We were under the impression that an employer’s right to shut down its business had been definitively confirmed. However, the issue has resurfaced as a result of the Supreme Court of Canada’s recent decisions granting leave to appeal from the judgments of the Québec Court of Appeal in two cases involving Wal-Mart.11 What will the Supreme Court of Canada (SCC) have to say on this matter?

Previous Case Law  

The fundamental right of an employer to shut down its business, partially or completely, was confirmed by the SCC in 2004 in I.A.T.S.E. Stage Local 56 v. Société de la Place des Arts de Montréal. Following principles established by the Québec Labour Tribunal, the court confirmed that employers have a right to go out of business provided that the reasons invoked for the shutdown are genuine and are not a mere subterfuge or a pretext.  

Recent Cases

Recent judgments applying this important principle are adamant on one point: employers have a fundamental right to shut down their business, even if the decision is based on questionable motives. However, it should be noted that this right can be limited by contractual agreements. For instance, in Olymel, s.e.c. v. Tremblay, the collective agreement limited the company’s right to shut down its business to situations of “necessity.” On judicial review, the Superior Court agreed with the arbitrator that the employer was bound by the provisions of the collective agreement and was therefore prohibited from entirely shutting down its business. Nonetheless, the court went on to find that the arbitrator had made a patently unreasonable error by ordering the company to maintain a certain level of activity, as this amounted to adding to the provisions in the collective agreement.  

Wal-Mart Cases

In 2004, Wal-Mart closed its store in Jonquière, Québec. Wal-Mart decided to shut down the store after a group of employees was certified and an arbitrator was appointed by the Minister of Labour to facilitate the negotiation of a collective agreement. A number of employees filed complaints with the Labour Relations Board, alleging they were laid off because they had exercised their right to join a union. They relied, in part, on Section 17 of the Labour Code, which states:  

If it is shown to the satisfaction of the Commission that the employee exercised a right arising from this Code, there is a simple presumption in his favour that the sanction was imposed on him or the action was taken against him because he exercised such right, and the burden of proof is upon the employer that he resorted to the sanction or action against the employee for good and sufficient reason.  

The Labour Relations Board, the complainants and the employer collectively agreed that the Board would first hear a select set of complaints, without prejudice to the others. In the first case heard by the Labour Relations Board,12 the complainants argued that Wal-Mart had not discharged its burden of proving that it had a good and sufficient reason to terminate their employment. As such, they argued that they were presumed to have been terminated because of their union activities pursuant to Section 17 of the Code.  

The Board agreed, finding that Wal-Mart had not managed to prove that the shutdown was not a mere subterfuge to get rid of the union. The Board noted that Wal-Mart was still leasing the building where the store was located and had made no plans to sublease it.  

Although the Superior Court did not strike this decision, the Court of Appeal of Québec allowed the appeal and set aside the decision. It stated that an employer should not be required to prove that the closing is not a subterfuge, but only that it is definitive. The proof required of Wal-Mart by the Board exceeded what it was required to prove by law. In fact, the Court of Appeal specified that the burden of proving a subterfuge lay on the complainants’ shoulders. It also concluded that the Board should not have limited its examination to the fate of the building, but should have considered the evidence as a whole.  

In the second case heard by the Board,13 the complainants argued that although the shutdown might be permanent and genuine, it constituted a violation of their freedom of association. As a result, the shutdown could not be considered a good and sufficient reason under Section 17 of the Code. The Board disagreed and concluded that the protection of freedom of association does not prohibit an employer from closing its business. The Superior Court refused the complainants’ application for judicial review, and the Court of Appeal of Québec refused their application for leave to appeal. In doing so, the Court of Appeal found that the arguments advanced by the applicants could not be supported in light of the SCC’s decision in Place des Arts de Montréal.

On August 7, 2008, the SCC granted leave to appeal both of these Court of Appeal decisions.  

Lessons for Employers

As things stand, you are entitled to shut down your business in order to avoid a union, provided that the shutdown is genuine and definitive. If you intend the shutdown to be partial or if you intend to maintain certain assets, you should make sure that neither can be viewed as a continuation of the activities subject to the shutdown. It remains to be seen what the SCC’s decision in the Wal-Mart cases will be. It is hoped that the SCC will confirm an employer’s right to go out of business. The SCC will likely seize the occasion to further clarify the criteria to be examined in order to determine if a shutdown is genuine and definitive. We will update you when the SCC’s decision is released.