Arbitration clause

The term “arbitration clause” has taken on a new dimension of public awareness, given recent events in the media involving certain rather well-known public figures in the lands to the South.

A fairly negotiated employment contract may well include such an arbitration clause. This can be a useful tool to resolve any disputes which arise out of the employment contract.  The essence of this term is that the parties agree that each one is not allowed to sue in the usual civil court process to resolve any differences which may arise between them. They are contractually bound to use an arbitrator for such purposes instead.

The desire for secrecy is only one motivator for the use of this clause. Many companies and individuals do not want their legal disputes aired publicly for a variety of reasons. There are also other reasons to use arbitration.

The Pros

There are many distinct advantages to this process which include (1) the right of the parties to choose their decision maker generally or from an agreed list; (2) the process can be simplified as may be desired by, by for example, limiting or eliminating discoveries which is a pre-trial process in the civil court system; (3) the time period to arrive at the hearing is typically much faster; (4) additional flexibility may be offered such as med-arb[1] or other arbitral formats; (5) the hearing is not public, nor are the reasons for the decision as is the case for a normal court action and (6) the right to appeal is eliminated although the “judicial review” process with its higher review standard will still be possible. The documents or pleadings which make the case are not public, unlike usual court documents.

Avoiding Class Actions

An arbitration agreement is often used to avoid class action cases, as Uber successfully recently asserted.[2] In this case, the judge upheld the arbitration term, which required the parties to proceed to arbitration in the Netherlands on an individual basis. This seems patently ridiculous and calls for legislative reform.

The Cons

There are some disadvantages to using arbitration to resolve disputes between workplace parties. One is the cost for both sides as now the expenses of the arbitrator are added to the burden of legal costs. The agreement may alter the costs by denying costs to the winner or providing some other formula defining the loser’s obligation.

Other Considerations

The evidentiary process tends to be much less rigid than it is in court. This can be a pro or a con. The lack of an appeal process is intended to demonstrate that the arbitration is intended as a final result.

There is no transcript of the hearing which is likely a neutral factor. Depending upon the arbitrator he or she may be much more interventionist than a trial judge, a factor again which has no primary leaning.

Reviewing Arbitration Clauses

The essential purpose of an arbitration clause is to mandate that any dispute which arises within its terms, be the subject of arbitration. The first step is to examine the agreement and by using normal principles of interpretation, to determine what is the agreement that the parties have struck.

Judicial Review by Pseudonyms

The parties usually incorporate a term which requires that any party seeking a court review of the arbitration decision use non-identifying names to proceed with the review. While the arbitration agreement can deny an appeal in the normal course, there can be no term denying the right of “judicial review”. This is intended to keep the parties out of the spotlight.

Damages for Violations

The arbitration agreement can be an effective tool to keep the issues in dispute out of the public eye. There is no impediment to including a damage clause which defines the damage sum to be paid should either party violate the confidences intended by the agreement. This is so, presuming that the sum set out is a valid and genuine “pre-estimate” of the damages to be suffered and is not intended as a penalty clause. Essentially this means that the sum agreed to should be realistic and able to be justified, if challenged as a penalty term.

Let Advice Guide Your Actions

Arbitration agreements present certain advantages and disadvantages, whether you be employer or employee. The important issue is that each side to the agreement understand the consequences of the agreement before its acceptance.

If you have questions about such an arbitration agreement, contact the offices of Toronto employment lawyers Grosman Gale Fletcher Hopkins. 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.





[1] Mediation coupled with arbitration. The mediator selected becomes the arbitrator as agreed to between the parties.

[2] Heller v Uber