Successor rights are a long standing fixture in Ontario’s labour relations legislation. Generally speaking, under s. 69 of the Labour Relations Act (LRA), the purchaser of a business effectively steps into the seller’s shoes for the purpose of labour relations and becomes bound by any collective agreement that the seller is party to, unless the Ontario Labour Relations Board (OLRB) declares otherwise. The same principle applies where the business is leased, transferred or otherwise disposed of. The fundamental purpose of s. 69 of the LRA is to preserve the bargaining rights of the Union. The idea is that once the Union has been recognized with respect to a particular business, the Union may pursue that bargaining right when all or part of the business is sold.

Whether successor rights extend to the context of court-appointed receiverships had been an unsettled area. Recently, the OLRB determined that a court-appointed receiver that actively operated the debtor’s business through its agent was a successor employer for the purpose of s. 69 of the LRA: United Food and Commercial Workers International Union, Local 175 v Rose of Sharon (Ontario) Community cob as Rose of Sharon Korean Long-Term Care Home, 2018 CanLII 32988 (Rose of Sharon). We outline key aspects of the OLRB’s decision below.

Key Takeaways

As a result of Rose of Sharon, a court-appointed receiver under the Bankruptcy and Insolvency Act (BIA) is at a heightened risk of being held to be a successor employer under s. 69 of the LRA. A successor employer determination would result in the receiver becoming responsible for recognizing the bargaining rights of the union and negotiating the collective agreement, as was sought by the Union and granted in Rose of Sharon.

The OLRB’s Decision

Rose of Sharon Korean Long-Term Care Home (ROS) operated a long-term care facility in Toronto, Ontario. In 2011, the United Food and Commercial Workers International Union, Local 175 was certified by the OLRB as the bargaining agent of certain employees of ROS. That same year, the Receiver was appointed pursuant to court order. The Receiver took possession of the property and entered into a management agreement with Assured Care Consulting Inc. (ACC). ACC was brought on to assist with the management and direction of the long-term care facility, which included the setting of wages, the scheduling of shifts, and discipline.

The Union made numerous requests of the Receiver to initiate bargaining for a collective agreement which the Receiver resisted. This led the Union to seek a declaration before the OLRB.

The OLRB found that the Receiver, Deloitte Restructuring Inc., was a successor employer pursuant to s. 69(3) of the LRA. At the outset, the OLRB confirmed that it possesses exclusive jurisdiction under s. 69 to make successor employer declarations. In assessing the relationship between the BIA and provincial legislation, the OLRB applied the test confirmed by the Supreme Court of Canada in GMAC Commercial Credit Corp. v. T.C.T. Logistics Inc., 2006 SCC 35:

…explicit statutory language is required to divest persons of rights they otherwise enjoy at law…federally regulated bankruptcy and insolvency proceedings cannot be used to subvert provincially regulated property and civil rights.

The Receiver argued that s. 14.06(1.2) of the BIA precludes a declaration by the OLRB that a court-appointed receiver is a successor employer under s. 69 of the LRA. Section 14.06(1.2) of the BIA provides:

(1.2) Despite anything in federal or provincial law, if a trustee, in that position , carries on the business of a debtor or continues the employment of a debtor’s employees, the trustee is not by reason of that fact personally liable in respect of a liability, including one as a successor employer,

(a) that is in respect of the employees or former employees of the debtor or a predecessor of the debtor or in respect of a pension plan for the benefit of those employees; and

(b) that exists before the trustee is appointed or that is calculated by reference to a period before the appointment.

The Receiver argued that the legislative intention of s. 14.06 (1.2) is to protect the receiver who has taken possession of a business from liabilities that may be imposed under applicable labour legislation. From a constitutional perspective, the Receiver argued that the provisions of the BIA take precedence over provincial labour legislation. The Receiver also argued that requiring a receiver to negotiate a collective agreement creates a conflict of interest, because every concession granted to the Union in negotiations for a collective agreement potentially impacts the recovery of creditors. As a final argument, the Receiver submitted to the OLRB that s. 14.06 (1.2) does not create a permanent barrier to negotiations. Rather, s. 14.06 (1.2) simply requires that the Union wait and negotiate a collective agreement with the permanent employer once the business is sold.

The Union argued that the recognition of bargaining rights does not create a “liability”. In other words, an Application for declaration under s. 69 is simply a preservation of bargaining rights which does not make the Receiver “liable” for payments of the debtor to its employees incurred prior to the Appointment Order. The Union also submitted that a court-appointed receiver cannot be immunized or sheltered from a finding that it was a successor employer absent explicit language in the BIA.

The OLRB accepted the Union’s arguments and ultimately determined that the Receiver is a successor employer. The OLRB also highlighted that the Union was not making any claim against the Receiver beyond recognition of bargaining rights and the negotiation of a collective agreement, and that recognition of those rights are not necessarily inconsistent with the purposes of the BIA.

We will continue to monitor developments in this area.

      – Many thanks to Susan MacMillan for her assistance with this article.

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Photo of Gillian Maharaj Gillian Maharaj

Gillian Maharaj is an associate in Baker McKenzie’s Toronto office. A graduate of Osgoode Hall Law School, Gillian completed her articles at a leading employment and labour law firm, focusing on human resources law and advocacy. Gillian is also involved in pro bono work. Her experience includes the Family Law Information Clinic at Newmarket Superior Court, the Will Drafting Project with Pro Bono Students Canada, Court Intake work at Scarborough Criminal Court, and the Child Protection Externship at the Children’s Aid Society of Toronto.

Photo of Andrew Shaw Andrew Shaw

Andrew Shaw has a general and diverse labour and employment practice. Mr. Shaw regularly represents employers in the Ontario Superior Court of Justice and before various labour, employment and human rights related administrative tribunals. In particular, his practice is focused on providing his clients with strategic advice regarding various matters including employment standards, labour arbitration, collective bargaining, human rights, wrongful dismissals and occupational health and safety. Mr. Shaw also regularly assists clients with reviewing and updating their workplace policies and procedures, as well as providing the training required to ensure these policies are properly implemented and applied. Prior to attending law school, Mr. Shaw held labour relations positions at both private and public sector companies. In these roles, he managed the processing of grievances to an appropriate resolution, assisted internal clients with the interpretation of employment-related legislation, and provided counsel to senior management as required.

Photo of Michael Nowina Michael Nowina

Michael Nowina’s litigation practice focuses on a broad range of commercial disputes including advising on the recovery from fraudulent investment schemes, mortgage fraud and credit fraud. Michael’s fraud-related and investigations experience includes representing victims of a Canada-wide investment fraud and ultimately securing recovery of a majority of the proceeds from the fraud, advising numerous creditors in proceedings commenced to recover fraudulent conveyances and preferential payments in multi-jurisdictional litigation, and representing financial institutions in identity fraud cases and in proceedings to recover funds from fraudulent borrowers. Michael also frequently advises clients on insolvency matters involving fraud.