0561‑95‑R United Food & Commercial Workers, Local 206 chartered by the United Food and Commercial Workers International Union, CLC, AFL‑CIO, Applicant v. Lynn Management Ltd. c.o.b. as Tim Hortons, Responding Party v. Keith Fralick, Objecting Employee.
BEFORE: Jerry Kovacs, Vice‑Chair, and Board Members R. M. Sloan and
Pauline R. Seville.
APPEARANCES: Pierre Sadik, J. Hurley, M. Johnston for the applicant; A. P. Tarasuk, M. S. F. Watson, Debbie Mattatall and Miles Mattatall for the responding party; Cyril J. Abass and Keith Fralick for the objecting employee.
DECISION OF BOARD MEMBER PAULINE R. SEVILLE; February 3, 2000
The majority decision dated November 19, 1999 was mailed to the parties on or about that date. The decision was not mailed to me until December 20, 1999, and I received it on December 22, 1999, the same day I was advised by telephone there was a Request for Reconsideration by the applicant.
As noted by the majority there was controversy regarding the testimony of Linda Murphy, when during the course of the hearing the Union alleged that the employer had suborned perjury in the earlier testimony of Ms. Murphy.
I agree with the majoritys recitation of the facts and their conclusions regarding the allegations about Ms. Murphys testimony noted at paragraph(s) 46, 47 and 48 of the majority decision. In particular I agree with the following statement of the majority, found at the end of paragraph 47: We do not find that the employer representatives interactions with Ms. Murphy amounted to subornation of perjury.
However, with respect , I disagree with the majority decision with respect to the central question, i.e. whether the bargaining unit proposed by the union is a viable one that will not cause serious labour relations problems for the employer.
In this case the issue of what is an appropriate bargaining unit should not be viewed in isolation from two other issues which are woven together into that determination, given the facts in this case, i.e.:
Issue 1. Each store is set up as legally distinct and separate corporate entity. What affect if any, should this have on the Boards decision?
If the answer to the preceding question is that a legally distinct and separate corporate entity has no affect on the Boards decision in this case, then:
Issue 2. Is the respondent obliged pursuant to section 1 (4) of the Labour Relations Act, to make an application, failing which can the Board on its own motion, without notice to the parties, render what is in effect a section 1(4) declaration, when the conditions precedent to making such a declaration have not been met, i.e. section 1 (5)?
Each of the 11 stores operated by Lynn Management are set up as legally distinct and separate corporate entities, with 3 of the 11 corporations run by 80:20 operators.
In the application for certification, the applicant proposed a bargaining unit of all employees at a single store known as store #502. At the outset of the hearing the respondent proposed a bargaining unit comprising all employees in the Regional Municipality of Hamilton-Wentworth, which would encompass all of the 11 stores operated in Hamilton and Stoney Creek.
In final argument, the respondent indicated that if the Board was not persuaded that it should adopt the respondents initial position on an appropriate bargaining unit, then at a minimum the Board should consider that store #502 and store #359 could not be separated because of operational integration. At this juncture in the hearing, i.e. final argument, the applicant objected to the Respondent amending its position on the bargaining unit. The applicant argued that the respondents change in position was prejudicial when done after all the evidence was in. Further, the applicant stated that different and additional evidence would have been called if the amended bargaining unit position of the respondent had been up front at the outset of the case.
When dealing with the applicants concern about the respondent amending its position with respect to an appropriate bargaining unit, the majority wrote as follows:
In the circumstances before us, we find it unnecessary to deal with the applicant’s concerns. We have found that its proposed unit is not an appropriate one. The issue of identity of the employer or employers need not be determined in order to rule upon the appropriateness of a unit consisting solely of Store #502. Neither it nor its baking store are 80:20 operations.
The last sentence in the above paragraph of the majority decision is incorrect., i.e. store#359 is the baking store for store #502 and in fact, store #359 is an 80/20 operation run by Annemarie and Al Sheehan under a separate corporate entity known as Matmil Management Ltd.
As noted at paragraph 65 of the majority decision, the Sheehans were required to pay $25,000.00 to Lynn Management at the time they assumed the store and the corporation associated with it. The issue of this payment only arose in cross-examination of the witness Mrs.Sheehan. Lynn Management chose not to offer any evidence in chief to assist in better understanding the $25,000.00 payments.
The evidence in chief with respect to 80:20 operations and the $25,000.00 payment for each 80:20 store to Lynn Management was not in my view, the only missing link with respect to understanding the corporate structure and governance involved in this case.
The Board did not get sufficient and necessary evidence within the knowledge of the respondent, to allow it to make a determination about the labour relations impact of the existence of separate and legally distinct corporate entities involving each of the 11 stores, and in particular, the impact of these separate corporate entities on the 80:20 operations; and the overall role of the franchiser parent corporation TDL Group.
In another decision involving TDL Group and franchisees J. P. Murphy Inc., [1995] OLRB. June the Board wrote:
The responding party’s argument in this regard was premised on a general appeal that the Board look at the substance rather than the form of the various transactions and corporate entities involved in this matter. Subject to its power under section 1(4) (about which more will be said shortly), the Board does not have any general or free floating power to pierce the corporate veil or to otherwise ignore or dismantle corporate entities deliberately and legitimately created in accordance with well established law and practice. We find it interesting, for example, that the parties to the license agreement had to go through very deliberate and painstaking steps (see Article XV11 of the agreement) to insure that individual persons be bound to the terms of the agreement and that the existence of a corporate entity not be allowed, in and of itself, to defeat TDL's rights under the agreement. The responding party points to the fact that eligibility for a fresh small business loan was a reason for the creation of a new corporate entity which was, in essence, continuing or expanding upon the business of S.F. Murphy Inc. We note that this was not the only, or even necessarily the determining, factor leading to the creation of J.P. Murphy Inc. In any event, the business motives underlying the incorporation of a new entity do not negate its existence and are of little assistance to the Board in this case in determining who the employer is. As between J.P. Murphy Inc. and S.F. Murphy Inc. (the only two choices posted by the *-parties) we have no hesitation in concluding that it is J.P. Murphy Inc. which is the employer of bargaining unit employees at store #740.
We know from the evidence that Lynn Management has franchise agreements for all 11 stores with the TDL Group (formerly Tim Donuts Limited). As noted at paragraph 24 of the majority decision, the franchise agreements were not tendered in evidence before the Board.
Miles Mattatall one of the owner/operators of Lynn Management when speaking of a franchise agreement between TDL and Lynn Management characterized it as a thirty (30) page document, with all the obligations they are obliged to fulfill.
As noted at paragraph 66 of the majority award, 80:20 operators are required to enter into ....a standard form of contract, which structures the 80:20 deal. One of the two standard contracts entered into evidence was between Lynn Management Ltd. (first part), -and- Matmil Management Ltd., (second part) -and- Annemarie and Al Sheehan (third part).
This standard contract refers to two Schedules, A and B, which although forming part of the contract, neither Schedule was tendered into evidence. Schedule A is referred to in clause 11 of the standard contract and it would appear to describe all of the equipment that is the sole and exclusive properly of Lynn Management Ltd.
Schedule B is the Tim Donuts standard License Agreement which is referred to at the beginning of clause 2 of the standard contract which states:
The Operator covenants that they will honour, observe and diligently perform all of the covenants, terms and condition in Tim Donuts standard License Agreement, and unexecuted copy of which is attached as Schedule B, as if they are the original signatories thereto and the said covenant, terms and conditions of the unexecuted License insofar as they are applicable to the relationship between the Operator, shall be incorporated into this Agreement.
The Board was not in my opinion, provided with the evidence necessary to decide upon the question of the existence of separate corporations, (including the role of the parent corporation TDL) and the impact this could have on the determination of an appropriate bargaining unit
On the issue of whether a single store bargaining unit is an appropriate bargaining unit in this case, the majority distinguishes this case from other Board decisions, i.e., McDonalds Restaurants of Canada Limited, [1974] OLRB Rep. Oct. 755; Ponderosa Steak House, [1974] OLRB Rep. Nov. 7; and Collegiate Sports Experts, [1995] OLRB Rep. Feb. 95 by stating that the integration of production sets this case apart from other cases involving fast food chains and retail stores.
As noted, this case involves an application for certification for a single store bargaining unit, know as store #502, the production (of doughnuts) arises in relation to store #359, which provides donuts to store #502. Store #359 is run by the Sheehans in an 80:20 arrangement under a separate corporation known as Matmil Management Ltd.
If production of donuts is the critical element that distinguishes this case from others in the retail store and fast food chains, then the Board should satisfy itself that Store #359 is not a separate employer for the purposes of the Act, and further deal with the existence of corporations at each of the stores in question.
The evidence of Miles Mattatall was that separate corporations were set up on the advice of their accountant for operational and accounting reasons, but quite apart from this purpose, it is clear from the evidence (and allowing for some obvious variation in the 80:20 operations), that elements of a distinct separate legal corporate entity exist at each store. These common elements are visible, have legal significance and apply to each individual store, i.e.:
∙ Separate distinct legal corporate entity for each store
∙ Employee files located on store premises
∙ Punch clock and timecards on store premises
∙ Payroll processed from each store directly to Comcheq (payroll service in Toronto)
∙ Pay cheques are issued in the individual corporate name of the store
∙ Record of employment (UIC/EIC) issued from and in the corporate name of the store
∙ Statutory deductions for Income Tax; UIC, WCB and CPP are recorded for the individual store
∙ Statutory remittances are made in the corporate name of the store to the Provincial and Federal government(s)
∙ Invoices are sent to the attention of the distinct separate corporation operating each store (an exception to this practice, is billing by WCB. The evidence appears to be that one bill is sent by WCB to Lynn Management, with the exception of two 80:20 stores, which are billed separately)
∙ Cheques for supplies and goods are issued through the store under the corporate name
∙ GST Report is filled in and remitted to Revenue Canada by the individual store
∙ Deliveries by the parent corporation, TDL Group are done to individual stores, (with the exception of the kiosk which is serviced by another store)
All of the elements outlined above combine to indicate that each store is functionally set up to operate as a distinct separate legal entity, i.e., a corporation, which the board does not have the unfettered right to ignore, dismantle, or combine.
The Board does however, have authority to treat several corporations as one employer, this authority is set out in section 1(4) and 1 (5) of the Labour Relations Act. Those sections provide:
1(4) Where, in the opinion of the Board, associated or related activities or businesses are carried on, whether or not simultaneously, by or through more than one corporation, individual, firm, syndicate or association or any combination thereof, under common control or direction, the Board may, upon the application of any person, trade union or council of trade unions concerned, treat the corporations, individuals, firms, syndicates or associations or any combination thereof as constituting one employer for the purposes of this Act and grant such relief, by way of declaration or otherwise, as it may deem appropriate.
1(5) Where, in an application made pursuant to subsection (4), it is alleged that more than one corporation, individual, firm, syndicate or association or any combination thereof are or were under common control or direction, the respondents to the application shall adduce at the hearing all facts within their knowledge that are material to the allegation. R.S.O. 1990, c. L.2, s. 1 (4, 5).
In my opinion, these sections require: -
An application ; and
Respondent to adduce all facts within their knowledge
In this case, no application was made under Section 1 (4), nor was it requested or raised at any point in the proceedings by the respondent. Moreover, even if the failure to make an application could be set aside, the respondent did not in my view meet the onus of establishing all of the facts within their knowledge, with respect to corporate structures(s) and governance.
Section 1(4) and 1(5) are in the Labour Relations Act, to serve a purpose, moreover, section 1(4) was successfully applied by the Board in an application for certification Hornco Plastics Inc., [1993] OLRB. Rep. May. 411. Hornco is distinguishable from this case because in Hornco, the respondent Employer at the outset sought a declaration pursuant to section 1(4), which then would have brought the obligations in s.1(5) into play. In addition in Hornco, unlike the present case, the applicant acknowledged that the two businesses (Horn and Hornco) carried on associated or related activities or businesses under common control or direction, within the meaning of section 1(4) of the Act.
The Board does not know the full extent of Lynn Management’s obligations and or undertakings with respect to the parent corporation TDL Group, because the franchise agreement was not introduced into evidence. As noted earlier this franchise agreement is also incorporated and forms part of the standard 80:20 contract.
To look at the degree of control and functional integration involving Lynn Management and the 11 stores, without knowing, how this is affected by the relationship to the parent corporation through the franchise agreement, is to look at only half a picture. For example, we heard a lot of evidence about the % guidelines set for the operating costs for the stores; uniforms; rules; policies; standards and sanitation. these are also the kinds of policies that a parent corporation might play a role in establishing, but the Board did not have this evidence, and as a result, the issue of an appropriate bargaining unit was not looked at in the proper context, i.e. with this information. In my view having this evidence was critical and the Board should not have made a determination without that evidence.
Much of the majority decision on determining an appropriate bargaining unit hangs on the issue of Lynn Management operating a functionally integrated enterprise. However, if you dont have the evidence and at minimum a timely request under Section 1(4), you cannot conclude that the employer operated a functionally integrated enterprise, with the result you deny the applicant a single store bargaining unit.
I would like to put aside the issues of corporate structure/governance addressed earlier, and turn to the question of the determination of an appropriate bargaining unit. At paragraph 79 the majority wrote:
We conclude that there are communities of interest for viable bargaining at both the enterprise-wide and the single-store levels, and that there may be a further level at the baking-satellite store pairing. Given that finding, the appropriateness of the proposed unit depends on whether viable bargaining at the single-store level would cause “serious labour relations problems” for Lynn Management, and whether a larger grouping of stores would present an obstacle to employee self-organization.
Further on at paragraph 83, the majority concludes that that a single store bargaining unit would cause serious labour relations problems for the employer because in particular, such a unit would cause undue fragmentation of the employers functionally integrated enterprise. The majority at paragraph 84 states: Viewed cumulatively, a number of factors demonstrate that integration. Most significant is the integration of stores for production purposes, especially with respect to a key product required in every Tim Horton store: donuts.
In para. 86, the majority sets this case apart from others by stating:
In our view, the integration of production sets the circumstances of this case apart from other cases involving fast food chains or retail stores. It is true that in McDonalds Restaurants of Canada Limited, [1974] OLRB Rep. Oct. 755 and Ponderosa Steak House, [1974] OLRB Rep. Nov. 7 the Board set precedents establishing the appropriateness of single-store bargaining units. But in those cases there was no integration of production: each restaurant was self-sufficient in producing the food and beverages it sold. In other respects the circumstances of McDonalds and Ponderosa resemble those of Lynn Management, e.g., common management of a number of stores in a relatively confined geographic area, standardized operations reflecting the much larger personality of a parent corporation, common jobs and job skills and terms and conditions of employment, voluntary movement of employees from store to store. All of those factors suggest that a single-store unit would also be appropriate in the Lynn Management context, but the issue of production of the goods for sale is a critical difference. In much the same way, the facts in Collegiate sports are remarkably similar to those in this case; but again there is no question of manufacturing responsibilities with respect to the products sold in the sporting goods stores.
Read simple, the majority suggests in this last paragraph, that a single-store unit would be appropriate in this case, but for the critical difference of production of goods for sale. For clarity, the production of goods referred to is doughnuts.
To understand this critical difference/issue in the context of this case, we need to recall that the application for certification for a single store bargaining unit, was for store #502, which operates as a separate corporation. Store #502 does not have the capability to make its own doughnuts, and as a result doughnuts are made at store #359. As noted earlier, store #359 is an 80/20 store, operated by Annemarie and Al Sheehan, the store operates under the corporate name Matmil Management Ltd.
At paragraph 94, the majority reiterates its concern respecting the production relationship involving Store #502 and Store #359, and expands upon the production concern and concludes as follows:
We foresee serious labour relations problems arising from the carve-out of Store #502 from the production relationship with store #359, or from whatever source of production within the Lynn Management group of stores. As counsel for both parties conceded, the Board’s assessment of the likelihood of labour relation problems is an inexact and postulative exercise. The Board’s focus is on the viability of the proposed bargaining relationship and, in a case like this one, the effect that the new bargaining relationship would have on the labour relations of the employer’s enterprise as a whole.
Further on at paragraph 96, the majority states that the most significant aspect of functional integration is the manufacture of donuts:
From the labour relations perspective, the most significant aspect of functional integration is that of manufacture of donuts. Lynn Management’s history demonstrates that continuing flexibility in the source of production of donuts is a critical part of the business.
It is not clear to me how the source of production of donuts for store #502 becomes a serious labour relations problem with respect to that store, such that is would cause the Board not to consider it to be an appropriate unit.
The evidence is clear store #502 does not have the capability to make donuts. Indeed the evidence of Miles Mattatall was to the effect, that store #502 could not be set up for the production of donuts because of its size. As a result, store #502 if found to be an appropriate bargaining unit, cannot be said to have an impact on the production of donuts, because it does not now and cannot in the future produce donuts itself. As a result store #502 is not in a position to ever affect the flexibility in the source of/or production of donuts.
Clearly in the event of a strike at store #502, that store would arguably not purchase donuts from store #359, or indeed purchase donuts from any store depending on the impact or success of a strike. If Store #502 was found to be an appropriate bargaining unit, it is true that in the event of a strike, this would have an impact on the revenue of store #359, (in the area of 10%).
But the larger ll store bargaining unit suggested by the majority, would have an even greater and far more serious labour relations impact on the functionally integrated enterprise, i.e. potential for 11 stores on strike, with the potential revenue reduction to 0%, assuming a successful strike.
While the potential loss of revenue to the operator of store #359 is not insignificant, it does not in my view constitute a serious labour relations issue, such as to deny the applicant the bargaining unit it applied for at store #502.
The majority is not consistent in its viewpoint in my opinion. In paragraph 86 the majority notes that in other respects the circumstances of Lynn Management, resemble those of McDonald and Ponderosa, supra ; i.e.
common management of a number of stores in a relatively confined geographic area
standardized operations reflecting the much larger personality of a parent corporation
common jobs and job skills
common terms and conditions of employment,
voluntary movement of employees from store to store
The majority decision goes on to note All of those factors suggest that a single-store unit would also be appropriate in the Lynn Management context, but the issue of production of the goods for sale is a critical difference. Further along in the award at paragraph 95, when dealing with the serious labour relations implications of a single store bargaining unit, the majority states, …we are not convinced that Lynn Managements staffing practice of voluntary work at other stores would lead to any problem that could not be accommodated in collective bargaining. But there are exceptions to that general practice. While the instances of employees working for more than a single store are few, they are an indicator of the functional integration of the eleven stores
It is not clear to me how on the one hand the majority can state that the practice of voluntary work can be accommodated in collective bargaining and then go on to indicate that the exceptions, which it acknowledges to be few are sufficient that a single store bargaining unit could not easily accommodate such employees.
In addition at paragraph 97, the majority revives some of the issues dealt with in paragraph 86 and say that while individually less significant, they point to serious labour relations problems. Its inconsistent to acknowledge in paragraph 86 of the majority decision, that these issues could lead to a single store bargaining unit (except for the critical issue of production), and then turn around and revive those same issues as grounds for finding serious labour relations problems.
I would adopt the reasoning and decision of the Board in Collegiate Sports Experts, supra. In particular I wish to make note of these excerpts from that Board decision:
Collegiate submits that in this case a single store unit would create serious labour relations problems because of the employer’s reliance upon the regular and frequent flow of employees from one store to another in order to meet customer service requirements. If bargaining unit employees in one store were represented by a trade union, Collegiate argues that this flow would be impeded, as employees would be prevented from transferring in or out of that store. The employer also suggests that this history of regular movement would create difficulties in determining what constitutes bargaining unit work in the event of a strike or lockout, as in its submission work is presently done with no distinction as to what location an employee regularly works at.
The employer’s argument concerning the impact of a single store unit on the interchange of employees is premised in large part on the presumption that temporary transfers would be prevented by the unionization of the Eaton Centre store. It is not clear to the Board, however, that this would indeed be the outcome of granting a single store unit. It is true that the employer would have to negotiate with the union over the status, pay and seniority of temporary employees, rather than being able to determine these conditions of employment unilaterally, but this cannot be considered a serious labour relations problem given that a requirement to bargain is the inevitable outcome of unionization. And there would be nothing to stop the employer from continuing to include hours worked at the Eaton Centre store in its calculation of the service of employees not regularly employed in the bargaining unit.
The final aspect of the employer’s argument concerning interchange arises from the practice of permitting permanent transfers from one store to another, either laterally or by way of promotion. The creation of a single store unit at the Eaton Centre does raise the spectre of a seniority enclave at that location, as employees would not automatically be able to carry their seniority at other locations into the bargaining unit, despite the employer’s practice of calculating seniority based on service at all locations. Instead, the seniority of Collegiate employees transferring permanently into the bargaining unit would be a matter for negotiation between the employer and the union, which might result in either confirmation of or a change in the employer’s prior practice.
We are satisfied however, that the prospect of bargaining over this issue does not raise the spectre of a serious labour relations problem in the circumstances of this case. At most, a bargained agreement not to permit employees to maintain seniority earned at other locations may act as a disincentive to permanent transfers. While this may be unfortunate, it was not asserted, and indeed the frequency of such transfers would not support, that this would be a serious impediment to the staffing of the Eaton Centre store. Equally, while such an outcome may be a disadvantage for employees who wish to make such a change, the evidence concerning these transfers does not support an argument that it is common method of advancement; indeed, out of the 17 transfers in paragraph 17 above, only three involved a promotion or increase in pay.
Where a union has not applied for the more comprehensive unit, however, and it is the employer who wishes to expand the scope of certification, the Board must consider carefully the test articulated in Hospital for Sick Children, supra, and in particular whether or not the unit applied for, which may not be the most comprehensive nor the most appropriate, will create serious labour relations problems for the employer. This is the approach discussed by the Board at paragraphs 19 and 20 in the Salvation Army decision, which are reproduced at paragraph 20 above, and is an approach which is necessary to ensure that our aversion to fragmentation does not create unreasonable impediments to employees’ access to collective bargaining.
The applicant asked the Board to take judicial note of the difficulties of organizing in this sector of the economy. The majority has fairly set out the evidence about attempts at union organizing involving the Lynn Management operation. The majority notes the lack of success the applicant encountered when it attempted to organize within the Lynn Management operation. In my respectful view, the primary focus should not be an analysis of how successful or unsuccessful the applicant is in organizing, instead, the primary focus should be on any organizational barriers or impediments, that may exist to prevent organizing from establishing a foothold in this sector. Let me suggest some potential barriers to organizing in this sector of the economy, which is known to involve predominantly women, employed in low-paying positions, frequently involving part-time work:
∙ Union organizing doesnt take place in a vacuum from what is going on in the workplace. Organizing frequently takes root as a result of internal employee discussions around issues or concerns in that workplace. The opportunity to discuss workplace issues and the relative merits (or not) of unionization, are an important internal workplace precursor to employees taking the next step to actively considering unionization. The 11 store bargaining unit encompassing Hamilton and Stoney Creek endorsed by the majority creates unreasonable impediments to employee access to collective bargaining.
∙ The vast majority of employees work in one store, with no or very limited access to employees in other stores.
∙ The ratio of students employed in the bargaining unit, during the school year may act as a barrier to employee access to collective bargaining, because students may have a more tenuous attachment to the workforce.
∙ The impact of part-time work on employee mobility; i.e. employees engaged in part-time employment, often work part time because full time work is not available. As a result such employees may have more than one part-time job, with different employers in order to make ends meet. This common situation also raises the issue of a lack of attachment or a tenuous attachment to the workforce. As a practical matter it may also mean, that employees working in a number of part-time positions, simply dont have time or the means to be involved in organizing efforts spread across 11 stores located in Hamilton and Stoney Creek.
∙ Last, but not least, how do employees who want to organize get around to some or all of the 11 stores. In my opinion, many employees in low paying positions would not be able to afford to drive a car, and as a result, they are more likely to rely on public transportation as a means of getting around. Getting to some or all of the 11 stores, while relying primarily on public transportation is not practical, or realistic, and is indicative of a barrier and evidence of an unreasonable impediment to employee access to collective bargaining.
- In conclusion, the Board did not have the evidence required pursuant to section 1(4) and 1(5) of the Labour Relations Act, to arrive at conclusions respecting the separate and legally distinct corporate entities involved in this case. Further and in any event, I do not agree with the majority that the evidence leads to a conclusion that serious labour relations problems would occur if a single store bargaining comprised of employees at store #502 were certified.
“Pauline R. Seville”