Employer-owned contractor is a successor employer, court rules

Employer closed plant and contracted out operations to new company it created to get out of collective agreement
By Jeffrey R. Smith
|hrreporter.com|Last Updated: 01/03/2008

A controversial 2005 decision by the Alberta Labour Relations Board, which allowed a company to get out of its collective agreement has been struck down by the Alberta Court of Appeal.

Finning Canada repairs and overhauls heavy equipment components from operations of its parent company, Finning International, a dealer of Caterpillar equipment in Alberta, British Columbia, Yukon and part of the Northwest Territories.

Finning’s Component Rebuild Centre (CRC) in Edmonton was becoming obsolete and the company decided to reorganize its CRC operations in 2003-2004. Finning set up another company, OEM Manufacturing, through a series of legal transactions in which “Finning would not be publicly disclosed as the registered shareholder.” Following this move, Finning announced it would close the Edmonton CRC plant and lay off its employees in March 2005. It would then contract out its work to OEM according to a customer services agreement. As part of the agreement, OEM would be the exclusive supplier for certain services in Finning’s territory but had the right to provide services to other customers. Finning would also invest in a new component rebuilding facility which would be independently operated by OEM.

OEM held a job fair for Finning employees at the CRC and asked for Finning’s opinion on some of them. It ended up hiring 49 CRC employees to work at its new facility. The union representing the CRC employees claimed OEM was a successor employer and it should remain the bargaining agent for employees of the new facility.

On April 7, 2005, the labour relations board found Finning was in position to “capture most of the profits from the fruits of the project” through its stake in OEM and the facility. It ruled OEM was a successor employer to Finning and the union retained bargaining rights for employees.

Finning and OEM asked the board to convene a reconsideration panel to look at the decision. In ruling the board had made “errors in law,” the panel found the parent Finning International, not the CRC or Finning Canada, had the stake in the new employer and it didn’t have day-to-day control of the operation. As a result, OEM was not a common employer with Finning and it was free to proceed with collective bargaining with another union.

The Alberta Court of Appeal disagreed with the panel’s finding and reinstated the original board ruling. The court found the panel hadn’t found any new evidence and in fact reassessed the findings of the board. It didn’t identify any errors, but rather misinterpreted the board’s conclusion as an error in law in order to justify the reconsideration.

The court noted it can be difficult to determine successorship in a contracting-out situation, as there is usually a close relationship between the parties of the contract. However, it found Finning had transferred capital to OEM in the new company’s venture after it had initially considered investing the money into its own new CRC facility. “Ninety per cent of the production duplicates the work done at the CRC and the parent company provided 100 per cent of the capital for the new plant after it had already designated much of the same money to rebuild the CRC,” the court said.

The court found OEM did not show enough legal and operational independence from Finning International to not be considered a common employer. Finning paid the total costs of the new plant, financed the creation of OEM and owned all of the controlling shares in OEM’s parent company. It concluded the reconsideration panel’s analysis of the board’s decision was too narrow and didn’t properly examine the “fundamental components” that were transferred to OEM nor the established principles for determining successor employers.

“The creation of myriads of holding companies, corporate divisions and other ownership structures should not be a factor against a successorship finding in the face of the underlying commercial realities at play,” the court said.

For more information see:

I.A.M. & A.W., Local 99 v. Finning International Inc., 2007 CarswellAlta 1366 (Alta. C.A.).

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