The Unionized Workplace
Labour relations legislation across Canada contains similar sale of business or successorship provisions, which apply to the purchase of a unionized business whether by assets or shares. The legislation stipulates that the purchaser is bound to the collective agreement as if it were the original signatory to the contract. In other words, the purchaser must recognize the union as the exclusive bargaining agent for the employees and is bound to the collective agreement. Accordingly, the typical asset purchase agreement will require the purchaser to continue the employment of all unionized employees on identical terms and conditions of employment. There is normally no need to make any offers of employment; employment simply flows through from the seller to the purchaser. To change any of the terms and conditions of employment would constitute a breach of the collective agreement and could be taken to arbitration by the union. If the purchaser does not wish to hire all of the unionized employees, the layoff, bumping and seniority provisions of the collective agreement must be followed to effect a reduction in the workforce.
Generally, the provincial Labour Relations Boards distinguish between the purchase of discrete assets and the purchase of a viable business. Therefore, in some cases where only certain equipment is purchased and there is no value allocated to goodwill or, if the new business will be of a very different character than that carried on by the seller, the union successorship provisions may not apply.
The potential purchaser should be aware that if the seller is engaged in collective bargaining negotiations with the union while the sale is being actively contemplated, the seller has a statutory duty to disclose this significant development to the union at the bargaining table. Failure to disclose may constitute an unfair labour practice. In cases where bargaining is ongoing, the purchaser may wish to become involved in negotiations to some extent to ensure that the seller does not agree to an overly generous package with the union. Similarly, the purchaser may wish to become involved in order to ensure that the business is not headed towards a strike.
Additional posts from the blog
Last week the Canadian Government introduced amendments to the Investment Canada Act (ICA) to implement its revised policy towards state-owned enterprises (SOEs) which it announced in December last year. At that time, while it approved the acquisition by Chinese SOE, CNOOC, of Canadian oil and gas company, Nexen, the Government announced its intention to prohibit acquisitions of control of Canadian oil sands businesses by SOEs except on an exceptional basis. It also stated that joint ventures and minority investments were welcome. In addition, the government indicated it would closely monitor SOE acquisitions in other sectors of the economy and would distinguish between SOE and non-SOE investments when setting the ICA review threshold. (See Focus on Foreign Investment Review, December 2012)
The Autorité des marchés financiers Proposes An Alternative Approach to Securities Regulators Intervention in Defensive Tactics
On March 14, 2013, the Autorité des marchés financiers (“AMF”) published for comments a consultation paper (the “AMF Proposal”) pertaining to defensive tactics in response to take-over bids. This consultation is taking place concurrently with the one launched the same day by the Canadian Securities Administrator (“CSA”) with the release of proposed National Instrument 62-105 Security Holder Rights Plans and proposed Companion Policy 62-105CP Security Holder Rights Plans (collectively, “62-105”). Unlike the CSA’s 62-105, the AMF Proposal addresses all defensive tacticsii, not only security holders rights plans.
The Canadian Securities Administrators published for comment a proposed new regulatory framework for rights plans under proposed National Instrument 62-105 Security Holder Rights Plans and proposed Companion Policy 62-105CP Security Holder Rights Plans (collectively, “62-105”). If adopted, 62-105 would provide issuers with a game changing tool to respond to hostile take-over bids, where a target board will be able to use a rights plan as leverage to negotiate with a potential bidder.