No Continuity of Business: Target Not the Successor Employer of Zellers Employees

Written with Christina Catenacci LL.B.

On November 8, 2012, Ritu Mahil, Vice-Chair of the British Columbia Labour Relations Board decided that there was not a continuity between Zellers’ business at the Brentwood Mall in Burnaby, B.C. for its employees to be successively employed by Target in Canada. Although the employees would perform similar jobs at Target stores as they had at Zellers, and the transaction agreement confirmed the transfer of leases, pharmacy records and the brand waiver, these things were not sufficient to conclude that there would be a handover of these employees. As a result, the union’s application under Section 35 of the Labour Relations Code (“Code”) for a declaration that Target is a successor employer to Zellers with respect to the business carried on by Zellers at the Brentwood Mall in Burnaby, B.C.was dismissed.

Facts of this case

As it has been widely publicized, Target transacted with Zellers in 2011 with a purchase price of $1.825 billion dollars to have the right to select up to 220 leasehold interests held by Zellers. The goal was to convert the locations into Target stores.

The union at the one location at the Brentwood Mall represented 137 employees in the bargaining unit. There was a collective agreement in force up until March 31, 2013, and Zellers continued to operate 223 stores in Canada.

Subsequently, in July 2012, Zellers announced the closure of the Brentwood Store effective March 14, 2013.

The union argued Target was the successor employer under Section 35 of the Code:

  • A transaction clearly took place where something was sold by Zellers to Target, and the main question was whether what was sold was “a business or part of it” – in this case, there was undoubtedly an enterprise that has been left in a form where earlier collective bargaining rights of the employees had to be preserved
  • From a labour relations perspective, it was clear that the nature of the predecessor’s business (Zellers) was that Zellers operated the Brentwood store selling general merchandise to the public, and employed about 137 employees to do so
  • Target acquired the leasehold rights – these were a critical asset as the rights gave Target access to the market, which constituted locational goodwill

Target argued it was not the successor employer:

  • There was no factual basis to conclude that Target acquired the business, or part of the business, of Zellers – the plan is to enter into a new corner lease in a redeveloped Brentwood Mall, and if that occurs, the hiatus will increase to over three years. At that point, Target will be in a different location within Brentwood Mall, and the old Zellers premises will be available for lease to another business or businesses
  • Even if Target assumed the Zellers space at the mall, the store would bear little resemblance to the Zellers that existed previously, since there was no transfer of any assets that would constitute Zellers’ business (no transfer of inventory, business processes, IT systems, employment policies, distribution networks, trade fixtures, customer loyalty programs, contracts, accounts, customer lists)
  • Target only owned one brand waiver, and if it sold that brand in Canada it did not mean Target was the same as Zellers. That brand waiver constituted only two percent of sales
  • Target never exercised the right to the transfer of pharmacy files, and this was made for business reasons relating to regulatory restrictions
  • There was no transfer of goodwill in this case, since there was no nexus between the claimed goodwill and the prior business at the location, and Target would not acquire locational goodwill because Target was not trading on Zellers’ business. Zellers and Target occupied different market segments, and that was going to be a hiatus of many months before opening
  • Even if employees performed similar work in the same (or similar) location, this was not enough to show continuity in the business
  • Target has distanced itself from Zellers, aimed to expand its own brand, and had no intentions of continuing Zellers as a legacy

The Vice-Chair found that Target was not a successor employer:

  • There has been no transfer of inventory, business processes, IT systems, employment policies, distribution networks, trade fixtures, customer loyalty programs, contracts or accounts – there was only a transfer of rights to leases, pharmacy records and a brand waiver
  • Though Target acquired the real estate associated with the Brentwood store and also market access that was central to its ability to thrive, it was clear from the evidence that Target and Zellers were different stores and they had different marketing and branding strategies
  • Though the pharmacy records did constitute a component of Zellers’ business, the transfer of the records did not in itself constitute a transfer of a business or a part of it, especially in light of the fact that there was no transfer of most of the other indicia of a business (goodwill, customer lists, accounts receivable)
  • Although Zellers and Target were the same type of business, that did not mean there was a discernible continuity of Zellers’ business at Brentwood Mall – notwithstanding that there was a transfer of pharmacy records and the brand waiver, as these were not definitive parts of Zellers’ business or a discernible part that would indicate that its business was being continued
  • The Target brand was unique and distinctive in the retail industry, and there was a high level of Canadian awareness about the brand, and there would be little consumer confusion
  • Target distanced itself from Zellers and planned for a hiatus period of up to three years before opening
  • Although retail sales employees performed similar functions from one store to the other, that was not sufficient to establish continuity of Zellers’ business

The Vice-Chair stated:

A significant feature of this case is the enormous amount of evidence led regarding Target’s unique position in the retail sector, its marketing strategies and the high amount of consumer recognition of its brand. I find that Target is bringing its own highly successful business to Canada. It did not need Zellers for anything but the lease or the opportunity to negotiate a new lease in a new area of Brentwood Mall. Though the employees may perform similar jobs in both stores and the Transaction Agreement confirmed the transfer of leases, pharmacy records and the Brand Waiver, I find those are not sufficient for me to conclude there is a discernible continuity of Zellers’ business. This is particularly the case in light of the hiatus of six months to three years between the closure of Zellers’ Brentwood Store and the opening of Target’s store in the Brentwood Mall”

What can one take from this?

Interested stakeholders (i.e. employers, unions, legal counsel) must remember this was a specific case dealing with a particular transaction and union. What we can take from this is, where there is a transfer of all or part of a business, the purchasing employer (the successor employer) takes on the employment responsibilities of the selling employer (the predecessor employer), so that the unionized employees are not left in the dust. The employees continue working assuming business as usual, and do not lose all of their accumulated employment entitlements.

However, to show an employer is a successor employer, there must be a continuity of business, as seen from the indicia of business. The adjudicator involved looks at the situation and asks whether there was a transfer of certain elements including inventory, business processes, IT systems, employment policies, distribution networks, trade fixtures, customer loyalty programs, contracts or accounts, brands, leases, etcetera.

In this case, it was clearly evident that there was no continuity of business, so as a consequence, the employer, Target, was not found to be the successor employer.

There are provisions in employment legislation that aim to preserve the rights of employees after a business is sold, leased, transferred, or merged, or if it continues to operate under a receiver. The purchaser of the business would become the “successor employer.”

Succession in the non-unionized workplace involves the continuity of the employment relationship after a sale, transfer, or other divestment of a business. The successor employer becomes responsible for its predecessor’s rights, privileges, and duties toward employees under the contracts of employment.

Succession in the unionized workplace involves the union continuing to represent employees in a bargaining unit and allowing for the continuation of collective agreements when a business is sold, transferred, or otherwise divested. The successor employer becomes responsible for its predecessor’s rights, privileges, and duties toward employees under the collective agreement.

The application of successor rights varies across Canada according to the relevant governing legislation, the facts of each case, and the detailed descriptions of the transferred business, relationships, activities performed, and resulting agreements between the purchaser (successor employer) and vendor (predecessor employer).

Briefly, what does the legislation across Canada say,

In Ontario, the Employment Standards Act deals with successor employers in non-unionized workplaces. It confirms that the employment of an employee is deemed to be continuous and uninterrupted when a business, undertaking, or other activity or part of it is sold, leased, transferred, or merged, or if it continues to operate under a receiver or receiver-manager.

The Ontario Labour Relations Act deals with successor employers and unionized workplaces. It confirms the existence of succession rights when a business is sold, leased, transferred, or merged with another business or part of it, or otherwise disposed of. The control, management, or supervision of it passes to the purchaser, lessee, transferee, or person acquiring it and the purchaser, lessee, transferee, or person is bound by those proceedings. The certification of any existing trade unions remains in effect and applies, and any collective agreement in force binds the purchaser, lessee, transferee, or person acquiring the business.

In the Federal jurisdiction, the Canada Labour Code deals with successor employers for federally regulated workplaces. It states that the employment of an employee is deemed to be continuous and uninterrupted when a business, undertaking, or other activity or part of it is sold, leased, transferred, or merged, or if it continues to operate under a receiver or receiver-manager.

In the Federal jurisdiction, when a business is sold, leased, transferred, or merged with another business or part of it, or otherwise disposed of succession rights exist under Part 1 of the Canada Labour Code for federal organizations outside the Public Service including the movement of Public Service functions to any public or private sector employer operating under the jurisdiction of the Code. Succession rights also exist under the Public Service Staff Relations Act for federal Public Service organizations including the movement of Public Service functions to other Public Service employers under the jurisdiction of the Act. The control, management, or supervision of it passes to the purchaser, lessee, transferee, or person acquiring it and the purchaser, lessee, transferee, or person is bound by those proceedings. The certification of any existing trade unions remains in effect and applies, and any collective agreement in force binds the purchaser, lessee, transferee, or person acquiring the business.

In Alberta, the Employment Standards Code deals with successor employers and non-unionized workplaces. It confirms that the employment of an employee is deemed to be continuous and uninterrupted when a business, undertaking, or other activity or part of it is sold, leased, transferred, or merged, or if it continues to operate under a receiver or receiver-manager.

The Alberta Labour Relations Code deals with successor employers and unionized workplaces. It confirms the existence of succession rights when a business is sold, leased, transferred, or merged with another business or part of it, or otherwise disposed of. The control, management, or supervision of it passes to the purchaser, lessee, transferee, or person acquiring it and the purchaser, lessee, transferee, or person is bound by those proceedings. The certification of any existing trade unions remains in effect and applies, and any collective agreement in force binds the purchaser, lessee, transferee, or person acquiring the business.

In British Columbia, the Employment Standards Act deals with successor employers and non-unionized workplaces. It confirms that the employment of an employee is deemed to be continuous and uninterrupted when a business, undertaking, or other activity or part of it is sold, leased, transferred, or merged, or if it continues to operate under a receiver or receiver-manager.

The British Columbia Labour Relations Code deals with successor employers and unionized workplaces. It confirms the existence of succession rights when a business is sold, leased, transferred, or merged with another business or part of it, or . The control, management, or supervision of it passes to the purchaser, lessee, transferee, or person acquiring it and the purchaser, lessee, transferee, or person is bound by those proceedings. The certification of any existing trade unions remains in effect and applies, and any collective agreement in force binds the purchaser, lessee, transferee, or person acquiring the business.

In Manitoba, the Employment Standards Code deals with successor employers and non-unionized workplaces. It confirms that the employment of an employee is deemed to be continuous and uninterrupted when a business, undertaking, or other activity or part of it is sold, leased, transferred, or merged, or if it continues to operate under a receiver or receiver-manager.

The Manitoba Labour Relations Act deals with successor employers and unionized workplaces. It confirms the existence of succession rights when a business is sold, leased, transferred, or merged with another business or part of it, or otherwise disposed of. The control, management, or supervision of it passes to the purchaser, lessee, transferee, or person acquiring it and the purchaser, lessee, transferee, or person is bound by those proceedings. The certification of any existing trade unions remains in effect and applies, and any collective agreement in force binds the purchaser, lessee, transferee, or person acquiring the business.

In Saskatchewan, the Labour Standards Act deals with successor employers and non-unionized workplaces. It confirms that the employment of an employee is deemed to be continuous and uninterrupted when a business, undertaking, or other activity or part of it is sold, leased, transferred, or merged, or if it continues to operate under a receiver or receiver-manager.

The Saskatchewan Trades Union Act deals with successor employers and unionized workplaces. It confirms the existence of succession rights when a business is sold, leased, transferred, or merged with another business or part of it, or otherwise disposed of. The control, management, or supervision of it passes to the purchaser, lessee, transferee, or person acquiring it and the purchaser, lessee, transferee, or person is bound by those proceedings. The certification of any existing trade unions remains in effect and applies, and any collective agreement in force binds the purchaser, lessee, transferee, or person acquiring the business.

In New Brunswick, the Employment Standards Act deals with successor employers and non-unionized workplaces. It confirms that the employment of an employee is deemed to be continuous and uninterrupted when a business, undertaking, or other activity or part of it is sold, leased, transferred, or merged, or if it continues to operate under a receiver or receiver-manager.

The New Brunswick’s Industrial Relations Act deals with successor employers and unionized workplaces. It confirms the existence of succession rights when a business is sold, leased, transferred, or merged with another business or part of it, or otherwise disposed of. The control, management, or supervision of it passes to the purchaser, lessee, transferee, or person acquiring it and the purchaser, lessee, transferee, or person is bound by those proceedings. The certification of any existing trade unions remains in effect and applies, and any collective agreement in force binds the purchaser, lessee, transferee, or person acquiring the business.

In Newfoundland and Labrador, the Labour Standards Act deals with successor employers and non-unionized workplaces. It confirms that the employment of an employee is deemed to be continuous and uninterrupted when a business, undertaking, or other activity or part of it is sold, leased, transferred, or merged, or if it continues to operate under a receiver or receiver-manager.

The Newfoundland and Labrador’s Labour Relations Act deals with successor employers and unionized workplaces. It confirms the existence of succession rights when a business is sold, leased, transferred, or merged with another business or part of it, or otherwise disposed of. The control, management, or supervision of it passes to the purchaser, lessee, transferee, or person acquiring it and the purchaser, lessee, transferee, or person is bound by those proceedings. The certification of any existing trade unions remains in effect and applies, and any collective agreement in force binds the purchaser, lessee, transferee, or person acquiring the business.

In Nova Scotia, the Labour Standards Code deals with successor employers and non-unionized workplaces. It confirms that the employment of an employee is deemed to be continuous and uninterrupted when a business, undertaking, or other activity or part of it is sold, leased, transferred, or merged, or if it continues to operate under a receiver or receiver-manager.

The Nova Scotia’s Trade Union Act deals with successor employers and unionized workplaces. It confirms the existence of succession rights when a business is sold, leased, transferred, or merged with another business or part of it, or otherwise disposed of. The control, management, or supervision of it passes to the purchaser, lessee, transferee, or person acquiring it and the purchaser, lessee, transferee, or person is bound by those proceedings. The certification of any existing trade unions remains in effect and applies, and any collective agreement in force binds the purchaser, lessee, transferee, or person acquiring the business.

In Prince Edward Island, the Employment Standards Act states that where an employer sells, leases, transfers, or disposes of a business or undertaking, or a part of a business or undertaking, and the purchaser employs an employee of the seller, the employment of the employee shall be deemed not to have been terminated or severed for the purposes of the Act, and that employment with the seller shall be deemed to have been employment with the purchaser for the purpose of any subsequent calculation of the employee’s length or period of employment. However, this rule does not apply if the day on which the purchaser hires the employee is more than 13 weeks after the earlier of the employee’s last day of employment with the seller and the day of the sale.

The Prince Edward Island’s Labour Act deals with successor employers and unionized workplaces. It confirms the existence of succession rights when a business is sold, leased, transferred, or merged with another business or part of it, or otherwise disposed of. The control, management, or supervision of it passes to the purchaser, lessee, transferee, or person acquiring it and the purchaser, lessee, transferee, or person is bound by those proceedings. The certification of any existing trade unions remains in effect and applies, and any collective agreement in force binds the purchaser, lessee, transferee, or person acquiring the business.

It is important to note that there may be different implications when dealing with a share purchase versus an asset purchase. A share purchase involves a complete transfer of a business; therefore, there is typically no change in the status of the employment relationship, and there is continuity of employment. An asset purchase involves the transfer of some or all of the assets of a business; therefore, contracts of employment cannot automatically be assigned to the purchaser. This means that with an asset transfer, each of the employees may be considered dismissed by the vendor, and the vendor would be liable for any claims of wrongful dismissal. However, the usual course of action with an asset transfer is that the purchaser agrees to offer employment to most, if not all, employees of the vendor upon the closing of the purchase and sale on the same terms as the employees were employed by the vendor. An employee who refuses the offer of employment by the purchaser would not likely have a claim for wrongful dismissal against either the vendor or the purchaser. If the purchaser later decides to terminate some of the employees the purchaser would be responsible for any claims of wrongful dismissal.

In addition, if terminations were necessary and involved the dismissal of employees during the time surrounding the business transfer, both the predecessor and successor employers should be advised that they still must comply with proper termination procedures pursuant to governing legislation.

Also, where a business merges with an existing business, the new employer may already be bound by a certification and a collective agreement with another union. The relevant governing Labour Board determines whether it is appropriate to combine the two bargaining units into one unit, and which certification and collective agreement apply to all employees in the new bargaining unit.

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Comments

  1. Sooooo… What about Quebec’s labour laws?

  2. ooops! will add… thanks for letting me know…