (“Metalcraft”) and the applicant (also referred to as “the union”), the arbitrator made a declaration that Metalcraft was indebted to its former union employees on account of wages, vacation pay, termination pay and severance pay within the meaning of the Act in the amount of $2,033,517.60. The union in that case sought a declaration that two of the responding parties in the case before me, Zettel Manufacturing Limited (“Manufacturing”) and 506165 Ontario Limited c.o.b. Trillium Metal Stamping (“Trillium”) were “related” to one another and to Metalcraft within the meaning of section 12 of the Act, and that, accordingly, Manufacturing and Trillium are liable jointly and severally for the wages, vacation pay, termination pay and severance pay owed by Metalcraft to its union employees. The arbitrator correctly determined that he had no jurisdiction to determine the issue of relatedness under the Act, and referred the issue to the Director of Employment Standards (“the Director”). This referral to the Director (rather than to the Board directly, as contemplated by section 69.6) may explain why an Employment Standards Officer (“the Officer”) was appointed, which in turn led to a section 67 application in connection with the Officer’s refusal to issue an Order to Pay.
3Section 12 of the Act provides as follows:
- (1) Where, before or after this Act comes into force, associated or related activities, businesses, works, trades, occupations, professions, projects or undertakings are or were carried on by or through more than one corporation, individual, firm, syndicate or association, or any combination thereof, and a person is or was an employee of any of such corporations, individuals, firms, syndicates or associations, or any combination thereof, such corporations, individuals, firms, syndicates or associations, or any combination thereof, shall be treated as one employer for the purposes of this Act, if the intent or effect of the arrangement is to defeat, either directly or indirectly, the true intent and purpose of this Act.
(2) The corporations, individuals, firms, syndicates or associations treated as one employer shall be jointly and severally liable for any contravention of this Act and the regulations.
4By way of remedy, the applicant in this proceeding seeks a declaration that the responding party companies are related by virtue of section 12 of the Act. In addition to the declaration, the union seeks from the Board an Order to Pay against Manufacturing and Trillium in respect of the indebtedness of Metalcraft to the union employees, minus any monies that have already been paid to those employees under the Act’s now discontinued Employee Wage Protection Program (“EWPP”).
5The hearing in this matter commenced on January 25, 2000 and continued on January 26 and 27, 2000. At the outset, the Ministry of Labour (“the Ministry”) informed me that a number of non-union employees were in attendance at the hearing. Apparently some or all of those present may have filed claims under the Act against Metalcraft, although I was not referred specifically to any such claims. I determined that none of the non-union employees wished to intervene in this proceeding. I indicated to them that they were welcome to observe the proceedings. The Ministry urged me to include the non-union employees in the event I should make an Order to Pay. There appears to be no dispute that the indebtedness in respect of these former employees of Metalcraft is $176,213.99, net of EWPP payments.
The Facts
6Much of the evidence given in this matter was not disputed. The sole witness to testify in this hearing was Daniel Zettel on behalf of the responding party companies. I shall set out the facts in some detail, and indicate any areas of material dispute between the parties.
(i) History of the Companies
7To put the issue in this case in some context, it is necessary to outline the history and evolution of the three companies. Any reference in this decision to “the Zettel businesses” or “the Zettel companies” is a reference to the combination of Manufacturing, Trillium and Metalcraft.
8The oldest of the businesses is Manufacturing, which began life as a sole proprietorship in 1949 under the direction of its founder, Joseph Zettel. It was incorporated in 1956, and the corporate records indicate that the incorporators were Joseph Zettel, his wife, Margaret Zettel, and the family lawyer, the latter taking one common share under the transaction purportedly for the purpose of complying with the law of the day stipulating a minimum of three shareholders.
9Joseph Zettel retired in 1992. Manufacturing then immediately hired a General Manager, John Binder. That same year, the common share held by the family lawyer was transferred to Joseph Zettel’s son, Daniel, and according to Daniel Zettel, was transformed into one common and one preferred share. At the same time, Daniel Zettel became a company director - the company’s secretary - and he also took the position of acting president to whom Mr. Binder reported. In 1995, Joseph Zettel died, and his 9,999 preferred and 9,999 common shares were transferred to Margaret Zettel. In 1998, it appears that Daniel Zettel’s two shares were transferred to Margaret, thus making her Manufacturing’s sole shareholder. It was not disputed that Margaret Zettel never participated in the day-to-day operation of Manufacturing.
10From the beginning to the present day, Manufacturing has been located at the same street address in the City of Kitchener. It began and remains in the metal stamping business, supplying finished automotive parts directly to automotive manufacturers, thus earning the industry designation as a Tier 1 supplier. The core of Manufacturing’s business is mid-size parts stamping. Its major customers are Cami Automotive, General Motors and Wohlert.
11Manufacturing employs about 70 employees. The plant employees are represented by the CAW-Canada and its Local 1524 (“Local 1524”), and there is a collective agreement in place.
12The beginnings of Trillium are traced to 1982 with the purchase of a business by the name of Canada Flywheels and Products Inc. (“Flywheels”). The original four directors following the purchase of Flywheels were Joseph Zettel and his three sons, David, Daniel and Kevin. In 1984, Daniel Zettel, Flywheels’ president, effected a change in the corporate name pursuant to articles of amendment, which resulted in the numbered company that became known as Trillium.
13The business of Flywheels was the manufacture of appliance parts. With the change in corporate name to Trillium in 1984, the nature of the business also changed, to that of metal stamping. Trillium’s business differs from that of Manufacturing, though, in the sense that Trillium is a Tier 2 supplier of automotive parts, which means that it supplies parts not to the automotive manufacturers themselves, but to contractors of those manufacturers. Trillium’s major customers include Budd Canada, Rheem Canada, Fabco, and at one time included Siemens with whom it no longer does business. Trillium also differs from Manufacturing in that its focus is large metal stampings. Trillium carried on business in the City of Kitchener, in premises completely separate and apart from the premises of Manufacturing.
14Trillium can be described as the Zettel family company, in the sense that the company’s directors and shareholders comprise four children of Margaret Zettel, all of whom have roughly equal holdings in the company. Margaret Zettel’s interest in Trillium consists of the ownership of 111 non-voting class A shares, which formerly belonged to the late Joseph Zettel. Aside from Daniel Zettel, who is Trillium’s president, the Zettel children, and one of their nephews, are active as employees in this non-union operation which employs 55 individuals. However, Trillium employed a non-family member as its General Manager. This position belonged to Richard Tryon until sometime in 1997, following which the position of General Manager has remained vacant. The position reports to Daniel Zettel as president, and is responsible for Trillium’s day-to-day operation.
15Metalcraft was originally part of a U.S. owned company, called Excel Metalcraft Limited (“Excel”). Its owner was Excel Industries Inc., (“Excel Industries”) based in Indiana. Excel operated out of the Town of Aurora, and according to Daniel Zettel, had been in Canada since the early 1960’s. Excel’s business was parts assembly and metal stamping, including the distribution of stamped parts to Tier 2 automotive customers, and specialization in a number of related functions. An example of its specialization was “role-forming”, a process by which steel is passed through rollers which bend and cut the metal. It also engaged in the “paint line” process which involves the dipping/coating of automotive parts in substances, as well as the powder spraying of parts. Finally, Excel’s operation included capability to do “rivetting”, which is the process by which pieces of metal are attached to one another. Neither Manufacturing nor Trillium engaged in these processes, although all three companies engaged in the specialty of spot welding.
16Excel had a collective bargaining relationship with CAW-Canada and its Local 396, (“Local 396”), and a collective agreement covering the plant employees.
17Excel was put up for sale by Excel Industries, and Daniel Zettel became the buyer of Excel in March of 1995. It is fair to say that the company became Daniel Zettel’s, and his alone. He became its sole officer and shareholder after acquiring the business. He effected a change in the name of the business to Metalcraft. He made the decision to leave in place, initially, the Excel management team, and later, to dismiss the general manager and the controller, and replace them with an individual of Daniel Zettel’s choosing.
(ii) The acquisition of Metalcraft
18At about the time that Metalcraft was acquired in March of 1995, Trillium and Manufacturing both were busy, but not at full capacity.
19The evidence disclosed that Daniel Zettel inquired into the purchase of Excel, and entered into a letter of intent with Excel Industries whereby he committed to the purchase. The transcript of Daniel Zettel’s examination for discovery of April 16, 1997 pursuant to the Bankruptcy and Insolvency Act, which transcript was admitted into evidence, reveals that the sale of Excel involved a portion of Excel’s business, namely the metal stamping portion. As indicated, Excel also engaged in the assembly of automotive parts, but this part of the business was moved back to Excel Industries in the United States, and was not part of the ultimate transaction involving Daniel Zettel.
20Daniel Zettel needed financial assistance to purchase Excel, and he went to the Bank of Montreal to discuss it. His evidence is that the Bank of Montreal was prepared to finance the acquisition of Excel to a large extent, but that it was the Bank of Montreal’s “idea” that some financing should come from another source, namely Manufacturing. Accordingly, the Bank of Montreal was prepared to put up the vast majority of the financing for the purchase and operation of Excel, and to lend to Manufacturing $1 million (“the intercompany loan”) for the purpose of infusing that money as the remaining portion of the purchase price of Excel. That arrangement was completed after Manufacturing and Margaret Zettel separately committed to guaranteeing the intercompany loan, in the amount of $1 million each. In addition, Manufacturing had to offer as collateral a floating charge on all of its assets, and an assignment of its inventory and accounts receivable. Finally, Daniel Zettel and his spouse were expected to execute a personal guarantee of $144,000 in respect of the bank loan to Manufacturing, secured by a collateral mortgage on their matrimonial home.
21Daniel Zettel was prepared to provide the collateral mortgage on his home. At the Bank of Montreal’s prompting, he talked to his mother about the remainder of the required monetary support to realize his objective to acquire Excel, and she agreed to do what was necessary in that regard.
22Daniel Zettel testified that Margaret Zettel received independent legal advice concerning the intercompany loan for the purpose of purchasing Excel, and the guarantees given by Manufacturing and by Margaret Zettel personally. Indeed, the evidence disclosed that she received legal advice from a law firm different from that used by Daniel Zettel in the acquisition of Excel. Counsel for the union disputed the extent of the independence of the legal advice given to Margaret Zettel. As it turned out, while there were two different law firms giving advice to Manufacturing and Daniel Zettel, it was undisputed that Daniel Zettel instructed both lawyers, one in his capacity as the purchaser of Excel, and the other in his capacity as an officer of Manufacturing. While it appears that Margaret Zettel was consulted by the lawyer acting for Manufacturing with respect to the loan to Manufacturing and her personal guarantee, it was Daniel Zettel, as an officer of Manufacturing who provided instructions to the same lawyer concerning the finalization of the arrangements resulting in the loan to Manufacturing from the Bank of Montreal. Indeed, Daniel Zettel signed all the documents requiring Manufacturing’s commitments and rights pursuant to the intercompany loan used to purchase Excel.
23During the hearing, Daniel Zettel was questioned extensively concerning the formalization of the intercompany loan for the purpose of facilitating the purchase of Excel. He admitted that the security agreement given by Metalcraft in favour of Manufacturing for the intercompany loan was not signed until October 1995, approximately seven months after the funds were issued by Manufacturing, and right about the same time as Metalcraft was beginning to experience the problems that would end in its bankruptcy. Daniel Zettel explained that there had been an intention to complete the security agreement from the time the funds were issued, but due to an alleged oversight by lawyers preparing the document, the actual execution and registration did not occur until much later. At the hearing in this matter, Daniel Zettel could not be sure when the document was actually registered. He did admit, however, that in his examination for discovery on April 16, 1997 with respect to the bankruptcy of Metalcraft, he indicated at that time that the security agreement was registered on November 14, 1995.
24At the same time as the arrangements were being made in respect of Manufacturing’s financial support of the acquisition of Excel, Daniel Zettel was also negotiating with the Bank of Montreal with respect to the remainder of the purchase price. That remainder amounted to several million dollars, secured in a number of ways, including a mortgage on Excel’s Aurora premises , and, as indicated above, the combined $2 million guarantee given by Manufacturing and Margaret Zettel. As a result of all these arrangements, Daniel Zettel acquired Excel in March 1995. He then merged Excel with a numbered company he had obtained to purchase Excel, and operated the new entity as Metalcraft.
(iii) The Demise of Metalcraft
25As indicated earlier, Daniel Zettel made the decision to keep the management team that had previously run Excel. He considered that it made sense to do so, given that Metalcraft would continue to operate in much the same fashion as Excel had done in respect of the metal stamping portion of Excel’s business. Metalcraft’s major customer was Excel Industries.
26After the considerable effort that went into the acquisition of Excel, Daniel Zettel left most of the day-to-day operation of the plant to the general manager. He took no salary from Metalcraft. He testified that he spent almost all of his available time between tending to Trillium and to Manufacturing in Kitchener, for which he received a salary from both companies. He occasionally travelled to Aurora to check in on Metalcraft, sometimes in the company of Mr. Binder, Manufacturing’s general manager, who Daniel Zettel testified acted in an advisory role when accompanying him on trips to Metalcraft.
27In the latter part of 1995, Metalcraft began to experience financial difficulties, such that Daniel Zettel became sufficiently concerned to hire a consultant, Ralph Webbe, to investigate. Mr. Webbe examined Metalcraft’s records and reported to Daniel Zettel that the company’s records were inaccurate, resulting in an inflation of the value of the company’s inventory and its accounts receivable. Daniel Zettel decided to dismiss both the general manager and the controller, and to replace them with Mr. Webbe, who discovered further problems. Daniel Zettel began to suspect that Excel’s value had been inflated at the time of the purchase. The Bank of Montreal also became concerned, and, according to Daniel Zettel, threatened to call its loans in connection with all of the Zettel companies.
28Daniel Zettel demanded and obtained meetings with Excel Industries in Pontiac, Michigan, and in Toronto, Ontario. An arrangement was reached whereby Excel Industries agreed to buy from Metalcraft certain of its equipment, and provide Metalcraft with a buy-back option. The equipment remained in the possession of Metalcraft. Excel Industries also agreed to buy certain raw materials for Metalcraft, and bill Metalcraft later, after the raw materials had been manufactured. This helped to free up Metalcraft’s cash flow, for a period of time. Finally, Excel Industries lent Metalcraft $350,000 and agreed to pay temporarily higher prices for Metalcraft’s manufactured product. All of this was done with the Bank of Montreal’s concurrence. Daniel Zettel testified that the resulting infusion of cash into Metalcraft, which assisted it to temporarily meet its obligations to the Bank of Montreal, had no pacifying effect on the bank’s desire to get its money back from the Zettel companies. When pressed in cross-examination on this point, Daniel Zettel clarified that the earlier threats made by the Bank of Montreal against all the Zettel companies were never withdrawn following the temporary cash infusion by Excel Industries, although he appeared to concede that Metalcraft’s improved cash position probably eased the bank’s appetite to make good on its threats.
29Despite the above-noted measures, Metalcraft continued to decline, resulting in an assignment in bankruptcy in February 1997. All of Metalcraft’s assets, with the exception of the real estate (which issue I shall return to later), were sold, and the proceeds remitted to the Bank of Montreal. The approximately 130 employees of Metalcraft received only a relatively small proportion of what they were entitled to under the provisions of the Act, which resulted in the aforementioned arbitration and finding of liability against Metalcraft.
(iv) The relationship between the Zettel companies
a) The operational connections
30There are few, if any, obvious indicators of operational connectedness among the three Zettel companies. They did not interchange or share any resources. They had separate communication, financial and information systems. Metalcraft’s information system was one that, in theory, might have been flexible enough to cover the information needs of all three companies – indeed, Daniel Zettel considered that possibility when purchasing Excel but discarded the thought later when the computer system failed to meet his expectations. Their management teams and workforces were separate and distinct. While they received steel from some, but not all of the same steel suppliers (and I accept Daniel Zettel’s explanation that there are a limited number of steel suppliers), the Zettel companies served distinctly different customers.
31The evidence did not reveal any conscious plan behind the evolution of the three companies that would suggest they were created or obtained by the Zettel family in any methodical manner, with the intention of unifying or integrating them. If anything, most of the evidence demonstrated a rather haphazard history. Joseph Zettel created his first metal-stamping business which became Manufacturing in the post-war era. Approximately 33 years later, the Zettel family acquired an existing business, Flywheels, which manufactured appliance parts initially, and two years later was converted into a metal stamping business somewhat different in scope and in customer base from that of Manufacturing. This new business acquisition appears to have been the responsibility of the Zettel sons, though their father was among the original group of purchasers. Daniel Zettel became its President, but clearly Trillium belonged equally to all the Zettel siblings. Perhaps this explains somewhat Daniel Zettel’s motivation, some eleven years later, to seek on his own a new business opportunity, something that he could call his alone. In any event, he pursued Excel with considerable determination. In that company, he acquired a business in metal stamping, but with differences again in the product produced and the production methods from those of the other Zettel companies.
32There are some obvious connections among the three Zettel companies. At one time, they used the same financial institution, the Bank of Montreal. Coopers Lybrand, in its capacity as financial advisor, had a hand in both the acquisition of Metalcraft and, to a seemingly lesser degree, in the process that led up to Trillium’s proposal to creditors, discussed below. In my view, these examples are not, in and of themselves, significantly decisive of the issues in this case. They can be as easily explained as having arisen out of convenience and habit than out of some more elaborate design or intent. One has to delve more deeply into the actual relationships and connections among and between the Zettel companies and their institutional partners to determine the extent, if any, to which Metalcraft was linked to Trillium and/or Manufacturing for the purposes of section 12 of the Act.
b) The financial connections
33I have already outlined the aspects of the intercompany loan from Manufacturing for the purchase of Excel, commencing at paragraph 20 above. There were other examples of a financial relationship among the Zettel companies. Manufacturing lent over $2 million to Trillium at around the same time as the purchase of Excel in March 1995. Following the bankruptcy of Metalcraft, Trillium’s loans from the Bank of Montreal were called by the bank, forcing Daniel Zettel to search for another bank willing to support the ongoing financial needs of Trillium. He settled on the Banca Commerciale Italiana of Canada (“BCIC”), which was prepared to provide Trillium a line of credit. One of the terms, however, was that Daniel Zettel had to agree to the postponement of the collection of the loan from Manufacturing to Trillium. Daniel Zettel agreed to that term, and in his capacity as an officer of Manufacturing, he provided the BCIC with confirmation that the Bank of Montreal had agreed to the postponement and subrogation of Manufacturing’s debt claims against Trillium.
34In November 1995 Manufacturing lent to Metalcraft $250,000 in two $125,000 installments. One of the advances was made on November 14, the day of the registration of the security agreement for the previous $1 million loaned by Manufacturing for the purchase of Excel. The other installment was advanced a week or so later. Daniel Zettel testified that this loan was secured by the same security agreement covering the earlier $1 million. It is not clear from a reading of the document precisely what amount of money was secured. The transcript of Daniel Zettel’s examination for discovery reveals that the lawyer acting on behalf of Manufacturing was unaware of the $250,000.00 loan when he was in the act of preparing to register the security agreement. In any event, Daniel Zettel characterized the $250,000.00 as a temporary loan to enable Metalcraft to pay some accounts coming due.
35Following the bankruptcy of Metalcraft, the Bank of Montreal attempted to recover its debt. The bank could have forced a sale of Metalcraft’s land and building, on which the bank held a mortgage. However, as Daniel Zettel testified, there were environmental problems with the land, and the bank was nervous about any liability it might face in respect of the sale of contaminated land. Once again, Manufacturing offered assistance, perhaps in response to pressure being exercised by the Bank of Montreal, by agreeing to take an assignment of Metalcraft’s mortgage. The plan called for Manufacturing, rather than the Bank of Montreal, to arrange a sale of the Metalcraft real estate, the proceeds of which would go towards satisfying Manufacturing’s previous guarantee. That sale had not yet taken place at the conclusion of this hearing.
c) The commercial connections
36In mid-1995, Trillium ran into serious financial trouble. In response to Trillium’s problems, Metalcraft began purchasing parts on Trillium’s behalf, and assisting Trillium with production. That assistance consisted of the shipping of tooling (dyes owned by Trillium’s customer) from Trillium to Metalcraft, as well as the parts to be stamped, and the return of the stamped and painted parts back to Trillium, which in turn shipped the finished product to its Tier 2 customers. Eventually, the dyes were returned to Trillium, following the approval of Trillium’s proposal to creditors. Daniel Zettel testified that this arrangement was carried out at fair market value, and that Trillium built up an unsecured debt to Metalcraft in the amount of $439,001.76, all of which was eventually paid back to Metalcraft, following the court approval of Trillium’s proposal to creditors in March 1996. Metalcraft was, in effect, a creditor of Trillium, and a significant one at that, which is clearly reflected in Trillium’s proposal to creditors. Interestingly, the proposal to creditors includes a clause wherein Metalcraft agrees to subordinate its claim against Trillium to the claims of Trillium’s other creditors. In his testimony, Daniel Zettel explained that rather than having Metalcraft push for a return on the dollar of 40% of Trillium’s outstanding debt, Metalcraft instead opted to take its chances that the entire debt owed it by Trillium was salvageable. Daniel Zettel was quite candid on this point: he was reasonably confident, knowing what he knew about Trillium, and projecting its future profitability, that Trillium was capable of paying back all of its debt to Metalcraft. Daniel Zettel admitted, again candidly, that he stood to gain more from that likelihood than from the more certain, albeit considerably smaller prospect of 40% of Metalcraft’s debt owing. In fact, he was proven right, because Trillium made good on the full debt to Metalcraft.
37Daniel Zettel admitted in cross-examination to a couple of unspecified occasions on which parts stamped at Trillium and destined for other Trillium customers were shipped to Metalcraft to be coated, and returned. Trillium did not have the capacity to coat parts, and contracted out this part of the operation to others, including Metalcraft. But Daniel Zettel insisted that all such arrangements, including those involving Metalcraft, were done at arm’s length and at fair market value rates. Moreover, the evidence disclosed by the statement of affairs prepared by Trillium’s trustee in bankruptcy was that Trillium had entered into other production subcontract arrangements with at least four other non-Zettel companies, in addition to the dealings it had with Metalcraft described above.
d) The labour relations connection
38The collective agreement between Manufacturing and Local 1524 contains the following letter of understanding:
LETTER OF UNDERSTANDING No. 1
This letter of understanding outlines the intent of Zettel Manufacturing Limited as it relates to the transfer of business, in whole or in part, to Trillium Metal Stampings (506165 Ontario Limited), only; except as it otherwise would be required should excess production capacity, or capability require such action, in such case there will be no layoff of regular employees, or employees retained on lay-off, in the classifications affected by the excess production capacity.
The Union recognizes that any commitment made, herein, by Zettel Manufacturing Limited is solely their intent in this matter and, therefore, cannot be held responsible for any or all of the activities of Trillium Metal Stampings (506165 Ontario Limited) as it relates to free enterprise.
Now, therefore, Zettel Manufacturing Limited agrees to their intent, as outlined herein; not to transfer, in whole or part business to Trillium Metal Stampings (506165 (Ontario Limited).
39Daniel Zettel testified that this letter of understanding came about at Local 1524’s insistence when Trillium started in the metal stamping business around 1986, although Daniel Zettel does not appear to have been involved in any collective bargaining negotiations at Manufacturing. He also testified that at no time has Manufacturing ever given business to Trillium or vice versa, nor has any such transaction ever been contemplated.
e) Consideration of corporate integration
40Daniel Zettel did admit to some brief personal contemplation of restructuring the three Zettel companies into a single corporate entity. He claimed that the idea was originally that of Metalcraft’s general manager at the time. Very soon after the acquisition of Excel and its transformation into Metalcraft, the general manager drew up an organization chart showing the three Zettel businesses under a common management and single president. The memorandum from the general manager accompanying the organization chart indicates that the proposal stemmed from talks he had with Daniel Zettel a few days earlier. Daniel Zettel also admitted that some thought by the management team at Metalcraft had gone into the creation of a common brochure marketing all three Zettel companies. Apparently, a prototype brochure was drafted but never publicized. While I accept Daniel Zettel’s explanation that the general manager may have come up with the idea of a tri-division corporate structure for the three Zettel businesses, I find that Daniel Zettel himself gave the matter some serious thought. He obviously had had some discussion with the general manager, and was aware of the development of a brochure in connection with the new business concept. I accept Daniel Zettel’s evidence that he did not discuss the possible restructuring with anyone at Trillium or Manufacturing. At some point, he dropped the notion, and there is no evidence that he did so for any other reason than the one he offered at the hearing: he simply did not believe the idea would work in practice.
41Counsel for the union suggested to Daniel Zettel that Metalcraft was purchased for the purpose of obtaining the kind of floor space that Manufacturing and Trillium lacked, thus augmenting the Zettel metal stamping businesses and bringing in customers that heretofore could not have been attracted. For example, Metalcraft secured the business of an entity called TS Tech. Daniel Zettel admitted that Metalcraft had substantial floor space, but claimed that the kind of work Metalcraft produced, including the work done for TS Tech, could have been completed by Manufacturing, with some modification or reorganization of its floor space. However, the transcript of the examination for discovery of Daniel Zettel suggests that perhaps there was some strategic consideration given to Metalcraft’s fit with the other Zettel companies. In that proceeding, Daniel Zettel admitted that Metalcraft was intended to complement the other two Zettel businesses. Asked how the three businesses inter-related, Daniel Zettel gave the following evidence at page 4 of the transcript:
We were running into a situation where we were short of floor space to expand our business, and we had looked at renting additional space, and a number of alternatives for quite a bit of time. The Excel business had enough business to operate profitably, yet it had been downsized, and had a lot of empty floor space, which would have given us what we needed for our own increases in business.
42The above explanation is followed by another initiated by a question from counsel for the trustee in bankruptcy: at page 5:
Q. Okay. And so, as you say, you have got the situation where Trillium and Zettel Manufacturing are cramped. Literally, they need more physical working space. Excel Metalcraft had surplus working space, and there would be an obvious synergy, where, if you put in additional machines into the space, it would be doing the same kind of work as was already being done by Excel Metalcraft?
A. That is correct.
e) The corporate logos
43There was some evidence led which showed similarities in the logo used in business cards and letterhead among the three companies in respect of the common use of a prominent stylized capital “Z”. Metalcraft’s business cards reflected the colours previously used by Excel in its business marketing.
44The business marketing materials of the three Zettel companies do bear more than passing similarity in terms of logo design.
Decision
45Notwithstanding that the company proceeded to present its evidence first, it is the union which bears the burden of proof in this matter. After considering all the evidence and the applicable law presented to me, I find that the union has discharged that burden.
Overview of Section 12
46The elements of Section 12 of the Act are four-fold, as set out in Refac Industrial Contractors Inc. (Re) ESC 2703 (May 30, 1990) Brown, a case which was referred to me by both counsel for the applicant and for the responding party companies. First, there must be two or more business entities, or parts thereof. Second, those business entities or the parts thereof must be associated or related. Third, any person claiming to be an employee of a common employer must have been or must presently be an employee of one of the business entities during the time for which benefits are claimed or the violation of Act is alleged to have occurred. And fourth, there must be an arrangement, the intent or effect of which defeats, either directly or indirectly, the true intent and purpose of the Act.
47The first and third elements of section 12 were clearly present in the instant case. That is, there was no dispute that there were three business entities, and that the employees seeking the protection of the Act in this case were employees of one of those business entities at the point that their claims under the Act arose. The difficult determinations in this matter are whether or not Metalcraft was related to either or both of Manufacturing and Trillium, and if so, whether or not there existed an arrangement between them, the intent or effect of which, directly or indirectly, was to defeat the true intent and purpose of the Act.
Was Metalcraft related to Trillium and/or Manufacturing within the meaning of section 12?
48Of the two questions remaining to be answered, the determination of relatedness and/or association is the less difficult. The evidence strongly suggests that the Zettel companies were related, even though, operationally, they appeared to be distinct organizations. At one point in time or another, Daniel Zettel owned equity in all three businesses, although the share he owned in Manufacturing was nominal, and he had divested himself of that share by the time he purchased Metalcraft in March, 1995. In Ishimura v. Canadian Parking Equipment Ltd., [1997] O.E.S.A.D. No. 389 (Wacyk), which involved two companies ultimately owned by a sole shareholder, the adjudicator determined that a finding of common ownership should be given substantial weight in the determination of relatedness or association, and I adopt that approach in finding that Daniel Zettel’s ownership stake in Trillium and Metalcraft is a significant factor in the determination of relatedness between those two companies. More importantly, Daniel Zettel was an officer (president of Trillium and Metalcraft, acting president of Manufacturing) of all three companies at the time of Metalcraft’s bankruptcy in 1997, and he was receiving remuneration from Manufacturing and Trillium simultaneously.
49The companies were further related by virtue of the type of business in which they were engaged. While there were differences among all three companies in terms of their suppliers (Trillium and Metalcraft were Tier 2 suppliers, Manufacturing Tier 1), their customers, the size and type of the parts produced, and the specialty services provided by each, the core of the Zettel businesses was metal stamping for the automotive parts/manufacturing market. There was no evidence to suggest that in serving this market, the Zettel companies were in any way competing with one another. They served discrete portions of a common market. (On this latter point regarding segmentation of a common market, see Seligman & Latz of Polo Park Ltd. (Re) ESC 94-146 (July 29, 1994) Muir, in which the adjudicator rejected the argument that by virtue of serving and competing for different populations in the hair styling industry several entities owned by a single parent company were not related or associated). Moreover, all three business used similar equipment (dyes) in the production process. A comparison of the classification system and/or organization charts of each business reveals a common thread with respect to labour skills. The evidence further disclosed instances in which one company could quickly adapt its workplace to complete the work of another. For example, Metalcraft was able to take over the work of Trillium when Trillium encountered financial difficulties. In his testimony concerning the work done by Metalcraft for an entity called TS Tech, Daniel Zettel claimed that with some modification of its floor space, Manufacturing could just as easily have done the TS Tech project as Metalcraft.
50A further illustration of relatedness, at least as between Manufacturing and Trillium, is provided by the letter of understanding in the collective agreement covering Manufacturing’s workplace. That letter of understanding restricts the right of Manufacturing to transfer business to the non-union Trillium if the effect of such transfer would be to threaten employment of the unionized employees of Manufacturing. Daniel Zettel told the Board that this letter of understanding was the result of a proposal initiated by Local 1524 in collective bargaining with Manufacturing. He testified that he was not involved in the collective bargaining process at Manufacturing, and that therefore he could not explain why the letter of understanding is only a partial prohibition on the transfer of work. In the absence of an explanation from the responding parties on this point, it might be appropriate to draw the inference that the company had some role in the fashioning of the parameters of the transfer prohibition, leaving itself room to interact with Trillium. I decline to draw such an inference, but in any event, the letter of understanding speaks for itself, and it clearly permits the exchange of business from Manufacturing to Trillium in certain circumstances. Contrast the letter of understanding with article 40 of the same collective agreement, which article restricts contracting out only if Manufacturing has the capacity, manpower, skills, equipment and facilities to do the work, and one can only conclude that, in fact, Manufacturing had, by virtue of the letter of understanding, greater discretion under the collective agreement to deal with Trillium than with any other contractor. The fact that the letter of understanding was the result of a union concern in the shape of a negotiating proposal indicates to me that, at least in the eyes of the employees of Manufacturing, there was a perception of relatedness or association between the two Zettel companies, and that the employees were concerned about the potential negative impact that that relatedness or association might have on their livelihood in the absence of specific collective agreement protection. The apparent lack of a similar provision restricting the transfer of business from Manufacturing to Metalcraft, or vice versa, may be explained on a number of fronts, including the fact that the letter of understanding in the Manufacturing collective agreement is dated January 19, 1995, some months prior to the acquisition of Metalcraft. By the time that the Manufacturing collective agreement expired on December 4, 1997, Metalcraft had since ceased to operate, and presumably there would have been no need, if one had ever existed, for employees at Manufacturing to protect themselves from potential transactions between Manufacturing and Metalcraft. Similarly, the forerunner to the Metalcraft collective agreement – the Excel collective agreement - appears to have been negotiated immediately prior to the acquisition of Excel. That collective agreement continued in force until March of 1997, again around the time that Metalcraft was in its final stage of existence, and while it appears a round of negotiation was underway at the time of Metalcraft’s bankruptcy, a new collective agreement was never completed.
51With respect to the use of the large letter “Z” in the Zettel company business literature, I do not find that stylistic quirk to be determinative of the relatedness of the Zettel companies one way or the other.
52Counsel for the responding parties referred me to several cases in support of his position that the responding parties are not related or associated businesses. In Modern Mold Ltd. (Re), [1990] O.E.S.A.D. No. 174 (Brown), there were common officers of two companies, each one separately managed. One company (“the parent”) owned 70% of the other. The parent did some repairs for, and supplied the other with molds, but at fair market value. The mode and means of production of the two companies differed substantially. The employee skill sets of the two companies, and the markets served were entirely distinct. While I accept the adjudicator’s conclusion that section 12 of the Act was not applicable to the facts of that case, it can readily be seen that the facts in this case are distinguishable from those in Modern Mold. Here, I have found that the companies engaged in essentially the same business, that they engaged similar modes and means of production, and that their employee skill base shared common characteristics.
53Another case referred to by counsel for the responding parties was NuForest Products (Canada) Ltd.(Re), [1991] O.E.S.A.D. No. 50 (Rose). As in the Modern Mold case, the situation involved a parent-subsidiary relationship, except that there were two companies shared by a U.S. parent company. One of the subsidiary companies, Modern Redwood Products Limited (“Modern Redwood”), ceased operations. The other, NuForest, assisted the bank-appointed accounting firm in the liquidation of Modern Redwood’s assets, including assumption of a Modern Redwood contract to produce and deliver a large order of barbecue shells until Modern Redwood’s inventory was depleted. In the process, NuForest used several Modern Redwood employees to do the work (these employees continued to receive pay cheques written on Modern Redwood paper), and managed the project’s accounts payable and receivable. Prior to the cessation of Modern Redwood’s operations, the two subsidiary companies had a common payroll provider whose services were paid for separately; a common insurable benefits carrier and common group benefits package, the premiums of which were paid by NuForest after Modern Redwood began experiencing financial difficulty; common banker, but separate accounts and financing arrangements; one common corporate officer; and common ownership. Modern Redwood was a manufacturer of barbecue shells, lawn furniture and planters. NuForest was a wholesale distributor of various types of wood. They had different markets, customers, and suppliers. Their work forces were of vastly different sizes, and distinct in terms of skill sets. The subsidiary companies occupied properties adjacent to one another. There was some sharing of office equipment, and, for a time, one of the entities maintained the other’s bookkeeping.
54The adjudicator determined that the subsidiary companies were not related, despite some intermingling of employees and the other described common features, because they were different businesses, serving distinct markets. Again, those findings run counter to the evidentiary findings in this case. In any event, I have doubt that the NuForest Products case reflects the current state of the law concerning section 12. For these reasons, I do not find it of assistance in the instant case, and decline to follow it.
55For the reasons already outlined above, I find that the Zettel companies were related or associated within the meaning of section 12.
Was there an arrangement in place among the Zettel companies within the meaning of section 12?
56As indicated the more difficult question deals with section 12’s second major thrust, and that relates to the extent to which there was an arrangement among the Zettel companies that was intended to, or had the effect of, directly or indirectly, defeating the intent and purpose of the Act.
57A useful starting point for this part of the analysis of section 12 is found in a case referred to me by counsel for the responding parties, Re Avant Lithographic Inc., [1990] O.E.S.A.D. No. 199 (Gray). In addressing the issue as to whether an “arrangement” existed linking a bankrupt company to a subsequently incorporated new business, the adjudicator made the following observations about the interpretation of the relevant part of section 12 of the Act:
The word “arrangement” is not defined, nor is it used earlier in the section of the Act. The use of the definite article “the” to modify the word “arrangement” is unusual in those circumstances. It suggests that the draftperson considered the existence of an “arrangement” implicit in what is spoken of earlier in the section. The phrase “associated or related” seems the most likely focus of that implication. This suggests that the “arrangement” the draftsperson had in mind was either the result of, or the cause of, or in some way linked to the association or relationship between the activities on the entities in question. Thus, the word “arrangement” and the phrase “associated or related” help to define one another. If an arrangement is implicit in whatever makes two activities or businesses “associated or related”, then the mere fact that they are similar will not make two activities or businesses “associated or related”.
By itself, the word “arrangement” suggests something put in place (or at least concerning) two or more entities which somehow governs the relationship or association between them. It can be wider in meaning than “agreement”, and may embrace an informal or even legally unenforceable understanding. In some contexts, “arrangement”, connotes something of an on-going nature, but it is not clear whether its use here was intended to import that connotation. In any event, the word “arrangement” suggests voluntary, deliberate action.
58In the end, the adjudicator concluded that there was no “arrangement”, and in so doing rejected the notion set out in Refac, referred to above, that a decision of corporate principals not to invest in the failing business and to invest in a new one constitutes an “arrangement”, or to put it another way, that the failure of a business to pay its debts, including debts to employees, is an effect of the failure to have invested in the failed company.
59The analysis of section 12 as provided in the Avant case has met with approval by the Referees in K. Behnke Investments Ltd. (Re) ESC 94-38 (February 16, 1994) Muir; and D.D.S.F. Frames Inc. (Re) ESC 94-193 (October 28, 1994) Randall.
60What, if any, then, are the manifestations of the relatedness of the Zettel companies that suggest there was an “arrangement” within the meaning of section 12? One of them is the transcript evidence concerning the motivation to acquire additional floor space, thus increasing business. In my view, that evidence, as revealed in the transcript of the Metalcraft bankruptcy proceeding is reliable. It was given by Daniel Zettel under oath, and in the presence of his legal counsel in the bankruptcy proceeding.
61It was argued by counsel for the responding party companies that it made no sense to characterize the acquisition of Excel as an expansion of the existing businesses. Counsel submitted that had expansion been the motive, such an objective could have been realized by something other than the expenditure of in excess of $6 million. He pointed out Daniel Zettel’s evidence that Manufacturing could have been physically reorganized to take on the work of TS Tech, which work went to Metalcraft.
62No evidence was led regarding the costs associated with a physical re-organization of Manufacturing in order to accommodate the TS Tech work. It is impossible to say with certainty whether it would be financially more effective to restructure the workplace at Manufacturing or buy a new and distinct business to achieve business growth. As I have indicated earlier, the acquisition of Excel was primarily motivated by Daniel Zettel’s personal ambition to have and to own his own enterprise, and to reap the financial benefits of such ownership. However, it is clear that Daniel Zettel was also thinking about the possibilities of integrating Metalcraft with Trillium and Manufacturing. The expenditure of millions of dollars to purchase Excel must be understood in the light of all the factors that motivated the acquisition of Excel by Daniel Zettel.
63That full integration of the Zettel companies was never achieved may be due more to bad luck than lack of intention. It just so happened that things went very badly in a very short period of time following the acquisition of Metalcraft. That unfortunate turn of events put an end to any thoughts of full integration. That does not, however, militate against the probability that an “arrangement”, although perhaps not a fully realized one, was in place among the Zettel businesses.
64More compelling evidence of an “arrangement” within the meaning of section 12 is found in financial transactions among the three companies, detailed earlier in this decision. For one, the sale of Excel to Daniel Zettel could not have been achieved without Manufacturing’s superior credit-worthiness. The Bank of Montreal apparently viewed the value of Excel more cautiously than did Daniel Zettel, because it was not willing to advance funds based only on the assets or earning potential of the new business. It was prepared to lend the necessary funds only if it could better secure those monies, which it succeeded in doing, as the inter-company loan from Manufacturing and the concomitant guarantees attest. Secondly, Manufacturing had also previously provided Trillium with an intercompany loan exceeding $2 million. (There was little evidence presented with respect to the nature or origins of this loan). Finally, there were the two installments of $125,000.00 each lent by Manufacturing to Metalcraft in November 1995 for the purpose of permitting Metalcraft to satisfy some immediate debts. Daniel Zettel insisted that these latter loans totalling $250,000.00 were secured by the same security agreement that covered the first $1 Million loan for the acquisition of Excel. In the absence of documentation establishing Daniel Zettel’s claim, and on a balance of probabilities, I find that the $250,000.00 was not secured. That strongly suggests a non-arm’s length relationship as between Manufacturing and Metalcraft. Moreover, the totality of the financial dealings among the Zettel companies reveals that Manufacturing was contributing significantly to the ability of the other Zettel companies to operate.
Was the arrangement intended to defeat, or did it have the effect of defeating, directly or indirectly, the purpose of the Act?
65The Supreme Court of Canada provides guidance regarding the purposes of the Act, including those of the termination and severance provisions contained within the Act. In Rizzo & Rizzo Shoes Ltd. 1998 CanLII 837 (SCC), [1998] 1S.C.R. 27, the Court decided that bankruptcy, which results in the termination of employment by effect of the law rather than by conscious act of the employer, nevertheless gives rise to notice of termination and severance obligations under the Act. The Court looked to the purpose and objects of the Act in interpreting the legislation’s notice and severance provisions. The Act, the Court noted at paragraph 36, is:
…benefit-conferring legislation [which] …ought to be interpreted in a broad and generous manner. Any doubt arising from difficulties of language should be resolved in favour of the claimant.
66The Court earlier observed, at paragraph 25, that “[t]he objects of the termination and severance pay provisions themselves are…broadly premised upon the need to protect employees.”
67The next question is whether or not the arrangement that I have found to have existed among the Zettel companies was intended to defeat, or had the effect of defeating the purpose of the Act as articulated by the Supreme Court of Canada.
68D.D.S.F. Frames Inc. ESC 94-193 (October 28, 1994) Randall, has many factors in common with this case. Five companies carrying on business in various markets in the retail furniture business were effectively operated by a single individual. One of those five businesses, DDSF Frames Inc. (“DDSF”) was formed to build furniture frames for, and was financed by the other four. When DDSF went into bankruptcy, the Referee had to determine whether or not the remaining furniture businesses were jointly and severally liable for the employment standards obligations of DDSF to its employees.
69In considering section 12 of the Act, the Referee found first that the subject companies were related because: they were all engaged in businesses relating to the manufacture and supply of furniture; they had a common customer; and there was a common key person to all the companies, who the Referee viewed as the “entrepreneurial engine” driving all the businesses. In short -and drawing upon a characterization described previously by the Court in 5505511 Ontario Ltd., (1991), 1991 CanLII 7388 (ON CTGD), 4 O.R. (3d) 571 (Ont. Court (Gen. Div) (“Bilt Rite”) the Referee determined that “there existed a close functional interdependence” among the subject companies and the DDSF.
70More significantly for the purposes of this case, the adjudicator also found an “arrangement” in terms of the level of integration of the companies, for the following reasons. First, three of the furniture companies were the raison d’etre for the creation of DDSF. Moreover, they agreed to provide security for the bank’s loan to DDSF (comprising DDSF’s line of credit) by giving guarantees that ultimately were called by the bank. The bank viewed the companies and the key man as related, evidenced by a loan, advanced by one of the companies to DDSF, upon which the bank received multiple levels of security. Second, all four furniture companies propped up the struggling DDSF with additional investment monies and above-market prices for DDSF’s product. Third, one of the furniture companies paid DDSF’s municipal taxes for a time. The Referee characterized this “mistake” as indicative of the companies’ own self-perception of relatedness. Fourth, the key man wielded de facto control of the arrangement – he generated the business ideas resulting in the constant creation of new businesses, and he hand-picked the people who ran those businesses.
71The Referee went on to consider whether or not the arrangement defeated the purpose of the Act. He concluded that several of the furniture companies might have been set up so that in the event of the demise of one of them, that failure would not affect the viability or threaten the assets of the others. However, it was the bank’s role in, and its view of, the DDSF transaction that tipped the balance in favour of a finding that the arrangement defeated the purpose of the Act. In its dealings with DDSF, it was the bank’s position that DDSF’s financing and real assets were insufficient on their own to justify the bank’s support – the bank required the commitment of the other furniture companies thereby protecting the bank’s interests, before committing funds to DDSF. Three of the other furniture companies willingly entered into that commitment for the purpose of furthering their own self-interests. That the intended benefits of association with DDSF were never realized because of DDSF’s ultimate failure was not, in the Referee’s mind, determinative of the lack of an arrangement that defeated the purpose of the Act.
72In the end, the Referee concluded that the three furniture companies who participated in the bank’s financing of DDSF were related to, and involved in a relationship with DDSF which defeated the purpose of the Act. Accordingly they were liable for DDSF’s debt to its employees. The fourth furniture company was not found to be so liable.
73In the present case, Daniel Zettel admitted he was the key man for Trillium. As the sole shareholder and founder of Metalcraft, and the person who replaced a large segment of the management team with his hand-picked consultant, I find further that Daniel Zettel was the “key man” at Metalcraft. At Manufacturing, Daniel Zettel owned no equity in the business, but for part of the relevant time period in this matter, he was the Acting President, and appears to remain as such. He was instrumental in arranging Manufacturing’s intercompany loans to Metalcraft. He spent, according to his estimates, half his time at Manufacturing. His mother, Margaret Zettel, played no part in the day-to-day operation of Manufacturing. There was a General Manager tending to Manufacturing’s day-to-day operations, but the evidence disclosed that Daniel Zettel handled some of Manufacturing’s key financial decisions, including the $250,000 intercompany loan to Metalcraft. I find that he became Manufacturing’s “key man” following the death of his father, Joseph Zettel, in 1995. In fact, after the death of Joseph Zettel, Daniel Zettel, like the key man in the DDSF case, was the entrepreneurial engine that drove all three Zettel businesses.
74Unlike the DDSF case, however, the “arrangement” in this case was arrived at almost by chance, with far less in the way of any deliberate planning. Given the rather haphazard means by which Trillium came into existence via the acquisition of the appliance manufacturer, Flywheels, followed many years later by the purchase of Excel, which purchase was motivated only partly by the synergy that might be achieved among the three Zettel companies, I can only conclude that there was no intention on the part of the principals of the Zettel companies, including Daniel Zettel, to defeat the purpose of the Act.
75That leaves, finally, consideration as to whether the effect of the arrangement was to defeat the Act’s purpose. I find that the arrangement did have such an effect. Three factors weigh heavily in that regard. First, and most importantly, during the period that it was the financial institution to all three Zettel companies, the Bank of Montreal, like the bank in the DDSF case, viewed them as related entities, and accordingly designed its funding arrangements with each as an interconnected whole. The Zettel companies went along with the Bank of Montreal’s approach. The Bank of Montreal was not prepared to lend to Daniel Zettel all the funds necessary to purchase Excel. It wanted its interest better protected, and thus forced Daniel Zettel to turn to Manufacturing and Manufacturing’s controlling shareholder, Margaret Zettel, for assistance in the form of an intercompany loan and sizeable guarantees. Presumably, the Bank of Montreal was not prepared to fund fully all of Trillium’s financial requirements either; Manufacturing contributed a large loan to Trillium to enable it to operate. Eventually, Trillium had to change bankers altogether, although it remained indebted to Manufacturing. Even after that event, the Bank of Montreal continued to see Manufacturing and Metalcraft as one and the same, and the two remaining Zettel companies continued to act as one vis-à-vis the Bank of Montreal. That is evidenced in the post-bankruptcy dealings regarding the attempted disposition of Metalcraft’s real estate, in which Manufacturing took an assignment of, and attempted to sell the mortgaged property, thus shielding the Bank of Montreal from any potential liability flowing from the sale of possibly contaminated land. As the Referee in the DDSF case observed at page 12 of the decision:
I can see no good reason, at least in the circumstances of this case, why section 12 should reach any less far, in its protections of employee entitlements, than the Bank instruments reach in the protection of its financing.
76The second factor relates to the circumstances under which the security agreement covering Metalcraft’s indebtedness to Manufacturing became signed in October 1995 and registered in November 1995. I have trouble accepting the explanation given by Daniel Zettel that the security agreement, put together in March 1995 at the time of the purchase of Excel, was only executed and registered some eight months later due to the oversight of his legal counsel. The fact is that by October 1995, both Trillium and Metalcraft were experiencing serious financial difficulties. Within six months after that, each was on the verge of having to issue proposals to creditors. Even if Daniel Zettel is correct in his recollection of the reasons why the security agreement had not been signed and registered, I have no doubt whatsoever that the financial difficulties of those two businesses prompted serious concern on his part, and possibly on the part of his legal advisor, that Manufacturing’s interest might be compromised vis-à-vis any secured creditors of the other businesses. That concern led to steps being taken to ensure the execution and registration of the security agreement, and thus the perfecting of Manufacturing’s claims against unsecured creditors of Trillium and Metalcraft. I doubt that it occurred to Daniel Zettel to think of the employees of Trillium and Metalcraft as unsecured creditors. But at the very least, the evidence disclosed an initial attitude on the part of Manufacturing of apparent indifference, followed by one of new-found respect for the niceties of commercial law. In other words, when times were good, the Zettel companies appear to have been unconcerned about the risks of dealing with one another informally. When the financial tide turned, however, the corporate veil appears to have been pulled closed. This may explain why it was that Daniel Zettel took the rather convenient, but inexplicable position that the further $250,000.00 forwarded by Manufacturing to Metalcraft in November 1995 was covered by the security agreement signed in October 1995. I have already found that those monies were in fact unsecured informal cash infusions lent to help Metalcraft satisfy immediate debts as they came due.
77The third and final factor demonstrating that the arrangement had the effect of defeating the Act’s purpose is the insistence by Metalcraft to defer the large debt owed by Trillium rather than take a lesser, albeit certain fraction of the debt as proposed by Trillium in March 1996. A month later, struggling Metalcraft itself would be initiating its own proposal to creditors. It is clear that Daniel Zettel used his knowledge as the key man in both companies to arrive at a scheme that would not break Trillium, but would save Metalcraft from further damage (in the form of lower receivables), if only over the short term. That scheme was not likely to have been achieved between two companies operating at arm’s length. The very synergy that Daniel Zettel admitted in the transcript might be achieved between the Zettel companies was now being used (no doubt not in the way anticipated by Daniel Zettel when he purchased Excel) to facilitate Metalcraft’s financial health without driving Trillium into greater financial illness.
78In my view it would be an incongruous and inequitable result to find that, notwithstanding the evidence of business and financial interdependence among the Zettel companies, when it comes to the obligations owed by Metalcraft to its employees under the Act, those same companies can now claim corporate and legal independence, and thus shield themselves from liability. That, in my opinion, would defeat the purpose of the Act.
79I find that the responding parties are related within the meaning of, and covered by section 12 of the Act. Accordingly, the employees represented by the applicant are entitled to termination pay and severance pay in accordance with the provisions of the Act. Trillium and Manufacturing are jointly and severally liable for these amounts, which were found by the arbitrator to be payable by Metalcraft.
80With respect to the quantum of the specific amounts payable to each of the members represented by the applicant, the parties are directed to file submissions outlining their position.
81There remains an issue as to whether or not the non-union employees who may not have not filed claims for termination pay and/or severance pay are entitled to benefit from this decision, given that it arises from a section 64.6 reference of an arbitrator whose award dealt only with persons represented by the union. The applicant took no position on this issue at the hearing. The Ministry of Labour urged the Board to include the non-union employees in any order directing the payment of monies under the Act. It was not clear to the Board what was the position of the responding party companies on this issue. Accordingly, the Board directs the filing of written submissions of the parties concerning the Board’s jurisdiction to “sweep in” non-union employees in a reference from an arbitrator appointed under a collective agreement, together with the submissions concerning the quantum of payments. All submissions are to be provided to the Board and the other parties within 30 days of the date of this decision. Upon receipt of the parties’ submissions, the Board may assign a Labour Relations Officer to assist the parties with the remaining issues. To the extent necessary, the Board will issue a final decision.
82I am seized to deal with the remaining submissions of the parties.
“Patrick Kelly”
for the Board