Superior Court Rules that Arbitration Clauses in Employment Contracts are Enforceable

In a recent decision, Leon v. Dealnet Capital Corp., 2021 ONSC 3636, the Ontario Superior Court determined whether or not an arbitration clause contained in an employment agreement was enforceable.  For employers, inserting an arbitration clause into an employment agreement is a good tool to provide some certainty and, in most cases, an arbitration can be completed much quicker and for less cost than the Court process.

However, employees often challenge these provisions after a termination and there are recent decisions confirming that any attempt to displace a statutory right under the Employment Standards Act, 2000 (“ESA”) including the right to make a complaint to the Ministry of Labour, will result in such a clause being unenforceable. This was the argument that was successfully made in Heller v. Uber Technologies, which resulted in an arbitration clause being set aside.

The Arbitrator clause was written as follows:

8.1 All disputes arising out of or in connection with this contract, or in respect of any legal relationship associated therewith or derived therefrom, will be referred to mediation and, if unsuccessful, finally resolved by arbitration under the statutes of the Province of Ontario (the Arbitration Clause).

The contract also contained the following wording:

1.5 This Agreement will be governed by and construed in accordance with the laws of the Province of Ontario. This Agreement shall be subject to the Employment Standards Act, 2000 (Ontario), as amended or replaced. If the Employee is entitled to any rights or payments under that legislation which are not reference [sic] in this Agreement or which exceed amounts payable under this Agreement, the provisions of that legislation shall supersede the provisions of this Agreement. The failure of any provision of this Agreement to reference or acknowledge the provisions of that legislation shall not invalidate that provision (the Governing Law Clause).

Here, the employee made the same argument in an effort to set aside the arbitration clause. However, in this case, the Master disagreed, noting that in Uber, the clause contained a choice of foreign law provision which completely ousted the jurisdiction of the ESA in its entirety. In this case, the clause was distinguishable from the Uber clause because the arbitration clause had to be read in conjunction with clause 1.5 as set out above, which specifically preserved all statutory entitlements under the ESA. The Master noted that the employment agreement expressly preserved the rights provided under the ESA and did not foreclose the employee from making a complaint to the Ministry of Labour. Thus, the arbitration clause was valid.

Following Uber decision, there was some concern about the enforceability of any arbitration clause in an employment agreement, but the Superior Court has determined that arbitration clauses are still valid provided they do not oust the ESA. We have previously written newsletter articles on the decision of Heller v. Uber Technologies which was brought all the way to the Supreme Court, you can read the commentary on that case by using the following URL: http://lawyersforemployers.ca/wp-content/uploads/2020/07/Bird-Richard-Newsletter-Summer-2020.pdf  If you have any questions about arbitration clauses in your contracts or want to include an arbitration clause in your employment agreement, please give us a call and we can provide you with more details about the pros and cons of an arbitration clause.