An arbitration clause that doesn’t explicitly prohibit a terminated employee from making a complaint to the Ministry of Labour doesn’t offend employment standards legislation, the Ontario Superior Court has ruled.
“The ruling will give comfort to employers that Ontario courts will enforce arbitration clauses,” says David Vaillancourt of Toronto’s AGM LLP, who represented Dealnet Capital Corp. against the claim of John Leon, a former employee, that Dealnet had breached the employment contract.
The status of arbitration clauses in employment agreements has been a matter of controversy since the Ontario Court of Appeal ruled in 2019 that an arbitration clause in the contract between Uber drivers in Canada and the ride-hailing company offended the Employment Standards Act.
As it turned out, the agreement between Dealnet and Leon also contained an arbitration clause. So when Leon sued Dealnet for breach of contract, alleging that the company had refused to pay a transaction-based bonus of $52,000, Vaillancourt moved to short circuit the lawsuit on the basis that the Arbitration Act dictated a mandatory stay of civil proceedings when the parties had agreed to arbitrate.
Citing the Uber decision, Leon’s lawyer, Craig Colraine of Birenbaum, Steinberg, Landau, Savin & Colraine LLP, countered that the arbitration clause was invalid because it foreclosed his client from making complaints about ESA violations. But Master Barbara McAfee (a Superior Court judicial officer) ruled that Uber didn’t apply.
“In [Uber], the impugned arbitration clause contained a choice of foreign law provision which purported to completely oust the operation and jurisdiction of the ESA in its entirety,” she stated. “In contrast to the circumstances before me, Leon’s employment agreement is subject to Ontario law and it expressly recognizes the primacy of the ESA over the terms of the employment agreement itself.”
The upshot, concluded McAfee, was that the arbitration clause didn’t purport to remove Leon’s right to complain under the ESA. Vaillancourt says the distinction between the two cases is appropriate. “The difference is that the Uber contract made the entire relationship subject to Netherlands law, which meant that Ontario law, including the ESA, did not apply. That’s not the case in the Leon contract.”
However, Colraine notes the arbitration clause before McAfee stipulated that all disputes under the agreement would be “finally resolved” by arbitration. “That effectively precludes complaints to the ministry.”
And, Colraine adds, McAfee’s reasoning doesn’t conform with recent decisions that consistently conclude that a termination agreement is invalid so long as it purports to contract out of the ESA, regardless of whether the employee actually attempts to exercise their statutory rights or not.
Leon has appealed to the Divisional Court. The appeal, and subsequent appeals, could bring to the fore a collision between two competing judicial trends: on the one hand, judges have demonstrated a growing tendency to enforce arbitration agreements even as they have regularly found reason to overturn termination clauses that smack of any suggestion that they undermine employees’ ESA rights.
Ultimately, it could all turn on the particular wording of an arbitration clause. So employers still need to be careful when drafting them.