Canada: Union Unsuccessful in Asserting Successor Rights: The "Finning" Case

Mergers, acquisitions, and sales of business are common occurrences that affect the workplace. Unionized workplaces are not immune from these transactions.

Legislative provisions have been enacted across Canada to preserve collective bargaining rights when a business is sold or transferred. The intent behind the concept of "successor rights" is to prevent the disruption of bargaining rights in the midst of such transactions. The intent is not to protect against the loss of jobs.

Successor rights attach to the business unit, they do not attach to the work, the employees, or the employers.

The complexity of some transactions raises the question of whether the transfer of a business unit was intended, or, if it actually occurred. In I.A.M.A.W., Local 99 v. Finning,1 a first panel of the Alberta Labour Relations Board came to the conclusion that successor rights applied to a joint venture business financed by Finning International Inc. which contracted work from a division of Finning. This decision was reconsidered at the employer’s request and overturned.

I.A.M.A.W., Local 99 v. Finning International Inc.

Facts

Mr. McLaughlan was a successful businessman who had recently retired from the remanufacturing industry. Mr. McLaughlan heard that Finning International Inc. ("Finning") was considering the establishment of a new remanufacturing centre. He conceived a model based on his previous experience and presented it to Finning. Finning adopted Mr. McLaughlan’s proposal and entered into a Joint Venture Agreement with him to design, build and manage a remanufacturing installation in Alberta ("OEM").

Under the terms of a Joint Venture Agreement, Finning was the sole beneficial owner of OEM. It also had a certain degree of control over the highlevel strategic directions of OEM. However, the day-to-day management of OEM was under Mr. McLaughlan’s control. Senior management members of OEM were recruited from sources other than Finning.

Prior to entering into the Joint Venture Agreement, a division of Finning ("Finning (Canada)") had a facility known as CRC, which performed its remanufacturing work in Alberta. Finning (Canada) announced that it would close CRC and contract out its remanufacturing work to OEM.

Finning (Canada) was unionized. The Union was the certified bargaining agent for Finning (Canada) and the bargaining unit was comprised of "all employees of Finning (Canada) Division except for office, clerical, sales and security personnel". The Collective Agreement did not prohibit contracting out and Finning (Canada) had a long history of contracting out some of its remanufacturing work from CRC to other companies.

After the announcement by Finning (Canada), the Union applied for a successorship declaration in respect of OEM. A first panel of the Alberta Labour Relations Board granted the application. That panel interpreted the massive investment by Finning in OEM, along with the contracting out of the remanufacturing work by Finning (Canada) to OEM, as an acquisition by OEM of the crucial element of the business of Finning (Canada). It is important to note that, in its analysis, the first panel appeared not to have differentiated between Finning and Finning (Canada).

After an application by Finning, Finning (Canada), and OEM, the decision of the First Panel was reconsidered and overturned by a Second Panel.

Reconsideration by the Second Panel

The Union urged the Second Panel to adopt a purposive interpretation of the successor rights provisions of the Alberta Labour Relations Code.

The Second Panel agreed with the Union but stated that the starting point in any successorship analysis is the legislation. It reasoned that the fact that a successorship declaration might further the broader policy objectives underlying successorship legislation could not prevent the Board from considering whether the specific elements of the statute were satisfied.

Finning and OEM argued that the First Panel erred in finding that the transfer of capital should be taken into account in the determination of successor rights.

The Second Panel concluded that, although a transfer of capital might be a factor, the First Panel made an error in finding OEM to be a successor of Finning because the capital it received did not come from CRC or Finning (Canada). Further, the First Panel erred when it failed to distinguish between Finning and the part of the business alleged to have been transferred. As the Second Panel stated:

"If the transferee receives from the transferor a functional economic vehicle and the transferor is unionized, section 46 dictates the bargaining rights and Collective Agreement transfer with the business. However, if the transferee obtains the functional economic vehicle from somewhere other than the unionized business alleged to have been transferred, there is no successorship. The Original Panel’s focus on who the "employer" has tainted its approach to this analysis under section 46."

The Second Panel found that in this case, no fundamental component of CRC’s business was transferred to OEM. The only transfer of importance from Finning (Canada) to OEM was its remanufacturing work by way of contracting out. Since bargaining rights do not attach to the work itself, and no transfer of a business unit occurred, a successorship declaration could not flow.

Conclusion

In arriving at its decision, the Second Panel was mindful of the consequences it might have. It clearly indicated that it did not want this decision to be precedent setting:

"We do not consider that our decision creates a mechanism that can be used by employers to improperly escape collective bargaining obligations. […]

We would note that our decision in this case is based on the very unusual set of facts before us and its application to other cases will depend on the facts of the particular case."

Where a corporation has a division involved in manufacturing and another in financing (such as venture capital), communications must be opened between the divisions prior to entering into a transaction, especially when the investment by one division may impact the unionized work in another division.

It is important to prepare for the consequences which a transaction may have on the bargaining units affected to avoid a possible application for a successorship declaration. Applications for successor rights are based on their own set of facts; however, Labour Boards tend to heighten their scrutiny when a transaction involves related companies.

Footnote

1(2005), C.L.L.C. 220-053 (Alta R.B.).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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