Employment agreements sometimes contain mandatory arbitration clauses, which attempt to force the parties to resolve disputes through arbitration as opposed to proceeding by civil or administrative action under the Employment Standards Act 2000 (ESA).
In 2020, the Supreme Court of Canada struck down such a clause in Uber Technologies Inc. v Heller. In this article, we briefly review that decision and compare it with the recent decision of the Court of Appeal for Ontario in Irwin v Protiviti. Unlike in Uber, the Court decided to stay the court proceeding, finding that the validity of the mandatory arbitration clause was itself a matter for arbitration.
Supreme Court struck down Uber’s mandatory arbitration clause
As we reported in 2020, the Supreme Court of Canada was called upon to decide whether a mandatory arbitration clause in Uber’s driver contract requiring all disputes to be sent for determination by an arbitrator in the Netherlands was unenforceable. The clause required the claimant in the process to pay an administrative fee of US$14,500, in addition to their travel and legal expenses.
The Supreme Court decided that the clause was unconscionable and hence not binding. This was because there was an inequality of bargaining power between Uber and the driver and an improvident bargain, meaning it unduly disadvantaged the more vulnerable party. Arbitration was realistically unattainable because the fees were close to the driver’s annual income and disproportionate to the size of an arbitration award that could reasonably have been foreseen. As a result, it amounted to no dispute resolution mechanism at all.
This decision upheld that of the Court of Appeal for Ontario, which determined that the clause in question removed an employment standard under the ESA because it eliminated the right of the driver to file a complaint with the Ministry of Labour. However, the Supreme Court did not address this issue.
Employee sued for constructive dismissal, but employment contract contained arbitration clause
Turning to the recent decision of the Court of Appeal for Ontario, an employee signed a written employment contract, which she negotiated with the assistance of legal counsel. It contained an arbitration clause that provided that any claim relating to the termination of employment shall be submitted to arbitration. It also said that awards of costs and punitive damages would not be available in arbitration.
The employee subsequently sued her employer for constructive dismissal. The employer brought a motion to stay the action so the dispute could be referred to arbitration. The employee argued that the mandatory arbitration clause was invalid due to unconscionability because it excluded potential awards of punitive damages or costs, and for inconsistency with the ESA and the Human Rights Code 1990.
Motion judge left the question of validity of the clause to be determined in arbitration
The motion judge examined the Arbitration Act 1991 and decided that the arbitrator should determine whether the mandatory arbitration clause was valid.
The Arbitration Act requires courts to stay proceedings when a party to an arbitration agreement commences litigation in respect of a matter which the arbitration agreement requires to be arbitrated. A court may refuse to stay proceedings if the arbitration agreement is invalid, however, another part of the Arbitration Act specifically provides that an arbitral tribunal may rule on its own jurisdiction.
The motion judge did not rule on the employee’s substantive objections to the mandatory arbitration clause (such as her argument that the clause was unconscionable), leaving these for the arbitrator. The employee appealed.
Court of Appeal agrees that validity of mandatory arbitration clause is a matter for arbitration
The Court of Appeal held that the motion judge was permitted to leave the issue with the arbitrator, in keeping with the general rule that “in any case involving an arbitration clause, a challenge to the arbitrator’s jurisdiction must be resolved first by the arbitrator”.
It explained that a court should refer all challenges to an arbitrator’s jurisdiction to arbitration, except when the challenge raises pure questions of law, or the challenge raises questions of mixed fact and law requiring only superficial consideration of the evidence and where the court is convinced the challenge is not a delaying tactic or will not prejudice recourse to the arbitration.
In this case, the employee’s arguments needed factual inquiry beyond a superficial consideration of the evidence.
Access to justice concerns not present in this case
The Court distinguished the case from Uber, noting that none of the access to justice concerns were present:
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.
The Court of Appeal stayed the court proceedings. As a result, the validity of the mandatory arbitration clause will need to be determined as part of the arbitration.
Contact the employment lawyers at Grosman Gale Fletcher Hopkins LLP for advice on mandatory arbitration
A clause such as mandatory arbitration of rights is clearly an important one, not only where there may be a real dispute as to the status of the employment relationship as in the Uber case. Getting advice prior to entering into a contract for employment or contractor services is advised. For advice on arbitration clauses for employers and employees, contact the offices of Toronto employment lawyers Grosman Gale Fletcher Hopkins LLP. We regularly advise workplace parties on a wide range of legal workplace issues. Contact us online or by phone at 416.364.9599 to schedule a consultation.
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