Enforceability of Arbitration Clauses in Employment Agreements

Enforceability of Arbitration Clauses in Employment Agreements

August 16, 2021

By Brian Babcock

It may be that not all arbitration clauses in employment contracts are unenforceable.

The Supreme Court of Canada decision in Uber Technologies v Heller has attracted a lot of attention for declaring that the particular arbitration clause in the Uber agreement was invalid because it was unconscionable. At a lower court level, the Court of Appeal had also suggested that the clause was invalid as not conforming to the Employment Standards Act (ESA).

The Ontario Superior Court confronted this issue again in Leon v. Dealnet Capital Corp. Following Mr. Leon’s resignation from the company, he commenced a lawsuit for unpaid compensation. His employer attempted to have the action stayed in favour of arbitration under a compulsory arbitration clause in the employment contract as amended by subsequent correspondence.

Mr. Leon argued that the arbitration clause was invalid, based on the Uber decisions.

The facts of that case are quite different from Uber. Mr. Leon was a senior executive who had been employed under a customized agreement, as opposed to the standard form contract imposed by Uber on its drivers. In Uber, the central issue was that the clause imposed an expensive foreign arbitration regime on modestly paid front line workers, who had no bargaining power. This was unconscionable. There was no such unconscionability in the Leon situation.

Mr. Leon also attempted to argue that the clause was invalid for violating the ESA, but the contract included a sophisticated clause preserving Leon’s ESA rights, which the judge found favoured the employer’s reliance upon the clause.

Leon also argued that as the employer had responded to his lawsuit with its own claim for relief under the oppression remedy provisions of the Ontario Business Corporations Act (OBCA), a court action was the only dispute resolution avenue. The judge disagreed – nothing in the OBCA precludes arbitration.

The judge went on to consider and apply earlier cases favouring the enforceability of arbitration clauses generally. The employer’s arguments to enforce the clause met the test under those cases.

The action was stayed.

This decision is under appeal[1], so the final word will come from a higher court; but upon our reading of the case, it raises strong arguments that in some situations, arbitration clauses in employment contracts will be enforced.

Each case depends upon its own facts. Generalizing based upon a landmark case like Uber Technologies v Heller is dangerous. The need to distinguish the facts of future cases from precedents plays into the specific training of lawyers and illustrates the danger of non-lawyers, whether employers or employees. All parties to employment disputes benefit from experienced legal advice.

[1]    This information is taken from an article by Aidan Macnab in the online periodical Law Times, which brought the case to our attention. Though I read the article, this website article is written directly from the court decision and reflects the author’s views. I acknowledge that reading the Macnab article may have influenced those views.