Business Transactions Won’t Eliminate Union Bargaining Rights in Canada

by Daniel Pugen
McCarthy Tetrault

Labor laws in Canada provide that the purchaser of a business will generally “take over” any collective bargaining agreements (CBAs) between a union and the vendor. The purchaser becomes the “successor employer” and becomes bound by the vendor’s existing CBAs. In this situation, the union continues to represent unionized employees after the sale or transfer of the business to the new owners or operators.

In addition to the continuation of bargaining rights after a sale or transfer, two companies that are under “common control or direction” can be held to constitute a single or common employer for labor relations purposes. Such a finding can mean that the union’s bargaining unit encompasses employees of both companies.

As a result, in the face of a corporate transaction that could eliminate or weaken a unionized workforce, unions will often file “sucessorship” or “common employer” applications in order to protect their bargaining rights and to ensure the continued representation of affected employees.

In a case decided by the Alberta Labour Relations Board (the Board), which later meandered its way up through the courts, a union filed such applications and was successful in arguing that it should continue to represent employees despite the closure of the facility and the contracting out of certain work to another company.

Facts
Finning International is a Canadian-based, international distributor of mobile heavy equipment for mining, forestry, agriculture, construction, and other industries. Finning Canada, a division of Finning International, sells and services equipment in Western Canada and the Canadian North.

The union represented production employees working in Finning Canada’s Component Rebuild Centre (CRC). There, unionized employees repaired and restored worn or damaged equipment components for Finning’s customers.

On June 23, 2004, Finning International announced it would close the CRC, lay off approximately 160 unionized employees and contract out its remanufacturing work to another company, OEM Remanufacturing Company Inc. (OEM).

A number of points about the transaction between Finning International and OEM are noteworthy:

1. OEM established itself in the remanufacturing industry using Finning International’s money.
2. Finning International financed 100 percent of the cost of building OEM’s new plant.
3. Finning International was the 100 percent beneficial owner of OEM.
4. The building and operation of the new plant was the object of a joint venture between Finning International and the owner of OEM, Gerald McLaughlan.
5. Finning International possessed legal power over the operation of OEM through legal rights it possessed as a joint venturer, financier, or both (e.g. it could block certain business decisions at the board of directors level).
6. While day-to-day operations of OEM were vested with a local management team, high-level strategic decisions were vetted by Finning International.

Labor board finding
The Board ruled that OEM was a successor to Finning Canada. It also ruled that Finning International and OEM constituted a single or common employer. It relied on the following:

1. Finning International’s control over OEM’s management through the terms of a Joint Venture Agreement, which (among other things) provided Finning International with a say over high-level strategic decisions and gave Finning International a “blocking vote” on the OEM board of directors.
2. The $87 million in capital Finning International provided for OEM.
3. Finning International’s ownership of all the common shares of OEM.
4. Forty-nine employees were hired from Finning Canada to work at OEM.
5. Finning International provided the funding for OEM to acquire other remanufacturing companies (whose work was absorbed into OEM) in an operational relationship.

Although the decision was reversed by the Alberta Court of Queen’s Bench, the Alberta Court of Appeal restored the Board’s decision. The Alberta Court of Appeal supported the board’s approach, which involved a dissection of the transaction in order to determine the “closeness” of the parties to the transaction and the “real” relationship between the purchaser, vendor, the employees, and the business undertaking.

The Alberta Court of Appeal reminded labor boards that they should look closely at corporate restructurings that weaken a union’s bargaining rights:

The focus should be on the realities of the collective bargaining framework and the true effect of the overall transaction. The complexity of modern business transactions warrants such an inquiry, and labour tribunals must be wary of creative corporate restructuring or reorganizations that undermine collective bargaining rights.

[…]

The creation of myriads of holding companies, corporate divisions, and other ownership structures should not be a factor against a successorship finding in the face of the underlying commercial realities at play.

Lessons for employers
Courts and labor boards are clearly becoming more knowledgeable about sophisticated corporate restructuring schemes, especially if they seem to be aimed at evading collective bargaining rights. Employers must keep in mind that courts and labor boards will focus on the realities of the collective bargaining framework and the true effect of the overall transaction in determining whether a union’s bargaining rights should continue.

This decision serves as a reminder of the importance of preparing for the consequences that a corporate transaction may have on bargaining rights. The risk of applications by unions for successor rights or common employer declarations may be taken into account and perhaps avoided. Employers are advised to take extra precautions when entering into transactions with related companies.