0203-00-R Schneider Employees’ Association, Applicant v. J. M. Schneider Inc. and Borden Cold Storage Limited, Responding Parties

BEFORE: Anthony Brown, Vice-Chair.

APPEARANCES: Robert Gibson, Dennis Lesperance and Stewart Campbell for the applicant; Ted J. Kovacs and Wayne Short for J. M. Schneider Inc.; Donald G. Kidd and Michael Hancock for Borden Cold Storage Limited.

DECISION OF THE BOARD; April 6, 2001

1. This is an application pursuant to section 69 of the Labour Relations Act, 1995 (the "Act"). The applicant seeks a declaration that it represents employees of the responding party, Borden Cold Storage Limited. It alleges that there was a sale of business by J. M. Schneider Inc. to Borden Cold Storage Limited (“Borden” or “the company”), and that the collective agreement between the applicant and J. M. Schneider Inc. applies to the relevant employees of Borden. (An application under subsection 1(4) was withdrawn by the applicant early in these proceedings and J. M. Schneider Inc. did not participate beyond the first day of hearing.)

2. At the outset of the hearing of this application, the Board ordered that certain documents were to be produced by Borden, including documents showing the amount of business that the company had contracted with its various customers since starting up. Because this information would normally be considered confidential, the Board ordered that only four of the applicant’s officers were to have access to this information, that they were to maintain its confidentiality and use it only for the purpose of this proceeding, and that they were to return the confidential documents to Borden upon the final disposition of this application. The applicant agreed to these conditions.

3. Paul Finnigan and Doug Cornwell are the principal shareholders of Borden Cold Storage Limited. The company is the owner of a property located at 150-160 Borden Avenue in Kitchener, Ontario (hereafter also referred to as the “Borden warehouse” or the “Borden facility”). The Borden warehouse had been used by J. M. Schneider Inc. for many years to store frozen goods associated with that company’s business as a food processor. The warehouse is located adjacent to a plant owned by J. M. Schneider Inc. at 321 Courtland Avenue East in Kitchener. Originally licensed as a cold storage facility in 1964, it had fallen into a state of disrepair. In 1998, J. M. Schneider Inc. determined that it would not maintain the warehouse and would, instead, deal with “third party” cold storage facilities. It had removed its finished and dry goods by the end of summer, 1998.

4. On July 15, 1998, J. M. Schneider Inc. put the property on the industrial-commercial real estate market, listing with Whitney & Co. Realty.

5. Paul Finnigan had worked for J. M. Schneider Inc. from 1980 to 1989 as a “packer”, and had worked in the Borden warehouse on about four occasions during that period. He is also an experienced carpenter. Doug Cornwell had worked in a variety of positions and locations for the J. M. Schneider Inc. and related companies, including as a foreman and plant manager, over a period of about 21 years (including a short stint at the Borden warehouse).

6. When Mr. Finnigan and Mr. Cornwell noticed that the Borden warehouse was for sale, they became interested in buying it with a view to operating a cold storage business. They had been partners in other ventures, primarily the acquisition of income properties. Because of their work experience, they both knew about “cold storage” and believed that such a business could be viable. They had seen other such facilities achieve success in the Kitchener area. Therefore, they notified the listing real estate agent about their interest and were informed that there was already an agreement of purchase and sale signed with another interested party. However, that deal eventually fell through and Mr. Finnigan was able to make an offer to purchase.

7. The warehouse was marketed by the real estate broker as a “freezer facility”. Brian Gould, a real estate agent employed by Whitney & Co., was responsible for selling the property. He dealt directly with Gerald Hooper, V.P. and CFO., at J. M. Schneider Inc., and did not meet Mr. Finnigan during the sale negotiations. He testified that between 10 and 15 prospective purchasers looked at the property. Mr. Gould stated that the original asking price of 1.1 million dollars was established by using the “income approach” based on the potential revenue of the property. He stated that the warehouse was in poor repair. When he first went through the building, in July, 1998, it was still in use as a warehouse, although many of the storage racks were vacant. Within three months the building was virtually empty.

8. The first listing of the property expired on January 15, 1999 and the facility was re-listed at $839,000. Mr. Gould stated that although J. M. Schneider Inc. did not wish to take back a second mortgage, it ultimately agreed to do so in the sale to Borden, because the property had proved difficult to sell. Mr. Gould stated that he had no perception that Borden was accorded any favouritism by J. M. Schneider Inc. in respect of the sale.

9. After negotiations with Mr. Finnigan, conducted through real estate agents, J. M. Schneider Inc. agreed to sell the property for $625,000. to “Paul Finnigan in trust for a company to be named later”. J. M. Schneider Inc. also agreed to take back a second mortgage in the amount of $250,000 bearing interest at 9 per cent. As mentioned, the agreement of purchase and sale was signed by Mr. Finnigan on August 31, 1999. It was signed on behalf of J. M. Schneider Inc. on August 30, 1999. The deal eventually closed on November 19, 1999. Doug Cornwell’s involvement in the purchase was not disclosed to the vendor until after the agreement was executed because he was employed by a “Schneider” company. Both Mr. Finnigan and Mr. Cornwell were required to personally guarantee the mortgage.

10. As part of the agreement of purchase and sale, J. M. Schneider Inc. agreed to the following “best efforts” clause in Article 21.1 of the agreement:

The Vendor shall use its best efforts to provide storage business, on an overflow basis, to the Purchaser provided the Purchaser is competitive with its rates and terms in the discretion of the Vendor.

11. Mr. Finnigan testified that J. M. Schneider Inc. had rebuffed his attempt, during the negotiations, to secure a stronger commitment to send product to the warehouse.

12. Mr. Finnigan’s wife’s sister is married to Doug Dodds, the Chief Executive Officer of J. M. Schneider Inc. Mr. Finnigan stated that he had no dealings with Mr. Dodds about the purchase of the property and that Mr. Dodds had agreed not to become involved in the purchase because of their familial connection. However, following the conclusion of the agreement of purchase and sale, at Mr. Finnigan’s request Mr. Dodds reviewed the “numbers” in the “Business Plan” that Borden was planning to present to local financial institutions in order to obtain a first mortgage and an operating line of credit. Mr. Finnigan stated that, at this point, the agreement of purchase and sale was “done”; there was no backing out. Mr. Finnigan recalled that Mr. Dodds expressed the view that the business would have a tough time for at least a year. Mr. Dodds also provided Mr. Finnigan with a letter of reference to help him obtain financing. Letters of reference were also provided by other friends and associates of Mr. Finnigan.

13. Mr. Finnigan and Mr. Cornwell visited several financial institutions with their business plan in search of financing. Ultimately, the Guelph & Wellington Credit Union and the Credit Union Central of Ontario agreed to provide Borden with a first mortgage of $465,000, a term loan of $100,000 (for equipment) and an operating loan of $100,000 (for working capital). Mr. Cornwell and Mr. Finnigan and their respective wives gave personal guarantees to secure the $100,000. line of credit. Mr. Finnigan stated that J. M. Schneider Inc. was not involved in helping Borden to obtain financing. However, Mr. Finnigan agreed that having a second mortgage from J. M. Schneider Inc. was “significant because we needed any financing” and “hopefully it had some weight with the banks”. Indeed, the Business Plan stated: This first mortgage would have a second mortgage behind it held by the vendor, J. M. Schneider Inc. We feel the optimism expressed by this prestigious corporation is a very positive indication that they feel we will be successful in this business venture.”

14. Mr. Cornwell and Mr. Finnigan both testified about the state of disrepair of the Borden property at the time of purchase. They stated that they spent considerable time and effort fixing it up. The cost of repairs and equipment (including tow-motors) was in excess of $200,000. J. M. Schneider Inc. permitted them to enter the property in October, 1999 to begin repairs after the agreement of purchase and sale was signed but before the deal actually closed. J. M. Schneider Inc. required an “undertaking and indemnity” agreement from them in order to permit the early entry.

15. Mr. Finnigan testified that the property consisted of the main warehouse and a steel storage shed. The shed contained a rolling crane as part of its steel structure. The freezers, compressors and cooling towers were still in the warehouse but it was otherwise empty. Mr. Finnigan stated that the property needed repairs to the roof and the freezer compressors. The interior was covered in dirt. Offices and washrooms had to be fixed up and furnished. The building had been stripped of almost all storage racks. No equipment, such as tow-motors or computers, came with the property. The roof leaked and the walls were crumbling. There was no phone. The freezers that kept the building cold had been maintained by J. M. Schneider Inc. during the shut-down period from September 1998 to November, 1999. This prevented the building from deteriorating even further and it enabled the vendor to market the property as a “freezer facility”. Mr. Finnigan testified that the building would likely have collapsed if the freezers had been turned off during the shut-down because the “permafrost” was needed to keep the place intact. J. M. Schneider Inc. also retained a pest control company to keep the property free of pests during the shut down.

16. In order to operate a financially viable cold storage business, Borden needed a “Licence to operate a registered establishment” from the Canadian Food Inspection Agency (CFIA) that would permit it to store federally-inspected meat. J. M. Schneider Inc. had held a licence on the building since 1964. This licence was not transferable to Borden. After being contacted by J. M. Schneider Inc. about the possibility of a sale of the property to Mr. Finnigan, the CFIA advised Mr. Finnigan by letter dated September 10, 1999 as to what was required in order to obtain a licence and stated that until J. M. Schneider Inc. surrendered its licence, the CFIA would be in no position to discuss the status of the establishment. Mr. Finnigan and Mr. Cornwell wrote to the CFIA on October 20, 1999 explaining the repairs and changes made to the warehouse and requesting a “reissue” of the CFIA licence for the property. Mr. Cornwell wrote to the CFIA again on October 25, 1999, providing more information to support the application. J. M. Schneider Inc. ultimately surrendered its licence to the CFIA and Borden was issued a licence for “cold and dry storage” on December 3, 1999 after CFIA officials conducted a final inspection. Mr. Finnigan stated that Borden did not receive assistance from J. M. Schneider in obtaining the CFIA licence. The licence was officially posted on December 21, 1999.

17. Mr. Finnigan stated that the proximity of the warehouse to the Schneider plant on Courtland Avenue would be advantageous to Borden but that Borden’s prices had to be competitive to attract business from J. M. Schneider Inc. Mr. Finnigan stated that no assistance was received from J. M. Schneider Inc. with respect to the operation of the business. However, staff employed by J. M. Schneider Inc. did fix a compressor for Borden after the sale, because the compressors had been sold as being in working order.

18. Mr. Finnigan admitted that the business plan that was presented to financial institutions in order to obtain financing portrayed the condition of the building and freezers as being better than they actually were; that is, it was a “lie”. He stated that the projected sales in the business plan were not achieved.

19. In December, 1999, Borden’s cold storage business started by storing “dry” goods (packaging materials). The building was not ready for cold storage until January, 2000. Borden did not store frozen product for J.M. Schneider Inc. or a related company until March 2000 but did store dry product for them prior to that date. Gradually, business increased as more potential customers became aware that Borden had opened its doors.

20. A spread sheet was produced by Borden (along with supporting invoices) showing its customers over a period of thirteen months from December 6, 1999 to December 31, 2000. As of December 31, 2000, J. M. Schneider Inc. (and its related companies) accounted for about 40 per cent of Borden’s year to date revenue. Another large customer, Prime Foods, accounts for 31.7 per cent, and there are sixteen other customers listed on the spread sheet plus a “miscellaneous” category. Many of the listed customers provide very little business, as a percentage of the overall total.

21. Borden currently employs one warehouseman and an office manager. Another individual helps out in the warehouse on Fridays. There is no dispute that many of the duties performed by the Borden warehouseman are substantially similar to the work previously performed by warehousemen employed at the facility by J. M. Schneider Inc. Goods arrive at the warehouse by truck and are taken off the truck by the warehouseman, who confirms what has been received. The goods are labelled, inventoried and transported to the appropriate location in the warehouse. When a customer requires the goods, it sends a truck to pick them up and the warehouseman loads the truck. Goods are normally on pallets and are transported within the warehouse by tow-motor or a “frame and reach truck”.

22. J. M. Schneider Inc. did not sell its inventory system with the warehouse. The labelling and inventory system used by Borden differs from the system used by J. M. Schneider Inc. at the property, but serves essentially the same functions.

23. J. M. Schneider Inc. did not do “tempering” at its warehouse, at least as far as any witness could recall. Borden installed the heaters and controls necessary to be able to perform “tempering” for customers, including J. M. Schneider Inc. Tempering involves carefully raising the temperature of frozen meat to a point just below the freezing point. In addition, Borden does not store any “finished” product for J. M. Schneider Inc. Borden is also licensed to store imported meat, whereas J. M. Schneider Inc. did not obtain a such a licence because it did not store imported meat.

24. Richard Strype is the lawyer who acted for Borden in the purchase of the warehouse. He testified that Borden did not acquire financial statements, lists of assets and inventory, accounts payable or accounts receivable as part of the transaction. Mr. Strype stated that he was clearly told by the solicitor for J. M. Schneider Inc. that Borden was not buying any favoured position regarding future storage business from J. M. Schneider Inc.

25. Anthony Martone is the commercial account manager employed by the credit union was involved in the financing of Borden. He stated that the responding party’s proposed business was viewed as a high risk because the warehouse was empty and in poor repair, and because the business was starting with no cash flow. He stated that he was willing to take a risk because he knew Mr. Finnigan and Mr. Cornwell would work hard to “make it go”. Mr. Martone visited the warehouse prior to closing (but after committing funds). He noticed that the roof was leaking and the place was dirty. He said it took about six months before Borden’s draw on its line of credit stopped escalating. Its revenues are now exceeding expenses.

26. Glenn Norman is the national supply chain manager at J. M. Schneider Inc. and his duties include negotiating warehousing with third party storage facilities, including Borden. Mr. Norman recalled that Mr. Finnigan had come to his office and said that he was purchasing the Borden facility and wanted to do business with J. M. Schneider Inc. Mr. Norman stated that he went to his supervisor and was informed by her that he was under no obligation to do business with Borden just because Mr. Finnigan is a relative of an executive of J. M. Schneider Inc. He did not do anything else in response to Mr. Finnigan’s inquiry. However, later on, Doug Cornwell called him seeking business after he (Cornwell) had resigned. Mr. Norman stated that he does not foresee J. M. Schneider Inc. or related companies needing to store finished product at the Borden facility but he expects that Borden will be contracted for tempering and for storage of frozen raw goods. He negotiated tempering and storage rates with Borden and testified that the rates were competitive. He stated that the proximity of the Borden warehouse to the Schneider plant on Courtland Avenue is an attractive feature.

27. Mr. Cornwell testified that he was not involved in the purchase of the warehouse until after the agreement was signed. He was involved in preparing the business plan and he obtained an engineer’s report on the condition of the freezer. He stated that he was primarily responsible for working with the CFIA to satisfy the requirements for obtaining a licence; those requirements included repairs, pest control, mould removal, and a security system.

28. After the sale, Mr. Cornwell compiled a list of potential customers and “beat the pavement” looking for business. No customers were lined up at the time of the purchase. Prime Foods Processing was Borden’s first customer. Mr. Cornwell stated that Borden hoped that it would get business from J. M. Schneider Inc, but did not have an “expectation” of business. Cornwell sent out brochures describing the operation. Those brochures described the company as a “Federally-inspected facility with over thirty years experience in food handling and storage”. Mr. Cornwell explained that the reference to “thirty years” is to the combined experience of himself and Mr. Finnigan.

29. Gerald Heidbuurt has been employed by J. M. Schneider Inc. for about 27 years and worked in the Borden warehouse from 1986 to March, 1998 at which time J. M. Schneider Inc. was down to about three or four employees in the facility because it was in the process of closing it down. He stated that the facility was used primarily to store “finished” product. Product was shipped from the facility to the Schneider distribution centre to be shipped to customers from there. No tempering was done during the period that Mr. Heidbuurt worked there. Over the two years prior to March, 1998, the warehouse staff comprised about 10 to 12 employees. At its peak between 1988 and 1994 about 27 employees were employed at the warehouse (when there was more “order picking” activity). Mr. Heidbuurt described the kind of work done at the warehouse. This included receiving orders, checking the quantity against the bill of lading, scanning each label, and storing the pallets (either on shelves or by stacking). Mr. Heidbuurt was not sure what kind of product was stored at Borden after he left in March, 1998. Mr. Heidbuurt testified that the roof was leaking, there were icicles in the freezer, and the back wall was in bad shape. He was not aware of any mould at the premises.

30. Dennis Lesperance has been the president of the applicant union since October 1, 2000 and has also served the union as vice-president, steward and chief steward. He has been employed at J. M. Schneider Inc. since 1977. He testified that the scope of the current collective agreement (and past agreements) between the applicant and J. M. Schneider Inc. encompassed the Borden facility and in his view should continue to do so. He does not consider the nature of the work at the facility to have changed after the sale, and he still sees Schneider trucks going in and out of the property. At the time of the closure of the warehouse, the union had two members at the warehouse, who were transferred to the Courtland Avenue plant. It is his impression that the Borden facility was in no worse condition than the plant at Courtland Avenue.

Submissions

31. The applicant submits that there was a sale of part of a business from J. M. Schneider Inc. to Borden, namely the operation of a cold storage facility used to store dry and frozen goods. The applicant asserts that the business acquired by Borden can be traced back to J. M. Schneider Inc. The property was sold as a freezer facility and the vendor maintained its CFIA licence. In essence, the freezer was the business; the fundamental components of the business were thus transferred. Mr. Finnigan and Mr. Cornwell bought the facility with the intent to run a business. The general nature of the business has not changed except that it now serves customers. The “general market” has not changed. The client base has simply expanded to include more than J. M. Schneider Inc. The successor business need not be identical to the predecessor business. The applicant emphasizes that the nature of the work performed by persons employed in the warehouse is essentially the same as before the sale. The work is the same regardless of what kind of product is stored (e.g. finished v. raw product). The facility is located next to the plant on Courtland Avenue East, and the Schneider group of companies now accounts for approximately 40% of Borden’s business and are collectively Borden’s biggest customer.

32. The applicant submits that both Mr. Finnigan and Mr. Cornwell took “know how” to Borden. They had gained pertinent expertise and contacts as employees of J. M. Schneider Inc. or its related companies. Doug Cornwell was able to use his work experience to get his foot in the door to attract customers. Borden’s marketing material relies heavily on the principals’ 30 year experience in the industry.

33. The applicant asserts that J. M. Schneider Inc. assisted in the sale of the business by selling the property for a low price, by giving back a second mortgage, by keeping the freezers operational during the shut-down period and maintaining pest control, by helping Borden to obtain a CFIA licence, and by agreeing to a “best efforts” clause in the aforementioned Article 21.1. It notes that Borden referred to the granting of a licence as a “re-issue”, emphasizing the continuity of the licence. The applicant further asserts that the familial relationship between Mr. Dodds and Mr. Finnigan should cause the Board to scrutinize the transaction very carefully and it gives rise to a presumption that the sale transaction was not at arm’s length.

34. The applicant submits that the fact that Borden was able to secure its CFIA licence and open its doors within about two months after access was allowed to the property indicates that the repairs performed by Borden could not have been as extensive as claimed. It points to the appraisal report filed in evidence that stated the property was in satisfactory repair for its age, and to the business plan that described the building as being in good condition. It argues that the period or “hiatus” during which the warehouse was empty is not a significant factor in determining whether there was sale of business within the meaning of the Act.

35. Counsel for the applicant referred the Board to several leading decisions of the Board in respect of the application and interpretation of section 69, including, Accomodex Franchise Management Inc. [1993] OLRB Rep. April 281, Metropolitan Parking Inc. [1979] OLRB Rep. Dec. 1193, More Groceteria Limited [1980] OLRB Rep. April 486, Culverhouse Foods Limited [1976] OLRB Rep. Nov. 691, Long Lake Forest Products Inc. [1994] OLRB Rep. Oct. 1343, Vaunclair Meats Limited [1981] OLRB Rep. May 581, Beef Terminal (1979) Limited [1980] OLRB Rep. Aug. 1167, Shin Ho Canada Ltd. [1995] OLRB Rep. Sept. 1217, Krush [1987] OLRB Rep. June 859, Katrina’s Tavern [1978] OLRB Rep. Sept. 838, Antonacci Clothes Inc. [1984] OLRB Rep. July 887, Zehrs Markets [1974] OLRB Rep. May 331, and The Tatham Company Limited, [1980] OLRB Rep. Mar. 366.

36. The responding party takes a different view of the facts. It submits that the transaction between Borden and J. M. Schneider Inc. was at arm’s length as shown by the fact that J. M. Schneider Inc. was seeking the best deal it could get, refused Borden’s request that it give back a first mortgage, initially refused to even consider a second mortgage, and was not willing to promise that it would store goods at the facility. It asserts that J. M. Schneider Inc. provided no active assistance to Borden to help it acquire a CFIA licence.

37. The responding party submits that the nature of the work performed by Borden employees is substantially different from that performed by J. M. Schneider Inc. employees. It submits that what occurred was a sale of idle assets, and not of an operational entity. Borden simply acquired a surplus property in poor repair but did not acquire a “functional economic vehicle” or turn-key operation. In its view, no coherent grouping of the normal indicia of a business was transferred. A viable business had to be created. Critical equipment such as tow-motors were not sold with the property. No customer lists or goodwill were transferred. No employees were transferred. The responding party asserts that Mr. Finnigan and Mr. Cornwell were not “key men” and there was no “know how” transferred from J. M. Schneider Inc. to Borden through the transaction.

38. Counsel referred the Board to several cases, including Miracle Food Mart, Steinburg Inc. [1988] OLRB Rep. July 679, Super City Discount Foods Ltd. [1969] OLRB Rep. August 666, Super City Ltd. [1964] OLRB Rep. May 93, Uniroyal Goodrich Can. Inc. [1995] OLRD No. 1791, Meteor Meat Company Ltd. [1983] BCLRB July No. 196/83, Merit Contractors of Niagara [1994] OLRB Rep. Feb. 152, Thunder Bay Golden Nugget Saloon [1991] OLRB July 918, Steinberg Inc. [1989] Rep. October 1066, Charterways Transportation Limited [1994] OLRB Rep. October 1296, Zellers Inc. [1995] OLRB Rep. Aug. 1141, Gordon’s Market [1978] OLRB Rep. 1102 Accomodex Franchise Management Inc. (supra), Metropolitan Parking Inc. (supra) and Culverhouse Foods Limited (supra).

The Law

39. Section 69 of the Act states as follows:

40. (1) In this section,

"business" includes a part or parts thereof; ("entreprise")

"sells" includes leases, transfers and any other manner of disposition, and "sold" and "sale" have corresponding meanings.

(2) Where an employer who is bound by or is a party to a collective agreement with a trade union or council of trade unions sells his, her or its business, the person to whom the business has been sold is, until the Board otherwise declares, bound by the collective agreement as if the person had been a party thereto and, where an employer sells his, her or its business while an application for certification or termination of bargaining rights to which the employer is a party is before the Board, the person to whom the business has been sold is, until the Board otherwise declares, the employer for the purposes of the application as if the person were named as the employer in the application.

(3) Where an employer on behalf of whose employees a trade union or council of trade unions, as the case may be, has been certified as bargaining agent or has given or is entitled to give notice under section 16 or 59, sells his, her or its business, the trade union, or council of trade unions continues, until the Board otherwise declares, to be the bargaining agent for the employees of the person to whom the business was sold in the like bargaining unit in that business, and the trade union or council of trade unions is entitled to give to the person to whom the business was sold a written notice of its desire to bargain with a view to making a collective agreement or the renewal, with or without modifications, of the agreement then in operation and such notice has the same effect as a notice under section 16 or 59, as the case requires.

(4) Where a business was sold to a person and a trade union or council of trade unions was the bargaining agent of any of the employees in such business or a trade union or council of trade unions is the bargaining agent of the employees in any business carried on by the person to whom the business was sold, and,

(a) any question arises as to what constitutes the like bargaining unit referred to in subsection (3); or

(b) any person, trade union or council of trade unions claims that, by virtue of the operation of subsection (2) or (3), a conflict exists between the bargaining rights of the trade union or council of trade unions that represented the employees of the predecessor employer and the trade union or council of trade unions that represents the employees of the person to whom the business was sold,

the Board may, upon the application of any person, trade union or council of trade unions concerned,

(c) define the composition of the like bargaining unit referred to in subsection (3) with such modification, if any, as the Board considers necessary; and

(d) amend, to such extent as the Board considers necessary, any bargaining unit in any certificate issued to any trade union or any bargaining unit defined in any collective agreement.

(5) The Board may, upon the application of any person, trade union or council of trade unions concerned, made within 60 days after the successor employer referred to in subsection (2) becomes bound by the collective agreement, or within 60 days after the trade union or council of trade unions has given a notice under subsection (3), terminate the bargaining rights of the trade union or council of trade unions bound by the collective agreement or that has given notice, as the case may be, if, in the opinion of the Board, the person to whom the business was sold has changed its character so that it is substantially different from the business of the predecessor employer.

(6) Despite subsections (2) and (3), where a business was sold to person who carries on one or more other businesses and a trade union or council of trade unions is the bargaining agent of the employees in any of the businesses and the person intermingles the employees of one of the businesses with those of another of the businesses, the Board may, upon the application of any person, trade union or council of trade unions concerned,

(a) declare that the person to whom the business was sold is no longer bound by the collective agreement referred to in subsection (2);

(b) determine whether the employees concerned constitute one or more appropriate bargaining units;

(c) declare which trade union, trade unions or council of trade unions, if any, shall be the bargaining agent or agents for the employees in the unit or units; and

(d) amend, to such extent as the Board considers necessary, any certificate issued to any trade union or council of trade unions or any bargaining unit defined in any collective agreement.

(7) Where a trade union or council of trade unions is declared to be the bargaining agent under subsection (6) and it is not already bound by a collective agreement with the successor employer with respect to the employees for whom it is declared to be the bargaining agent, it is entitled to give to the employer a written notice of its desire to bargain with a view to making a collective agreement, and the notice has the same effect as a notice under section 14.

(8) Before disposing of any application under this section, the Board may make such inquiry, may require the production of such evidence and the doing of such things, or may hold such representation votes, as it considers appropriate.

(9) Where an application is made under this section, an employer is not required, despite the fact that a notice has been given by a trade union or council of trade unions, to bargain with that trade union or council of trade unions concerning the employees to whom the application relates until the Board has disposed of the application and has declared which trade union or council of trade unions, if any, has the right to bargain with the employer on behalf of the employees concerned in the application.

(10) For the purposes of sections 7, 63, 65, 67 and 132, a notice given by a trade union or council of trade unions under subsection (3) or a declaration made by the Board under subsection (6) has the same effect as a certification under section 10.

(11) Where one or more municipalities as defined in the Municipal Affairs Act are erected into another municipality, or two or more such municipalities are amalgamated, united or otherwise joined together, or all or part of one such municipality is annexed, attached or added to another such municipality, the employees of the municipalities concerned shall be deemed to have been intermingled, and,

(a) the Board may exercise the like powers as it may exercise under subsections (6) and (8) with respect to the sale of a business under this section;

(b) the new or enlarged municipality has the like rights and obligations as a person to whom a business is sold under this section and who intermingles the employees of two of the person's businesses; and

(c) any trade union or council of trade unions concerned has the like rights and obligations as it would have in the case of the intermingling of employees in two or more businesses under this section.

(12) Where, on any application under this section or in any other proceeding before the Board, a question arises as to whether a business has been sold by one employer to another, the Board shall determine the question and its decision is final and conclusive for the purposes of this Act.

(13) Where, on an application under this section, a trade union alleges that the sale of a business has occurred, the respondents to the application shall adduce at the hearing all facts within their knowledge that are material to the allegation.

40. The Board has commented in its jurisprudence about the purpose of section 69, the mischief that it was intended to address, the liberal interpretation that should be given to the provision and the fact that a “sale of business” under the Act is not to be viewed in a purely commercial context. Recently, for example, in Lincoln Hydro Electric Commission, [1999] OLRB Rep. May/June 397 the Board stated:

41. A "business" takes its colour from the "business setting", and is best thought of as a kind of commercial vehicle which has been rationally constructed to produce certain goods or services for a defined market. In St. Leonard's Society of Metropolitan Toronto, [1993] OLRB Rep. Jan. 56 the Board put it this way:

The Board's conception of the "business" under the Labour Relations Act is an operational or instrumental one. The business is not its legal envelope, nor the employees, nor some incidental or unrelated grouping of assets, nor the body of work in which employees may be engaged from time to time. It is a delivery system, an economic vehicle, an organizational means of getting something done. It is to this vehicle that bargaining rights attach and in which they continue if the undertaking or a coherent part of it is transferred to a new owner.

This also seems to be the approach taken by the Supreme Court of Canada in the Bibeault case, [1982] 2 S.C.R. 1048, where Beetz, J. describes a business undertaking as something that "consists of a series of different components which together constitute an operational entity". He later describes it as "all the means available to an employer to obtain his objectives".

99. The "instrumental approach" to successorship confirms that bargaining rights are attached to an economic vehicle ‑ the mechanism, resources, or facilities by which the undertaking serves its purposes ‑ rather than the purposes themselves, the legal envelope, the employees, or their work. Bargaining rights attach to the business undertaking, as defined operationally. The Board then tries to determine whether a "business" or "part of a business" has been transferred to a new owner within the meaning of section 69. The Board has to decide, on the language of the statute and viewed from a labour relations perspective, whether the transfer and continuation of some facet of that undertaking warrants a continuation of bargaining rights (i.e. when giving a purposive reading of section 69, one cannot ignore the concrete consequences of its application in the particular case).

100. As a result of section 69, bargaining rights are not coextensive with commercial ownership or the continuing identity of a particular owner. Nor does it matter how the new owner comes to have possession of the instruments necessary to carry on all or part of the business functions of the predecessor ‑ provided there is some "manner of disposition" from the predecessor to the successor. Bargaining rights continue with a continuation of the business undertaking ‑ in whole or in part. The precise "manner of disposition" is irrelevant.

101. What the many cases explore are the following considerations: what the instruments or elements of "the business" are in a particular setting; what is considered to be the essence of the undertaking (land, equipment, location, employee skills, licences, patents, etc.); and whether all or a definable part of that undertaking has been transferred to a new owner. The Board then considers from a labour relations perspective, whether a sufficiently coherent grouping of those things have been transferred, so as to warrant a continuation of bargaining rights. The Board looks at what was in the hands of the predecessor, and what has found its way, by whatever "manner of disposition", into the hands of the successor. In this regard, there is a notional "tracing principle" which the Supreme Court of Canada described in W. W. Lester, 91 CLLC para. 14002:

To determine whether or not the business or part of a business has been disposed of, most Boards examine the nature of the predecessor business and the nature of the successor business [to see] if the business of the predecessor is being performed by the successor. Most Boards approach the issue by examining factors like the work covered by the terms of the collective agreement, the type of assets that have been transferred, whether goodwill has been transferred, whether employees are transferred, whether the business is operating in the same location, whether there is a continuity of management, and whether there is a continuity of the work performed ... no single factor is determinative, since factors which are sufficient to support a successorship finding in one type of industry may be insufficient in another ... in each case the Board must determine if, within the business context in which the transaction occurred, it can reasonably be said on the factors present that the business or part of the business has been transferred from the predecessor to the successor ...

103. In deciding whether there has been a sale of the predecessor's business for successor rights purposes, the Board has adopted the approach mentioned by the Supreme Court of Canada in Lester above. If many of the elements of the predecessor's organization can be found in the hands of the successor, or if there is a definable part which is used for the same business purposes, then there is an inference that there has been a transfer of a business or part of a business to which section 69 applies. The more the transferee's ability to carry on this business (or part of a business) is derived from, or dependent upon, things acquired from the owner of the predecessor business, the stronger the inference will be ‑ particularly if the predecessor has ceased to carry on its business or that part of the business, or the predecessor has withdrawn from the relevant market.

In Zellers Inc. (supra), the Board explained the significance of the “instrumental approach” as follows:

16. The significance of the board’s adoption of an instrumental analysis is that the applicant must demonstrate that something more has been disposed of from the predecessor to the successor employer than simply the function of performing the same work. The applicant must go further and prove that an operational entity consisting of constituent components and particular relationships between those components has passed from predecessor to successor employer. There are of course varying degrees to which this may occur and the term “business” in section 64(1) is defined to include one or more parts of a business. As the Board noted in Accomodex at paragraph 58, the more the successor employer’s ability to carry on business is derived or is dependent upon things which were acquired from the predecessor employer, the more likely a transfer of a business has taken place.

In Charterways Transportation Limited (supra), the Board referred to the need to examine whether what has been transferred is the whole or a coherent organizational part of a functional economic vehicle and noted that the weight given to the elements that have been transferred will depend to some extent upon the commercial context:

Thus, in instances where the organizational or goodwill elements of a business are its essential features, the Board will not attribute great significance to the transfer of the tangible assets from one entity to the other; conversely, where a tangible asset or some other “good” is the defining feature of a business, its passage from one employer to the next may well constitute the sale of “part”: of a business notwithstanding that no other element of the predecessor business has been transferred. (Accomodex Franchise Management Inc. [1993] OLRB Rep. April 281.)

Decision:

41. J. M. Schneider Inc. processes and sells food. To that end, it maintained a cold storage warehouse at 150-160 Borden Avenue until September, 1998. The only activity taking place at the warehouse prior to its closure was storage of product owned by J. M. Schneider Inc. or related companies. The storage “activity” was part of J. M. Schneider Inc.’s economic enterprise, but it had no customers. I do not agree with the applicant’s submission that J. M. Schneider Inc. was serving the same general market as Borden is now serving. In my view, J. M. Schneider Inc.’s warehouse was not serving a “market” at all.

42. What did Borden acquire? The company did not acquire the business of storing product exclusively for J. M. Schneider Inc. and its related companies. Nor did it acquire the business of storing product for anyone else. Instead, Borden acquired an empty warehouse and created, from the ground up, a for-profit enterprise offering storage and tempering services to third parties, including J. M. Schneider Inc. In order to establish its business, it was required to renovate the building and to buy new equipment including tow-motors and an inventory system. Because the warehouse was not previously used to serve third parties, it is not surprising that Borden acquired no good will, no customer lists, and no accounts payable or receivable.

43. The applicant argues that Borden’s business can be traced back to J. M. Schneider Inc. With respect, I am of the view that the facts of this case do not support the tracing argument. All that can be traced back to J. M. Schneider Inc. of any significance is an empty (and decidedly idle) warehouse. In my view, although the warehouse was a core asset, it was not synonymous with, or a defining feature of, the business created and operated by Borden. There was no transfer of an enterprise or “economic” vehicle associated with the asset. The warehouse asset now supports a business that was not transferred, and that J. M. Schneider Inc. could not transfer, namely the business of operating a warehouse for customers. Indeed, the warehouse could not support any business without significant repairs, renovations and re-equipment.

44. The fact that the warehouse was vacant for about 14 months prior to the transfer is not a particularly significant factor in this case, although it confirms that J. M. Schneider Inc. did not rely on the continued operation of the Borden warehouse. That is, this was not a convenient “hand-off” to Borden of a turn-key operation. If Borden had not started up, J. M. Schneider Inc. would store its product elsewhere, and it does in fact contract with other cold storage facilities.

45. The applicant makes much of the fact that Borden’s warehouse employee is doing essentially the same work as that performed by employees of J. M. Schneider Inc. That is, the work within the Borden warehouse still involves loading, unloading and storing product. However, the work performed, although certainly a factor that must be taken into consideration, must be viewed within the operational context. The work by employees of J. M. Schneider Inc. was performed within the operational context of a private warehousing component of a huge food processing enterprise. The work performed by the Borden employees exists in an entirely different operational context, namely a third party commercial enterprise. The Board has consistently found that the “mere fact that the same work is being performed by another employer does not determine that there has been a sale of business.” (As per Charterways Transportation Limited (supra) at para. 36)

46. The applicant also points to what it asserts is a close relationship between J. M. Schneider Inc. and the principals of Borden. However, the evidence before the Board does not point to a close relationship. There was no “sweetheart” arrangement whereby Borden simply assumed the operation of the warehouse from J. M. Schneider Inc. Indeed, the warehouse had already been tentatively sold to another party who eventually proved unable or unwilling to close the deal. Only then did Mr. Finnigan have the opportunity to make an offer.

47. Borden was required to satisfy the CFIA that the warehouse fulfilled CFIA requirements, and when the CFIA was satisfied, it issued a new licence for the facility. Because the local CFIA officials already “knew” the building, it was easier for Borden to get a licence. Although Borden’s letter to the CFIA referred to this process as a “reissue” of the licence, not a great deal turns on the use of that phrase by Mr. Finnigan and Mr. Cornwell. It was in fact a completely new licence. There is no evidence that J. M. Schneider Inc. provided any special help to Borden to facilitate the issuance of the licence. The building was sold as a cold storage facility and it is not unusual for a vendor to provide a purchaser with such documents as may be at its disposal pertaining to the property, including documents that might assist the purchaser to obtain a new licence. This is no different from a vendor providing copies of old surveys or blueprints. The fact that J. M. Schneider Inc. informed the CFIA that the building had been sold was, in my view, merely a courtesy to the CFIA and Borden, and was not any form of special assistance.

48. The Board heard testimony that J. M. Schneider Inc. was very reluctant to give back a second mortgage. It did so after the property had been on the market for over one year. There had been one tentative sale which did not close. The asking price had to be reduced. Under these circumstances, it is not surprising that the vendor finally agreed to give back a second mortgage. This may have helped Borden to obtain a first mortgage but there is no evidence that the vendor was motivated to assist in acquiring the financing.

49. The applicant also points to the “best efforts” clause, Article 21.1 in the agreement of purchase and sale (reproduced above) as evidence of the unusual assistance provided by J. M. Schneider Inc. Article 21.1 may have been helpful when Borden was attempting to obtain financing. However, on any objective basis, the clause cannot reasonably be viewed as a strong commitment; it specifically states that Borden must be competitive. There is no evidence that J. M. Schneider Inc. assisted Borden in operating the business or in acquiring new customers. It is true that Borden hoped to have J. M. Schneider Inc. as a customer and it knew that its proximity to the Courtland Avenue East plant would be a competitive advantage. There is, however, no evidence that J. M. Schneider Inc. accorded Borden any favoured position. The evidence was that J. M. Schneider Inc. would only store or temper its product with Borden if the rates were competitive. Borden’s solicitor was not aware of any special arrangement by J. M. Schneider Inc. to give work to Borden.

50. The applicant asserts that the familial relationship between Mr. Dodds and Mr. Finnigan shows a non-arm’s length relationship that must be carefully scrutinized. However, the evidence with respect to the protracted negotiations for the agreement of purchase and sale showed no indication that Mr. Dodds was involved. The assistance rendered by Mr. Dodds with respect to reviewing the draft business plan took place after the agreement had been signed and, according to Mr. Finnigan there was no backing out. The absence of favouritism is also illustrated by the vendor’s unwillingness to let Mr. Finnigan and Mr. Cornwell onto the property prior to the closing without an “undertaking and indemnity” agreement. In short, the evidence is that this transaction was “strictly business”. I am satisfied that the relationship between J. M. Schneider Inc and Borden was not coloured by the familial relationship between Mr. Dodds and Mr. Finnigan or by the fact that Mr. Finnigan and Mr. Cornwell were employees of the alleged predecessor.

51. The applicant asserts that Mr. Cornwell and Mr. Finnigan took expertise with them to Borden that they had gained while employed at J. M. Schneider Inc. or a related company. In weighing the different factors pertinent to a section 69 determination, the Board has

recognized that there are individuals who are so important to a business that they are in effect the personification of the business or some significant aspect of it. In other words, they are “key” to the business or some part of it such that they, in effect, take it with them if they move elsewhere. (See Merit Contractors of Niagara [1994] OLRB Rep. February 152)

52. Mr. Finnigan stopped working for J. M. Schneider Inc. in 1989. He worked in the distribution department. His experience was no doubt valuable, but could hardly have prepared him for the complex task of converting an empty, partly derelict warehouse into a vibrant cold storage business from scratch. Mr. Cornwell had over twenty years experience with J. M. Schneider Inc. or related companies, in a variety of different positions. At the time of the transfer he was a manager with a subsidiary in Guelph. His industry contacts and experience were very useful in establishing Borden, but in the Board’s view, he cannot be characterized as a key person. Mr. Finnigan and Mr. Cornwell undoubtedly used their experience and contacts to establish their business but they did not take any business with them and neither was the “personification” of the part of the business allegedly sold. They were not key persons.

53. For the foregoing reasons, the Board finds that the sale of the Borden facility from J. M. Schneider Inc. to Borden Cold Storage Limited was not a sale of business, or part of a business, within the meaning of section 69 of the Labour Relations Act, 1995.

54. The application is dismissed.

“Anthony Brown”

for the Board