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Arbitration Clause In Employment Agreement Invalid

Arbitration Clause In Employment Agreement Invalid

February 27, 2024

By Brian Babcock 

Ontario’s Employment Standards Act (or ESA) provides a complaint resolution process.


As a result, a provision in an employment contract requiring arbitration may be invalid as contravening that Act, which prohibits contracting out of the Act, except to provide a greater benefit.


The employer in Nohdomi v. Callidus Capital Corporation argued that the compulsory arbitration clause in its employment contract with the Plaintiff employee was not a contracting out of the Act because nothing in the clause limits the employee to less benefits than the Act provides.

The clause requires that the employee pay $7,500.00 up front to initiate an arbitration, much more than the cost of filing a lawsuit, and infinitely more than an ESA complaint, where the Employment Standards Branch of the Ministry of Labour bears the cost.

The arbitration requirement was held not to provide a greater benefit than the ESA. Therefore, it is invalid.

The judge supports this also by examining the termination letter, which threatened to “sue” the employee for overpayment of bonuses- indicating that the employer had no intention to abide by the arbitration clause.

The lawsuit was permitted to proceed.

This means that not only can matters under the ESA proceed as part of a court action (skipping the complaints process), but that action may combine the ESA claims with broader claims for breach of contract (wrongful dismissal).

The court did not have to rule whether the clause was unconscionable, the basis relied upon to defeat a mandatory arbitration clause in an employment agreement in the  Supreme Court of Canada decision of Uber Technologies Inc. v. Heller,. That argument may also remain available to employees, particularly those working for large employers using standard form agreements.




We maintain a watchful eye on developments in both employment law and arbitration law. Whether you are drafting an employment contract; being asked to sign a contract; or in need of dispute resolution, we can apply our experience and skill for your benefit. In the non-unionized sector, we act for both employers and employees.

For all your employment law needs, give Weilers LLP a call to see if we are the right lawyers for you.