Court rules on certification during insolvency

A recent Ontario Court of Appeal decision allowed a union to bring a certification application in the middle of an employer’s insolvency proceedings, which the dissenting judge on the decision said could result in a “sea change” in insolvency law.

In Romspen Investment Corporation v. Courtice Auto Wreckers Limited, the court allowed a certification application to proceed before the Ontario Labour Relations Board, after a union had applied to the OLRB, despite a receivership order that said no proceedings can be commenced against the receiver without leave of court. In his dissent, Justice Peter Lauwers warned against giving unions “carte blanche” to bring certification efforts to insolvent enterprises after the date of appointment of a receiver.

“[I]t would profoundly alter the economics of insolvency, and whether the [Companies’ Creditors Arrangement Act] route is preferable to outright bankruptcy,” Lauwers wrote.

Lawyers say the decision is the latest in a number that have dealt with the intersection between federal bankruptcy legislation and provincial labour relations statutes.

The case concerned a dispute between Romspen Investment Corporation, a secured creditor, and the International Union of Operating Engineers, Local 793, over an OLRB application by the union to certify in order to represent six employees of a corporation that was under the receivership of Rosen Goldberg Inc.

The application was brought despite the fact that a receivership order provided that no proceeding can be “commenced or continued in any tribunal” against the receiver or debtors during insolvency proceedings, except with their consent or by obtaining leave from the court.

Two days after the certification application was brought, the union said the receiver dismissed four of six employees that would have been part of the proposed bargaining unit, and then hired new workers to replace them shortly afterward.

While the union claimed the employees had been dismissed because they would be union workers, the receiver cited business reasons for the dismissals and said it did not hire new workers.

The OLRB then stayed the union’s certification application, citing the receivership order, and the union then brought an unfair labour practice complaint to the board concerning the fired employees. The union then sought leave of the court to proceed with both the certification application and the complaint. A motion judge, however, dismissed the union’s request.

The Court of Appeal’s majority decision overturned the motion judge’s decision, lifting the stay of proceedings. The court found that the stay unduly interfered with the “employees’ ability to exercise their statutory labour rights.”

“Labour rights do not end when insolvency proceedings begin,” Justice James MacPherson wrote, on behalf of the majority. MacPherson noted that allowing the certification application to proceed does not automatically increase the rights employees have as creditors, “thereby prejudicing other creditors” and it was not a foregone conclusion that the certification proceedings would be successful.

Lauwers, however, said the motion judge was owed deference and that a stay of proceedings is “the insolvency regime’s primary tool for establishing order.” He said the issue of whether the employees’ Charter rights had been violated in this instance was not “properly joined” before the court.

David Preger, a partner at Dickinson Wright LLP, is one of the lawyers representing a court-appointed receiver. He says McPherson focused on a constitutional law aspect, but that was not how the case was framed before the motion judge or on the appeal. Preger says if the court is inclined to lift a stay of proceedings to permit a small group of workers at a “skeletal business,” then it begs the question of what basis there would be for it to decline certification proceedings to go forward.

“Everybody must now live with the real risk that a union will seek to certify during the course of the insolvency process,” he says. He could not say whether he will seek leave to appeal the decision to the Supreme Court of Canada as the receiver is “in the process of digesting the decision.”

Mark Zigler of Koskie Minsky LLP, one of the lawyers representing the union, declined to comment, saying he was waiting to see if the receiver plans to seek leave from the SCC.

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