Canada: Court Of Appeal Permits Union Certification Application In Face Of Insolvency Stay Of Proceedings

Last Updated: May 10 2017
Article by Sean Zweig and Preet K. Bell

The Ontario Court of Appeal recently released a decision allowing a certification application by a union to proceed in the face of a receivership of the employer. The decision garnered a strong dissent from Justice Lauwers, suggesting that the decision of the majority would "effect a sea change in insolvency law."

The case, Romspen Investment Corporation v Courtice Auto Wreckers Ltd., 2017 ONCA 301, involves another intersection between federal insolvency law and provincial labour law, a matter that has resulted in a fair amount of judicial consideration over the past number of years. On October 19, 2015, a Receiver was appointed over several companies, including the employer, and a stay was in effect providing that no proceeding could be commenced against the Receiver or the debtors except with consent of the Receiver or leave of the Court. On December 9, 2015, the union applied for certification to the Ontario Labour Relations Board (OLRB) seeking to represent a bargaining unit of six employees. The union asserted that two days later the Receiver dismissed four of the six employees and hired new replacement workers; therefore, on December 18, the union also filed an unfair labour practice complaint with the OLRB in respect of the Receiver's actions. The OLRB stayed the union's application in light of the stay under the Receivership order, so the union sought leave of the Court to proceed with its applications. The motion judge denied leave.

The majority of the Court of Appeal, in a decision written by Justice MacPherson, overturned the motion judge's decision and granted leave, disagreeing with all of the motion judge's reasons:

  • The motion judge found the certification application would increase the rights of those employees relative to other creditors. Justice MacPherson stated that it was conjecture at this point to assume the union would be successful in negotiating a more financially favourable contract and certification does not automatically increase the rights of employees as creditors.
  • The motion judge found that recognition could negatively impact a potential sale. Justice MacPherson stated that while some purchasers may be dissuaded, a collective agreement might be attractive to a prospective purchaser, and there was no concrete evidence that it would negatively impact a sale.
  • The motion judge found that there was no prejudice to the union as it could pursue its certification application against the purchaser once a sale was completed. Justice MacPherson disagreed stating that interfering with the employees' ability to exercise their statutory labour rights causes clear prejudice.
  • The motion judge found there was no certainty the proposed bargaining unit would be meaningful after any sale. Justice MacPherson found this to be speculative, stating that whatever the results of the sale, the employees had presently existing statutory rights.

In light of the above, the Court of Appeal considered afresh whether the union ought to be granted leave to proceed with its certification application. The majority found that there was significant prejudice to the union and the employees in not lifting the stay, and little material prejudice to the Receiver and creditors, and thus granted leave. Justice MacPherson highlighted that "[l]abour rights do not end when insolvency proceedings begin." 

With respect to the union's unfair labour practice complaint against the Receiver, Justice MacPherson also granted leave to proceed, stating that the threshold for granting leave against a Receiver is not a high one and in this case, given the timing of the dismissals, there was clear prima facie merit to the complaint.

A fairly lengthy and strong dissent was written by Justice Lauwers, addressing the specific arguments raised by both parties but also providing a strong caution to the potential broader effects of the majority's decision. Justice Lauwers highlighted some governing principles of insolvency law, including that:

  • creditors in the same class (including employees) are to be treated equally;
  • the date on which rights of creditors are to be determined is the effective date of insolvency;
  • the administration of assets is to be orderly with a single proceeding model to administer claims expeditiously; and
  • a stay is the primary tool for establishing order and preserving the status quo with the lifting of a stay being an exceptional remedy.

These governing principles, combined with other constitutional and statutory arguments, led Justice Lauwers to strongly disagree with the majority and issue some cautionary statements, including:

"In my view, giving unions carte blanche to begin certification efforts for insolvent enterprises after the date of the appointment of a trustee or receiver or the date of an order under the CCAA would effect a sea change in insolvency law; it would profoundly alter the economic dynamics of insolvency, and whether the CCAA route is preferable to outright bankruptcy."

While this case may be more narrowly applicable based on its facts, Justice Lauwers' comments highlight some potentially significant broader concerns. The powers of a union and collective bargaining rights within an insolvency proceeding can be significant. The general principle in a receivership or CCAA proceeding is that there is an automatic preservation of the status quo subject to narrow extraordinary exceptions. This case provides what could be a fairly large exception—the potential certification of a union (with all of its corresponding rights and remedies) —with respect to a business that the Receiver is actively trying to sell at a time when it is subject to a court-ordered stay of proceedings. The potential impact of lifting the stay in this circumstance could be significant and, at a minimum, could provide the employees with a level of bargaining power that they did not have when the receivership commenced.

Leave to appeal this decision to the Supreme Court of Canada has not yet been sought. If leave is sought, the Supreme Court may engage on this opportunity to opine further on the intersection of federal insolvency and provincial labour laws.

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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