In the recent decision Leon v Dealnet Capital Corp [Leon], the Ontario Superior Court of Justice (the “Court”) enforced an arbitration clause in an employment agreement of a non-unionized employee (the “Agreement”), which effectively prevented the employee from pursuing claims against his former employer in court, despite that the clause arguably violated the Employment Standards Act, 2000 [ESA].
Mr. Leon resigned from his employment with Dealnet Capital Corp. (“Dealnet”) and subsequently brought a claim for unpaid wages against his former employer for an outstanding bonus payment.
Dealnet brought a motion to have the court “stay” the proceeding under section 7(1) of the Arbitration Act, which would effectively prevent Mr. Leon from pursuing his claim in court, because the Agreement contained an arbitration clause (the “Arbitration Clause” or “Clause”). The Clause provided that any disputes arising out of the Agreement or the employment relationship between Mr. Leon and Dealnet had to be referred to mediation, and if that was unsuccessful, resolved through arbitration.
Mr. Leon opposed Dealnet’s motion to stay the proceeding by arguing that the Clause was unenforceable. Mr. Leon argued that the Clause violated the ESA and was therefore invalid because it deprived him of his statutory right to make complaints to the Ministry of Labour (the “Ministry”) regarding violations of the ESA and to have an employment standards officer investigate and resolve such complaints. Mr. Leon also argued the Clause was unenforceable because it was unconscionable, based on the Supreme Court of Canada’s decision in Uber Technologies Inc v Heller [Heller] (read our blog on Heller here).
Ultimately, the Court held that the Arbitration Clause was enforceable, such that the dispute had to be resolved through arbitration, and stayed the proceeding.
The Court found that the Clause did not violate the ESA because it did not deprive Mr. Leon of his right to make employment standards complaints to the Ministry when the entire Agreement was considered. This is because the Agreement also contained a governing law clause which stated that the Agreement was subject to the ESA, which would govern in the event that anything in the Agreement did not comply with the ESA.
The Court also found that, unlike the arbitration clause in Heller, the Clause was not unconscionable. Notably, the clause in Heller contained a choice of foreign law provision which attempted to “completely oust the operation and the jurisdiction of the ESA in its entirety” by requiring vulnerable workers to pay large up-front costs to have their disputes arbitrated overseas under foreign law. In contrast, Mr. Leon was not particularly vulnerable as a senior executive, and the Arbitration Clause did not require disputes under the Agreement to be arbitrated overseas or under foreign law.
Takeaways for Employers
Although the Court enforced the Arbitration Clause in Leon, despite that it arguably could have been found to violate the ESA, employers should exercise caution when deciding whether to include arbitration clauses in their employment agreements with employees. This is especially the case given that Leon is being appealed, and that the Court’s analysis in Leon seems inconsistent with the Ontario Court of Appeal’s (the “ONCA”) reasoning in Rossman v Canadian Solar Inc [Rossman].
In particular, the Court in Leon arguably treated the governing law clause in the Agreement as a “saving” provision–also known as a “failsafe” provision. In an employment agreement, a “saving provision” typically provides that the employee will be provided with their rights and entitlements under the ESA in all circumstances, even if other provisions in the employment agreement provide otherwise. In Rossman, the ONCA held that a saving provision cannot render a termination clause enforceable where it otherwise violates the ESA and the employer has attempted to contract out of the ESA’s minimum standards (for more information, read our blog).
Although Rossman dealt with the enforceability of a termination clause rather than an arbitration clause, the same reasoning could be extended to any provision of an employment agreement. That said, it remains uncertain whether saving provisions can be used to save clauses other than termination clauses that, read on their own, explicitly contract out of the ESA.
Employers who are interested in including an arbitration clause in employment agreements would be well advised to ensure that the clause itself is clear that it does not remove an employee’s right to make employment standards complaints to the Ministry, in order to avoid ambiguity and potential unenforceability.
Moreover, such employers should also be mindful of the ONCA’s decision in Waksdale v Swegon North America Inc, which held that if any termination clause, or part of one, in an employment agreement violates the ESA, it will render all other termination provisions in the agreement unenforceable, even if the other provisions are separate and otherwise comply with the ESA (for more information, read our blog). Given that arbitration clauses impact how employees can pursue their termination entitlements, an arbitration clause that violates the ESA could potentially render otherwise valid termination clauses in an employment agreement unenforceable.
This blog is provided as an information service and summary of workplace legal issues.
This information is not intended as legal advice.