Anonymised, illustrative composite. On a carve-out of one Quebec division, the buyer relied on a waiver clause between buyer and seller. Article 45.2 of the Labour Code does allow the parties to waive successorship, but its own closing words show who has to have signed.
At a glance
A Canadian manufacturer sold one of its four Quebec divisions — a plastics extrusion line, 44 employees, $18,700,000 of revenue — to a strategic buyer headquartered in Ontario. Its employees were represented by a certified association under a collective agreement with 26 months left to run.
The buyer's counsel had done the equivalent deal in Ontario several times. There the answer is fixed: under s.69(2) of the Labour Relations Act, 1995 the purchaser is “until the Board otherwise declares, bound by the collective agreement as if the person had been a party thereto”, and no clause a buyer and seller sign changes it. Quebec is genuinely different, and the difference is what the buyer mispriced.
The asset purchase agreement carried a two-line clause under the heading “Employees”, signed by the buyer and the seller, stating that the parties waived the application of the second paragraph of section 45 of the Labour Code. It had two signature blocks on the page.
The waiver route is real. Subparagraph 2 of the first paragraph of s.45.2 provides that “the new employer is not bound by the certification or the collective agreement where a special agreement on the transfer includes a clause to the effect that the parties waive the application of the second paragraph of section 45”. The same subparagraph then finishes: “Such a clause binds the Tribunal but does not affect the effect, within the transferring employer's enterprise, of the certification of the association of employees having signed the agreement.” The closing words presuppose that the certified association is a signatory to the special agreement. A clause signed only by the buyer and the seller has nothing to bind the Tribunal with.
The 2.75% increases scheduled for each of the next two years were worth about $214,000 across the 44 employees over the remaining 26 months, and the buyer had modelled them as a fixed, known cost — one of the few line items in a carve-out that usually is.
The deemed-expiry rule removes that certainty in the other direction from the one the buyer feared. On a transfer of part of an undertaking, subparagraph 1 of the first paragraph of s.45.2 provides that “a collective agreement referred to in the second paragraph of section 45 that has not expired on the effective date of the transfer is deemed to expire on the day the transfer becomes effective”. The certification survives; the agreement's term does not. So a buyer that inherits the association also inherits an immediate bargaining table, and a wage schedule it budgeted as fixed becomes the opening position of a negotiation.
Article 45 has three paragraphs and they do different work. The first is the general rule: “The alienation or operation by another in whole or in part of an undertaking shall not invalidate any certification granted under this Code, any collective agreement or any proceeding for the securing of certification or for the making or carrying out of a collective agreement.” The second binds the new employer: it “shall be bound by the certification or collective agreement as if he were named therein and shall become ipso facto a party to any proceeding relating thereto, in the place and stead of the former employer”.
The third paragraph is the partial-transfer limit, and its scope is narrower than it is usually described: “The second paragraph does not apply in the case of the transfer of part of the operation of an undertaking where such transfer does not entail the transfer to the transferee, in addition to functions or the right to operate, of most of the elements that characterize the part of the undertaking involved.” It disapplies the second paragraph only. The first paragraph — the certification is not invalidated — still stands.
Section 46 is the anti-avoidance counterweight, and it is worth being exact about what it reaches. On the motion of an interested party filed “not later than the thirtieth day following the effective date of the transfer of the operation of part of an enterprise”, and where the Tribunal considers that “the transfer was carried out for the main purpose of hindering the formation of an association of employees or undermining the continued integrity of a certified association of employees”, it may set aside the third paragraph of section 45, or “set aside the application of subparagraph 1 of the first paragraph of section 45.2 and determine that the new employer remains bound by the collective agreement referred to in the second paragraph of section 45 until the date fixed for its expiration”. It reaches the partial-transfer exclusion and the deemed expiry. It does not reach a waiver under subparagraph 2 of the first paragraph of s.45.2, which by its own words binds the Tribunal.
Two timing rules follow from the deemed expiry. Under the fourth paragraph of s.52, “the certified association or the employer may give such notice within 30 days following the deemed expiration of the agreement”. And under s.46.1 a decision on the applicability of ss.45 to 45.3 “must be rendered within 90 days after the motion is filed”, which puts a real outer bound on how long a transaction can sit in doubt.
The waiver was renegotiated before closing as a special agreement to which the certified association was a signatory, in exchange for a transitional wage schedule and voluntary recognition at the buyer's own Quebec plant. Because a partial transfer had occurred, the buyer also stayed inside the 30-day s.46 exposure window until it expired, and did not restructure the division's operations in the interim.
The commercial result was not the one the buyer originally wanted, and it was better than the one it had bought. A waiver clause with two signatures would have been worth nothing at exactly the moment it mattered.
Relying on the two-party clause would have left the buyer bound under the second paragraph of s.45 if the transfer carried most of the characterizing elements — and it did, since the division moved with its equipment, its supervisors, its customer contracts and its production know-how. It would then have had the deemed expiry under subparagraph 1 of the first paragraph of s.45.2 as its only relief, which is not relief at all but an immediate bargaining obligation.
The Ontario contrast is the cheapest lesson in the file. There is no equivalent clause in Ontario, so counsel drafting from an Ontario precedent will not think to check who signs. Counsel drafting from a Quebec precedent starts from the assumption that the association is at the table.
The tell was the signature page. A waiver of a third party's statutory rights that carries no signature from the third party is not a waiver. It sat in the agreement for eleven weeks and was read by four sets of advisers before anyone counted the signature blocks.
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