Employee Seeks to Escape Arbitration Clause in Employment Contract

Written on behalf of Peter McSherry

Almost every employed individual is bound under some form of an employment contract. Whether the contract is specifically drawn up for that particular employee, or if it is based on a standard form agreement, it is important that everyone pays close attention and understands the terms of the contracts to which they sign. Things can become potentially detrimental, however, when someone does not understand a certain aspect of the contract, or is worried about losing an opportunity if they do not sign the agreement right away, but they agree to be bound anyway.  

This blog will review a recent decision from the Ontario Superior Court of Justice in the case of Irwin v. Protiviti in which an employee sought to commence a legal claim against her former employer for what she deemed was constructive dismissal. The employer, however, argued that the employment contract, which governed their employment relationship, required the parties to first pursue arbitration as a means of dispute resolution. 

Employment contract contained arbitration clause 

The respondent employer employed the appellant employee as the Managing Director in the company’s Risk and Compliance Group. While the Court did not detail how and why the employee left her position, she alleged that it was due to constructive dismissal. When she accepted her employment offer, she signed a written employment contract and even employed her independent legal counsel to assist with negotiations. 

The contract contained a clause which stated that any claim related to the termination of the employee would first need to proceed through arbitration. An additional clause confirmed that arbitration awards for costs and punitive damages would not be available. 

Employee says arbitration clause should not be enforceable

After the employee left her role, she wished to commence legal action against her employer through the court system, however, the employer requested a stay in the action so that that matter could proceed to arbitration as necessitated by the contract. The employee argued that the arbitration clause should be considered invalid due to unconscionability as it related to the clauses about punitive damages and cost awards. The motion judge who initially heard that matter referred to the Arbitration Act and found that the argument about the validity of the arbitration clause could only be heard in arbitration. 

The employee appealed this decision on two grounds. The first was that she claimed she was denied procedural fairness before the motion judge, and the second was that she argued that the motion judge should have been required to address the arbitration clause’s validity. The employee asked the Court to rule on the validity of the clause and ultimately set aside the stay. 

Can the Court rule on the validity of the arbitration clause?

The Court first addressed the issue of procedural fairness. The employee claimed she did not know the motion judge would not make a determination on the clause’s validity, therefore she did not prepare any submissions to support her position in requesting the judge to rule on it. The employer, however, responded that the employee’s question is addressed in the statute and as such it should not be a sufficient ground for an appeal. On this point, the Court agreed with the employer, citing a 2016 decision from the Ontario Court of Appeal in Haas v. Gunasekaram, in which the court stated that the Act does allow for arbitrators to “rule on objections with respect to the existence or validity of the arbitration agreement.” The court acknowledged that the motion judge “could” have ruled on the matter, but nevertheless stated they were not bound to do so. 

Addressing the second ground of appeal, the Court referenced the 2007 decision in Dell Computer Corp. v. Union des consommateurs from the Supreme Court of Canada which held that “in any case involving an arbitration clause, a challenge to the arbitrator’s jurisdiction must first be resolved first by the arbitrator.” 

This determination was affirmed and expanded on by the Supreme Court of Canada again in the 2020 decision of Uber Technologies Inc. v. Heller in which the Court stated that all challenges to an arbitrator’s jurisdiction should be referred to arbitration with the exception of two circumstances:

“(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.”

Court not willing to expand exemptions 

The employee relied on case law supporting her position, but the Court ultimately found these examples to be distinct from the facts present in the case.  Specifically, the Court noted that the employee and employer worked with lawyers to draft and execute a contract specific to her employment, rather than using a standard form employment contract as was used in previous cases. 

The Court went on to confirm that the law is clear on questions of jurisdiction being arbitrated, unless the matter falls within one of the two aforementioned specific exemptions.

Contact Peter A. McSherry Employment Lawyer in Guelph For Guidance on Employment Contracts and Termination

Each case of employee termination is unique. The employment law team at Peter A. McSherry understands the frustration and stress an employee may face when they have been pushed out of their employment, or feel they have been wrongfully dismissed. As an employee, it is important to understand the terms of your employment contract, your rights upon termination, and the fair compensation you may be entitled to. To speak with a lawyer regarding your termination, contact us online or by phone at 519-821-5465 to schedule a consultation.