There are significant human resources and employment related issues that arise from the purchase, sale or merger of all or part of a business. If you are considering purchasing a business that has employees represented by a trade union, there are provisions of the BC Labour Relations Code (the “Code“) that can have a material effect on the transaction and planned operations, and it is important to consider those provisions from the beginning.

Successorship

Section 35(1) of the Code ensures that the collective bargaining rights of employees are protected when a business or part of it is sold, leased, transferred or otherwise disposed of. In such situations, the purchaser, lessee or transferee of such a business is bound by all the terms contained in the collective agreement applicable to those employees immediately before the date of the transaction – this is called successorship.

Prospective purchasers are often surprised at the scope of this provision, in cases where:

• only part of the target business is to be purchased,
• the target business has been shut down for a period of time, or
• all or part of the target business is to be merged with another, non-union business.

Whether a successorship has occurred in a given situation, is highly fact specific. In order for a successorship application to be made out, the BC Labour Relations Board (the “Board”) must be satisfied that (1) there has been a sale, lease, transfer or other disposition of a business, or part of it, and that (2) there is a “discernible continuity” in the business formerly carried on by the predecessor employer and now carried on by the successor employer. The factors which assist the Board in deciding whether there is a discernable continuity in the business are: the presence or absence of contact between the predecessor and successor employers; the transfer of assets; transfer of goodwill; transfer of logos or trademarks; transfer of customer lists; transfer of accounts receivable, existing contracts and/or inventory; existence of non-competition covenants; the presence or absence of the same employees performing the same or similar work; a hiatus in the business; and the presence or absence of service to former customers. These factors are not an automatic checklist and the importance of each factor will vary depending on the circumstances; some factors may not apply in certain situations.

Intermingling

When a unionized and a non-unionized business are merged and the employees of the two operations are inter-mingled, the issue that arises is whether all of the inter-mingled employees will be represented by the union. This issue raises two competing interests: the need to preserve the collective bargaining rights that the union has already acquired, and the need to ensure that the union is the freely chosen representative of the unorganized employees.

When an intermingling occurs, the Board may order a representation vote pursuant to Section 35(4) of the Code where there is “a serious doubt as to the wishes of the majority”¹. This reasoning is based on the fundamental policy of the Code that the choice of the majority of the employees in a unit, should prevail. The Board has utilized various mechanisms to determine whether a serious doubt exists in a given situation.

One approach that the Board has used is to look at the ratio of the two inter-mingled groups. When the Board adopts this approach, it will generally order a vote if the ratio of the two groups is less than 3:1. Another approach that the Board has adopted is to order a vote if the comparative ratio between the two groups is in the range of the statutory requirements for certification and de-certification (i.e. 45%). If the unit is small, the Board is more likely to order a vote. For example, in Alberni Custom Auto Body Ltd (Re), BCLRB No. B218/2007, the Board ordered a vote where the intermingled unit comprised of three unionized employees and seven non-union employees.

Before the Board decides whether to order a representation vote, it must determine the number of employees who are eligible to vote. Finally, if a rational and defensible boundary can be drawn around the work that is performed by the unionized operation, the Board will not order a representation vote and the collective agreement will continue to apply to the unionized employees only.

Common Employer

While the previous successorship considerations apply where there is one employer, Section 38 of the Code applies where there is more than one employer, acting under common control or direction. In these circumstances, the Board may treat the separate employers as one, if such an order is deemed necessary to protect the rights secured by unions and employees from being prejudicially affected by corporate changes on the employers’ side.

In order to make a successful common employer application, the union must show that:

• there is more than one entity carrying on business;
• the entities are under common control or direction;
• entities are engaged in associated or related activities or business; and
• there is a labour relations purpose to be served by the declaration.

Usually, it is the last criteria noted above that is at issue in hearings before the Board. In order to convince the Board that there is a labour relations purpose to be served by the declaration, a union must be able to demonstrate:

1. that the operation of a related legal entity is posing a real threat to the union’s presently held collective bargaining rights;
2. there is actual ongoing infringement of the unions rights or at a minimum, clear and present danger of future infringements;
3. that the related legal entity is being used to avoid the collective bargaining obligations flowing from certification; and
4. a Section 38 declaration is necessary to preclude erosion or dilution of the trade union’s rights.

If a non-unionized business purchases a unionized business and the union is successful in making a common employer application, it could get its certification expanded to cover the employees in the non-unionized business.

The above is a very brief description of two common, yet complex, labour relations issues that generally arise when a business transaction involving a unionized operation occurs. Because the effect of a successorship or common employer declaration can materially affect the way in which the employer is able to conduct future operations, it is very important to get an opinion from a labour lawyer at the time the purchase or merger of a target business is being considered.

Footnotes

Stadco Forest Products Ltd.

, BCLRB No. 56/79