Law Times

Page 10 February 4, 2013 Law Times • FOCUS Target finds unexpected regulatory hurdles in Canada Successorship provision among legal battles as retailer crosses border BY Julius Melnitzer For Law Times R egulatory hearings and public demonstrations were likely not part of the package that Target Corp. expected when it spent $1.8 billion to buy 220 Zellers leaseholds in 2011. After all, as Target's lawyers told the B.C. Labour Relations Board last year, the U.S. retail giant is doing everything it can to avoid being identified with Zellers' stores or image to the point where it doesn't even have any interest in Zellers' customer lists. Indeed, when Target decided to come to Canada, it eschewed a greenfield approach involving the construction of new stores partly to avoid the daunting maze of land-use regulations in Canada. But what it got instead was a maze that was just as, if not more, daunting: the successorship provisions regarding the sale of a business contained within Canada's provincial and federal labour statutes. What Target discovered is that where entry to Canada involves the transfer of any significant asset from a similar unionized Canadian business, Canadian labour laws can make it quite difficult for U.S. retailers and others to shed collectivebargaining obligations binding the transferor. It can be so difficult that it took seven days of hearings and expensive expert evidence before the B.C. Labour 'The more parts of a business flow through, the more likely there is to be a sale of the business,' says Mary Beth Currie. Relations Board decided in November 2012 that Target wasn't a successor to Zellers when it took over a location in the Brentwood Town Centre in Burnaby, B.C. The United Food and Commercial Workers Union, Canada's largest private-sector union, argued Target's real goal in purchasing the lease related to the former Zellers store was to get control of the location. "When dealing with retail businesses, it can be argued that the location is so crucial as to be the main or a primary asset of the business," says Paul Cavalluzzo, a union-side labour partner at Cavalluzzo Hayes Shilton McIntyre & Cornish in Toronto. "And if what is really being transferred is a main asset of the business, a labour tribunal may well conclude that there has been a sale of the business within the meaning of the labour legislation." If there has been such a sale of the business, most jurisdictions in Canada mandate that the deemed buyer must assume any collective-bargaining agreement that bound the seller. Target has consistently maintained that it didn't buy Zellers' business, pointing out that there was no transfer of merchandise, systems, employees, logos or goodwill; that Target was spending at least $10 million on remodelling each site; and that Target has a customer base that's younger and more free-spending than Zellers' patrons. "The more parts of a business flow through, the more likely there is to be a sale of the business," says Mary Beth Currie, a management-side labour and employment partner at Bennett Jones LLP's Toronto office and co-leader of the firm's employment services practice. "The converse is equally true." But as the B.C. Labour Relations Board saw it, not much flowed through in Burnaby. In refusing to make a successorship declaration, the board noted that Target's brand, market, and merchandising methods were different from Zellers; the location in Burnaby, and not the occupier of the premises, had been the important factor for Target; there would be at least a six-month gap and possibly a period as long as ONTARIO LAWYER'S PHONE BOOK 2013 YOUR MOST COMPLETE DIRECTORY OF ONTARIO LAWYERS, LAW FIRMS, JUDGES AND COURTS With more than 1,400 pages of essential legal references, Ontario Lawyer's Phone Book is your best connection to legal services in Ontario. Subscribers can depend on the credibility, accuracy and currency of this directory year after year. 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Includes lists of: • Federal and provincial judges • Federal courts, including a section for federal government departments, boards and commissions • Ontario courts and services, including a section for provincial government ministries, boards and commissions • Small claims courts • Miscellaneous services for lawyers Visit carswell.com or call 1.800.387.5164 for a 30-day no-risk evaluation www.lawtimesnews.com three years before Target reopens the store following Zellers' closure in March 2013; and Target had made it clear that its business strategy included creating as much distance between itself and Zellers as possible. In other words, while both Target and Zellers were massmerchandise department store retailers in the same type of business, there was no significant continuity between Zellers and the new business at the location. Although the retail employees performed similar functions in each case, this in itself wasn't enough to establish the necessary continuity. Despite the B.C. decision, it's not yet clear whether the union will mount similar challenges at four unionized Ontario locations that Target is about to reopen under its own brand. What's also unclear is how Target, or indeed any other buyer, might fare in other jurisdictions or in circumstances that were similar but not identical. "Deciding if the transfer of a lease amounts to the transfer of a business involves a very complicated analysis," says Cavalluzzo. As it turned out, the successorship issue wasn't the only regulatory hurdle Target had to overcome. Somewhat surprisingly, the federal government decided to subject Target to a review under the Investment Canada Act because its cultural sales met the threshold for review. The government had subjected Amazon.com Inc. and Apple Inc. to the same process; Walmart, however, avoided the review because its cultural sales didn't meet the threshold. In a decision rendered in July 2012 after more than three months of review, the federal cabinet decided Target had to invest $3.5 billion in its Canadian operations, including hiring 25,000 staff by 2015, and sell "uniquely Canadian cultural products" in its locations. Was it all worth it? Only time will tell. Target will launch in Canada in March. LT Onus on party contesting jurisdiction Continued from page 9 the Supreme Court highlighted as the foundation of the law regarding jurisdiction," says Larry Lowenstein of Osler Hoskin & Harcourt LLP. But even where a party contesting jurisdiction fails to rebut the presumption, it may seek a stay on the basis of forum non conveniens. In either case, the onus of establishing the rebuttal of the presumption or justifying the stay will be on the party contesting jurisdiction. "[The defendant must] establish facts which demonstrate that the presumptive connecting factor does not point to any real relationship between the subject matter of the litigation and the forum or points only to a weak relationship between them," the court stated. But lawyers being lawyers, not everyone's happy with the new regime. "Whether you welcome Van Breda or not depends on which side you're on," says Giacomelli. "If I was a personal injury plaintiff 's lawyer, for example, I wouldn't look at it very positively because for the most part it narrows the cases in which the courts will take jurisdiction, and that's an irony because the Van Breda cases were all personal injury cases in which Ontario courts ultimately did assume jurisdiction." By way of example, Giacomelli points to Colavecchia v. The Berkeley Hotel in which the Ontario Superior Court of Justice dismissed a personal injury action against a hotel in London, England, for want of jurisdiction. "The case tests the limits of the presumptive jurisdictional factors set out by the Supreme Court," says Giacomelli. In Colavecchia, an Ontario resident was hurt when he fell in the bathroom of a London boutique hotel. Following treatment at a London hospital, he and his wife flew home as they cut their vacation short. "Most of the damages, then, were sustained in Ontario," says Giacomelli. Although the plaintiff 's wife had booked the hotel room using the couple's points on the TD Visa travel rewards web site, the court dismissed the argument that the defendant carried on business in Ontario. It held that TD Visa travel rewards was merely a booking agent of the hotel, an arrangement that didn't create the type of principle-agent relationship that could give rise to the hotel carrying on business in Ontario. "Colavecchia would have been decided differently in the preVan Breda era," says Giacomelli. LT

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