Court of Appeal holds that transfer of workforce amounts to sale of a business

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In a decision released on September 30, 1998, a unanimous panel of the Ontario Court of Appeal has upheld a ruling by the Ontario Labour Relations Board that the hiring by an employer of a substantial part of the workforce of another employer was a sale of a business under the Ontario Labour Relations Act. The Appeal Court’s ruling in Town of Ajax v. C.A.W. – Canada, Local 222 reversed an order of the Divisional Court, which had quashed the Board’s decision as being patently unreasonable. (For more recent developments, see “Supreme Court of Canada: transfer of workforce is sale of a business” on our Publications page.)

For some 16 years, the Town of Ajax contracted with Charterways Transportation Limited to provide the workforce to run its transit system. In 1993, the Town took back the operation of the system, cancelling its contract with Charterways and hiring its own employees, the vast majority of whom had been employed by Charterways.

The C.A.W., the union which had represented the Charterways employees, applied to the Board to preserve its bargaining rights by declaring that there had been a sale of a business under the Act. A majority of the Board held that the declaration should be granted.

BOARD: SKILLED LABOUR FORCE IS “PART OF A BUSINESS”

In holding that a sale of a business had occurred, the Board rejected the employer’s contention that there had been no transfer of any going concern, but merely the transfer back to the Town of work previously contracted out. The Board held rather that the Town had acquired from Charterways its most valuable asset and an essential part of its business: an identifiable, skilled and stable complement of employees.

DIVISIONAL COURT: NO TRANSFER, NO “NEXUS”, NO BUSINESS

The Divisional Court quashed the Board’s ruling, noting that, in Labour Board case law on sale of a business legislation, what was required to grant a declaration was a finding that there had been a transfer of the essential parts of a business as a “going concern”. Further, a “business” was not the same as the employees or the work they perform. More than a mere continuity of work was needed to find a sale of a business; some form of “organizational nexus” had to exist between the two employers. There was no such nexus in this instance: Charterways had merely terminated employees who were then hired by the Town of Ajax. Charterways could not be said to have “relinquished” or “conveyed” the employees to the Town.

The Court also held that the Board had erred in concluding that the employees hired by the Town were so essential an element of Charterways’ business that they could be considered a “part” of a business under the Act. When its contract with the Town ended, Charterways lost work, not a part of its business.

COURT OF APPEAL: A REMEDIAL PROVISION, A BROAD INTERPRETATION

The Court of Appeal disagreed, holding that the Board had offered a reasonable interpretation of the legislation in both of its conclusions.

The Court observed that the statutory definition of “sale” was inclusive: “‘sells’ includes leases, transfers and any other manner of disposition”. Further, the provision had a remedial purpose, the preservation of bargaining rights, and therefore should be given a broad and liberal interpretation. The Court held that, based on these principles, the Board’s conclusion that a sale had occurred was not unreasonable:

“Charterways had developed a skilled and experienced group of employees w hich operated the transit system for the Town. … When Ajax terminated the contract, Charterways relinquished this work force, most of which was acquired by Ajax. The nexus between Charterways and the Town is the commercial history without which the Town’s acquisition of the work force would not have occurred. This acquisition represents a ‘transfer’ to the Town of that work force.”

Nor was the Board’s conclusion that, in hiring the employees, the Town had acquired a “part” of Charterways’ business unreasonable. What made this conclusion reasonable was the special quality of the workforce:

“In essence, the Board found that what was transferred was not just the work formerly done by the Charterways employees nor the employees themselves. There was the added value that came with the continuity, experience and stability of this work force. Hence, there was a reasonable basis for the finding that what was transferred to Ajax was a significant part of the business which Charterways conducted for Ajax.”

As a result, the appeal was allowed and the decision of the Board restored.

In Our View

The Supreme Court of Canada has noted the liberal interpretation applied in various Canadian jurisdictions to sale of a business legislation, given its purpose of preserving bargaining rights. Specifically, the Court has stated that the word “disposition” has been interpreted to include almost any mode of transfer, and is not restricted to legal forms of business transactions. Despite this broad approach, virtually all labour boards require that something be relinquished by the predecessor business and obtained by the successor to bring a case within the legislation. In this case, the ‘something’ was a skilled and experienced workforce.

For further information, please contact George Rontiris at (613) 563-7660, Extension 275, or Steven Williams at (613) 563-7660, Extension 242.