Can an employment contract in Ontario legally prohibit someone from suing for wrongful dismissal? Can your employer require you to “arbitrate” your case rather than allowing you to use the public court system?
In Irwin v. Protiviti, 2022 ONCA 533, Ontario’s top court held that arbitration clauses in employment agreements are not automatically “illegal” and that questions about any particular arbitration provision are to presumptively be resolved by an arbitrator, not the courts.
Facts
Karen Irwin was employed by Protiviti as Managing Director in the Risk and Compliance Group from February 6, 2014 to April 2, 2017. The terms of Ms. Irwin’s employment were governed by a written employment contract, which Irwin negotiated with the assistance of legal counsel.
In 2019, Irwin filed a claim for constructive dismissal against her employer in the Ontario Superior Court of Justice.
However, her employment contract contained an arbitration clause, which stated the following:
Any dispute or claim arising out of or relating to Employee's employment, termination of employment or any provision of this Agreement, whether based on contract or tort or otherwise shall be submitted to arbitration pursuant to applicable provincial law having jurisdiction over the dispute or claim. The parties agree that neither punitive damages nor legal fees may be awarded in an arbitration proceeding required by this Agreement….
Proviti responded to Ms. Irwin’s claim by filing a motion in the Superior Court. The motion sought to stay the action and refer the dispute to arbitration. Irwin defended against the motion on the basis that the arbitration clause was invalid due to unconscionability (primarily due to the unavailability of awards of costs and punitive damages), and for inconsistency with the Employment Standards Act, 2000, and the Human Rights Code. Specifically, Irwin challenged the arbitration clause as an attempt to contract out of the ESA.
The motion judge, Justice Audrey P. Ramsay of the Superior Court of Justice, held the validity of the arbitration clause was itself a matter for arbitration and stayed the action under s. 7(1) of the Arbitration Act, 1991, S.O. 1991, c. 17.
Ms Irwin then appealed to the Court of Appeal for Ontario.
Decision of the Ontario Superior Court – 2021 ONSC 7596
Justice Ramsay’s reasons for decision were released on April 21, 2021, and are reported at 2021 ONSC 7596.
In granting the employer’s motion to stay the Superior Court action pending a decision by an arbitrator, Justice Ramsay observed that, “Pursuant to clause 2 of section 7(1) of the Arbitration Act, an arbitration agreement that is invalid is an exception to the mandatory requirement to stay the proceedings. However, the statute and the jurisprudence establish that the determination of the validity of the arbitration clause is within the jurisdiction of the arbitral tribunal.
Decision of the Court of Appeal for Ontario – 2022 ONCA 533
On appeal, Irwin argued that Justice Ramsay erred by leaving the question of the validity of the arbitration clause to be determined in arbitration. Irwin argued that the motion judge was required to decide whether the arbitration clause was invalid due to unconscionability or inconsistency with the ESA or Human Rights Code.
At the hearing of the appeal however, the Court of Appeal for Ontario determined that it did not have jurisdiction and quashed the appeal.
The Court’s reasons were as follows:
[7] In coming to the decision to grant the stay motion, the motion judge followed s. 7(1) of the Arbitration Act, which provides that a court shall stay proceedings if a party to an arbitration agreement commences proceedings in respect of a matter that the arbitration agreement requires to be submitted to arbitration. She noted, following Lauwers J.A.’s observation in Haas v. Gunasekaram, 2016 ONCA 744, at para. 12, that the statutory language is directive, and that the priority granted to arbitration by the legislative scheme is reinforced by s. 17(1), which provides that “[a]n arbitral tribunal may rule on its own jurisdiction to conduct the arbitration and may in that connection rule on objections with respect to the existence or validity of the arbitration agreement.”
[8] The motion judge also noted the exception in s. 7(2)(2) of the Arbitration Act that grants the court the discretion nevertheless to refuse to stay a proceeding where “[t]he arbitration agreement is invalid.” The motion judge did not refuse to stay the proceeding, holding that “the statute and the jurisprudence establish that the determination of the validity of the arbitration clause is within the jurisdiction of the arbitral tribunal.”
… [10] As explained below, the motion judge was permitted to leave the issue with the arbitrator as contemplated by s. 17(1) and the common law rule it codified, and was not obligated to provide reasons justifying this decision. This is in keeping with the general rule in Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34, at para. 84, that “in any case involving an arbitration clause, a challenge to the arbitrator’s jurisdiction must be resolved first by the arbitrator.” Uber Technologies Inc. v. Heller, 2020 SCC 16 at para. 32, further specified that a court should refer all challenges to an arbitrator’s jurisdiction to arbitration, except in two situations: (1) the challenge raises pure questions of law; or (2) the challenge raises questions of mixed fact and law (i) requiring only superficial consideration of the evidence and (ii) where the court is convinced the challenge is not a delaying tactic or will not prejudice recourse to the arbitration.
[11] The rule, then, is that questions of jurisdiction are to be arbitrated. A court has the discretion to decide otherwise, but only where the jurisdictional question is based on a pure question of law, or of mixed fact and law requiring not more than a superficial consideration of evidence.
[12] The appellant’s argument from unconscionability is that it is unconscionable for an arbitration clause to exclude potential awards of punitive damages or costs. The determination of unconscionability is a “probing factual inquiry”: Rogers Wireless Inc. v. Muroff, 2007 SCC 35, at para. 15. The record assembled on this motion is voluminous, and the interpretation of the arbitration agreement would depend on factual findings, including findings of credibility. It would be necessary to assess the sophistication of the parties, their bargaining power, and other aspects of the factual matrix related to the drafting of the agreement. Whether the arbitration clause ought to be found void for unconscionability could therefore not be determined by a superficial consideration of the evidence. Answering that question would risk turning the motion into a mini-trial: Heller, at para. 45.
[13] The question of the arbitration clause’s consistency with the ESA and the HRC are also questions of mixed fact and law, in that they cannot be decided in the abstract, but require an interpretation of the employment agreement. The motion judge was, inferentially, of the view that these questions could not be decided by undertaking a superficial consideration of the evidence. In any event, given that the unconscionability question needed to be resolved by arbitration, it would make little sense to bifurcate the proceedings and have the remaining questions resolved by the motion judge.
[14] It is worth noting that none of the access to justice concerns that animated Heller are present in this case. The plaintiffs in Heller clicked on a standard form services agreement, were unlikely to have received legal advice, had no opportunity to negotiate the agreement, were made subject to the law of the Netherlands with arbitration to take place in the Netherlands, and required to pay a fee of $14,500 USD just to begin the arbitration. In contrast, the appellant was a professional earning a base salary of $350,000, claiming over $1.5 million, and facing arbitration in Ontario under Ontario law. She had the assistance of legal counsel during the negotiation of the employment agreement. Notwithstanding that the unavailability of a costs award under the arbitration clause makes arbitration potentially less remunerative than it would otherwise be, there is no suggestion that the costs of arbitration are disproportionate to the potential reward, or that barriers to arbitration would effectively leave the appellant without remedy.
[15] In summary, the appellant was not denied procedural fairness, and the motion judge was not required to determine the validity of the arbitration clause as a threshold matter. By the operation of s. 7(6), no appeal from the motion judge’s decision is available. This court is without jurisdiction and the appeal must be quashed. Accordingly, it is unnecessary for us to address the further issue of whether the order appealed from is final or interlocutory.
This decision reinforces the principle that challenges to arbitration clauses should primarily be resolved by arbitrators unless specific exceptions apply.
Commentary
Arbitration clauses in employment agreements drew significant scrutiny after the Supreme Court’s decision in Uber Technologies Inc. v. Heller. I wrote about the Court of Appeal for Ontario’s decision in that case in my posts ONCA says Uber's Arbitration Clause is both Illegal and Unconscionable; and The ONCA's Decision in the Uber Case and the (Il)legality of Arbitration Clauses in Employment Contracts .
Five years ago there was considerable uncertainty surrounding the question of whether an employment agreement could ever contain an arbitration provision, or whether the Employment Standards Act, 2000 effectively made such clauses illegal.
In a tweet posted by me on 3 January 2019 I wrote, “The more I think about the ONCA's #Uber decision the more I am lead to believe two things: 1. Arbitration clauses in employment agreements *can* be legal; but 2. Much like ESA-minimum termination clauses, a "carving out" of ESA claims will have to be included in the arb clause.”
The Irwin decision and others like it, see e.g. Leon v. Dealnet Capital Corp., 2021 ONSC 3636 demonstrate that the Court’s decision in Heller represents a rare exception to the general rule.
But it also important to underline that the general rule is not that arbitration clauses in employment agreements are necessarily acceptable, but rather that the question of their validity is a question to first be resolved by the arbitrator. As Justice Perell observed in his own reasons for decision in Heller, “In Seidel v. TELUS Communications Inc., the Supreme Court of Canada held that absent legislative language to the contrary, courts must enforce arbitration agreements. The court should only refuse a reference to arbitration if it is clear that the matter falls outside the arbitration agreement. In Wellman v. TELUS Communications Company, the Court of Appeal stated that arbitration agreements will generally be enforced and that any restriction of the parties’ freedom to arbitrate must be found in the legislation.”
The so-called “Competence-Competence Principle” does appear to be alive and well, even in employment cases and notwithstanding the one-off decision in Heller.
Takeaways for Employers
My usual advice to employers is to use well-written, professionally considered employment agreements with all of their employees. There are several reasons to use a written agreement and more and more employees are expecting them as a demonstration of professionalism.
With respect to the issue of arbitration provisions, the law appears clear that employers can have arbitration provisions in their employment agreements, requiring most – but not all – disputes to be resolved by private arbitration.
Whether private arbitration is preferable to the public court system is a discussion best had with a full understanding of the context of the situation. There are pros and cons to both systems and you need to choose the model that works best for the situation.
If you are looking for employment agreements and are considering including an arbitration clause in such agreement, then let’s have a conversation around how we can ensure that the clause remains legally valid and that it’s providing the results you intend.
Takeaways for Employees
The takeaway for employees is to have any potential employment agreement professionally reviewed by an experienced employment lawyer. One cannot trust that a contractual provision that any employment dispute “must be arbitrated” will automatically be voided by a judge.
While there can be benefits, even to employees, of having a dispute privately arbitrated it is important to know what the rules of the game will be before agreeing to such a provision.
If you are an employee and have received a new employment contract, why not have it professionally reviewed by us before you sign on the dotted line?
Looking for an Employment Law Arbitrator?
If you are looking for an arbitrator to hear your employment law dispute, then I can also be of service in that respect. I've been sitting as an adjudicator in the sports realm since 2023. At least one of my decisions has been upheld on appeal. I've also written dozens of workplace harassment reports and findings. You've seen my writing via my blog. You have a sense of my knowledge base.
Contact Me
Sean Bawden is Experience. At Work.
I am an experienced employment lawyer and wrongful dismissal lawyer practicing with Kelly Santini LLP, which is based in Ottawa. I have appeared, in-person, in courtrooms all across Ontario from Stratford, to L’Orignal, to Thunder Bay.
For 2.5 years I was in-house legal counsel providing employment law advice to one of Canada’s largest corporations and appeared in labour courts and tribunals literally the world over.
I have also been a part-time professor at Algonquin College and have taught Employment Law, Trial Advocacy for Paralegals, and Small Claims Court Practice.
I can be reached by email at sbawden@kellysantini.com or by phone at 613.238.6321 x233.
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As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation. It is always prudent to seek professional legal advice before making any decisions with respect to your own case.
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