Canada: Is A Subcontractor A Successor Or Related Employer For Labour Relations Purposes?

Last Updated: April 11 2017
Article by Hugh R. Dyer and Zeinab Yousif

Introduction

In a recent decision, Molson Coors Canada, the Ontario Labour Relations Board (the "Board") held that the subcontracting relationship between Molson Coors Canada ("MCC") and Sherway Warehousing Inc. ("Sherway") did not amount to a sale of business nor were MCC and Sherway related employers under the Labour Relations Act ("LRA"). This decision represents a welcome and comprehensive review of the criteria that the Board will consider in assessing whether a subcontractor is a successor or related employer. Significantly, it underscores the fact that a subcontracting arrangement can involve a close "symbiotic" relationship without engaging the successor or single employer provisions of labour relations legislation.

Essential Facts

In 2012, MCC subcontracted the assembly and shipping of partial or mixed pallets of its products to Sherway. This work had previously been done in the warehouse at MCC's Toronto Brewery. The Canadian Union of Brewery and General Workers, Component 325 (the "Union") represents the production, warehousing and maintenance employees at MCC's Toronto Brewery. In an application filed with the Board, the Union alleged that the transfer of the mixed pallet makeup work to Sherway was a sale of a part of MCC's business and that, as a result, Sherway was a successor to MCC pursuant to s.69 of the LRA and bound by the collective agreement negotiated by MCC and the Union. Alternatively, the Union alleged that, after the work was subcontracted, MCC and Sherway constituted a single employer for the purposes of s.1(4) of the LRA and were jointly liable to the Union.

The Board heard extensive evidence. Briefly, the essential facts are as follows:

  1. Sherway is a significant, well-established warehousing enterprise. Sherway does similar work for other clients. There is no common ownership or management between Sherway and MCC.
  2. MCC had subcontracted similar work relating to storing and filling orders for "full pallets" (i.e. pallets of the same brand) to Sherway for many years.
  3. MCC owns the hardware and software that produces the orders assembled by the Sherway employees.
  4. When the work was subcontracted, MCC supervisors and managers provided a modest amount of training to Sherway's employees and some input regarding organizing the facility.
  5. MCC did not transfer any assets to Sherway, although it made recommendations concerning the selection of one piece of equipment.
  6. The employment of approximately 35 MCC employees who were represented by the Union was terminated after the pallet makeup work was subcontracted.
  7. Sherway selected, trained, supervised, managed and disciplined its own employees.

Analysis

1.     Sale of Business/Successor Rights

The Board concluded that MCC did not transfer a "coherent and severable" part of its business to Sherway.

A subcontracting relationship may amount to a transfer of a business where the subcontractor is unable to fulfill the requirements of the contract without a transfer of assets, know how, equipment, managerial skills or employees from the contractor. The Board concluded this did not occur between MCC and Sherway.

Rather, MCC had simply assigned additional work to Sherway that was within Sherway's core business activities. Sherway did not rely on MCC's assets to carry out the work to any greater extent than it had before. It supplied MCC's requirements with its own personnel, on premises it secured from its landlord and by using its own substantial organization, expertise and equipment supplemented, as in the past, by hardware and software supplied by MCC which was used to assemble and ship orders.

As no part of MCC's business was transferred, the sale of business/successor rights application was dismissed.

2.      Related (Single) Employer

The Union must convince the Board that three pre-conditions are satisfied before the Board may grant a single employer declaration:

(a)        There must be two or more employers;

(b)        the employers must be carrying on associated or related activities or businesses; and

(c)        the activities or businesses must be under common control or direction.

The Board found that the first and second pre-conditions were satisfied. However, on the critical issue of "common control or direction", the Board found that the Union had not met the onus placed on it and the application was therefore dismissed. In reaching its decision, the Board considered five criteria derived from earlier cases:

(a)        common ownership or financial control;

(b)        common management;

(c)        interrelationship of operations;

(d)        representation to the public as a single enterprise; and

(e)        centralized control of labour relations.

The Board found that there was little or no evidence to satisfy criteria (a), (b) and (d). While there was some evidence of interrelationship, the Board found that it did not exceed the normal, "symbiotic" relationship in a subcontracting arrangement. Specifically, the hardware and software used to assemble and ship orders was nothing more than a necessary communication device and did not constitute "control or direction" of Sherway's workforce.

Most importantly, there was no evidence of centralized control of labour relations. Sherway was responsible for hiring, determining wages and benefits, training (except for the brief, initial training provided by MCC), scheduling, assigning work and discipline. The Board concluded, "Simply put, MCC did not control the working lives of Sherway's employees, either directly or indirectly" (paragraph 344).

The Board also weighed the legitimacy of the subcontracting relationship, from a labour relations perspective, by considering the following factors:

(a)  the extent to which the relationship was a genuine arms-length relationship;

(b)  the extent to which the contractor devolved control over the subcontracted work;

(c)  whether the subcontracted work represents a core business or peripheral matter; and

(d)  in labour subcontracting, the extent to which it is permanent or temporary.

The only factor which favoured the Union was that the relationship between MCC and Sherway could not be said to be temporary. Ultimately, however, significant weight was attributed to control. As there was no common control or direction, the application was dismissed.

Why is this Decision Significant?

This is one of the few cases to deal with the subcontracting of warehousing work in Canada and, while it is a decision of the Ontario Board, the law in most Canadian jurisdictions is similar.

The Board's decision recognizes that a subcontracting relationship, especially if the subcontractor is a well-established business, can involve a close "symbiotic" relationship without engaging the successor or single employer provisions of labour relations legislation. Furthermore, in regards to the related employer considerations, it applies the law in a modern context and considers the impact of using modern software and hardware which involves a greater degree of communication and coordination between a contractor and subcontractor. The critical factor in determining whether the parties are a single employer, however, remains whether the subcontractor has independent control over the terms and conditions of employment of its workforce.

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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