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Target Not a Successor to Zellers, B.C. Labour Board Rules

The B.C. Labour Board ruled last week that Target is not a successor to Zellers.  Here is a Vancouver Sun story. This means that Target does not inherit the collective agreement that covered Zellers employees at a store in Burnaby.  It also means that the 137 Zellers’ employees can be fired and replaced with new people when the Target store opens.  If the union had won the case, then the employees’ jobs would probably have been protected by the collective agreement’s ‘just cause’ clause.

Target acquired 15 of the Zellers unionized stores, and this is the first decision on whether Target is a successor employer under Canadian labour law.  This case doesn’t decide all the others, since the facts in each case will vary somewhat.  But given that in this case, there was clearly a transfer of some parts of Zellers’ business to Target (a customer list and an exclusive brand licence), yet the Board still found that no transfer of ‘part of business’ had occurred, I wouldn’t be optimistic of a different result in the other stores.

Here is the Decision.

Facts

In 2012, Target initiated “Project Bacon”, its plan to conquer the Canadian retail market.  This lead to the decision to acquire Zellers at a cost of nearly $2 billion.  Target selected 189 of Zellers’ 275 stores, assigning some to other retailers and keeping the majority to be changed into Target stores.  In some stores, Zellers was told to terminate the lease and strip clean the store to an empty shell.  This is what happened at the Burnaby store.  Target purchased Zeller’s pharmacy customer list, but then sold it back to Zellers for $10 million, who then flipped it to Loblaws for $35 million, suggesting that the list had a considerable market value.  Target also acquired from Zellers the exclusive right to use of a brand called Cherokee. Experts were called by both the union and Target.  The Target expert contrasted Target and Zellers in this little zinger: “While Zellers is cheap, it is not cheap chic like Target.”  Oooh, “cheap chic”.  He argued that Target’s objective was distant itself as far as possible from Zellers, which he called a shabby operation full of junk.  The Union’s expert basically argued that a central item of value purchased by Target was the location and market, or ‘locational goodwill’.

Decision

The relevant section of the B.C. Code reads as follows:

Successor rights and obligations

35 (1) If a business or a part of it is sold, leased, transferred or otherwise disposed of, the purchaser, lessee or transferee is bound by all proceedings under this Code before the date of the disposition and the proceedings must continue as if no change had occurred.

(2) If a collective agreement is in force, it continues to bind the purchaser, lessee or transferee to the same extent as if it had been signed by the purchaser, lessee or transferee, as the case may be.

This section has parallels in the other provinces.  Its purpose is simple.  It is to protect a collective agreement and employees covered by it in the case that a business is transferred from Company A to Company B.   The collective agreement ‘flows’ through to the successor employer.  The legal question is whether “all or part” of the business of the Burnaby Zellers was “sold, leased, transferred or otherwise disposed of” to Target.  That’s very broad language, though the Board found it was still not broad enough to catch this transfer from Zellers to Target. 

It found that Target purchased real estate and market access by acquiring the Burnaby Zeller lease.  The location of the Zellers store was an important asset of value in the exchange, but that location is not an asset owned by Zellers.  So the Board assigns no value to the locational aspects acquired by Target in terms of the successorship issue.

“Component” of a Business versus “part” of a business:  Here’s an interesting, and potentially controversial part of the decision.  The Board found that the transfer of millions of dollars worth of pharmacy customers (a market value of $35 million it seems) to Target was “a component of Zellers’ business“, but NOT a transfer of “part of the business” (para. 82).  That’s a tricky distinction, isn’t it?  I have to think about how a $35 million “component of a business” is nevertheless not a “part of the business”.  Do you think that the legislators intended such a fine distinction when they decided to include the words “part of a business” in the statutory definition of a successor employer?  

Is the Board just using creative syntax to allow it to get around an inconvenient fact?  Or is there a substantive distinction between a “component” of a business, and a “part” of a business?  How do we draw a line between those two things?

The Board also found that while acquiring the right to the brand Cherokee was also valuable to Target, it too did not amount to a transfer of part of the business:

I find that Zellers and Target are the same type of business. I am not persuaded, however, that there is a discernible continuity of Zellers’ business at Brentwood Mall even though there was a transfer of pharmacy records and the Brand Waiver with respect to Cherokee. These are not definitive parts of Zellers’ business or a discernible part of it such that would indicate that its business is being continued, even if Target opens in the old Zellers’ space in the Brentwood Mall.

The fact that Target employees and Zellers employees will do basically the same work–retail work–that also is not enough to establish that part of Zeller’s business has been transferred to Target.  The fact that the there will be a hiatus of between 6 months and 3 years between the end of the Zellers store and the opening of a Target store is important, according the Board, since customers will easily distinguish between the two businesses.

Questions for Consideration

The result of the decision is that Zellers will terminate all of its employees to clean house for Target.  Target can then hire whomever it likes.  Do you think this is a good outcome for public policy?  Why or why not?

The Board found as fact that business value passed from Zellers to Target, in the form a pharmacy list worth millions of dollars and an exclusive brand licence.  Does it follow therefore that ‘part of Zellers’ business” transferred to Target?  Why or why not?

Does “part of a business” really mean a “BIG” part of the business?  Should it?

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One Response to Target Not a Successor to Zellers, B.C. Labour Board Rules

  1. Norm Swaebe Reply

    November 12, 2012 at 12:27 pm

    Interesting if you acquire customer list is that not part of the buines s if you are allowed to sell a customer list back to Zellers or to Loblaws for 10,000,000 dollar .s I would assume that would be part of the business. I would think if you buy the customers you also buy the employees and the collective agreement!

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