Arbitration Clauses in Employment Agreements: New Developments

July 25th, 2019 by Marty Rabinovitch and Elias Rabinovitch

Two recent Ontario court decisions suggest that arbitration clauses requiring employees in employment agreements to submit certain employment actions to arbitration may be unenforceable.

In a recent Ontario Court of Appeal decision, Heller v Uber Technologies, 2019 ONCA 1, Uber brought a preliminary motion to stay a class action advanced by one of its drivers. Uber sought to have the action proceed to arbitration in the Netherlands pursuant to its boilerplate arbitration clause, to which all drivers are required to agree before driving for Uber.

Since this was a preliminary motion, the court assumed that Uber drivers would be considered “employees” under the Employment Standards Act, 2000 (“ESA”) and thereby could, for the purposes of this motion, be considered to benefit from the provisions under the ESA.

The court noted that under s. 7(1) of the Arbitration Act, 1991 if a party to an arbitration agreement commences a proceeding for a matter which, according to the agreement, should be decided in arbitration, the court will stay the proceeding and submit the matter to arbitration. However, under s. 7(2), there are exceptions to the rule delineated under s. 7(1): for example, if the court deems the arbitration agreement to be invalid.

The Court of Appeal found the arbitration agreement was invalid on two grounds: (a) it constituted an impermissible contracting out of the ESA and (b) it was unconscionable.

Considering (a), the Court of Appeal noted that under the ESA, employees may launch a complaint to the Ministry of Labour or may launch a civil proceeding to launch a complaint against their employer. Since the arbitration clause forced employees to proceed immediately to arbitration, it took away their ability to make complaints to the Ministry of Labour or to launch a civil proceeding (arbitration was not considered a “civil proceeding” by the court). This constituted an unacceptable contracting out of the ESA and therefore the clause was ruled unenforceable on these grounds.

Considering (b), the court also found that, even if the clause did not violate the ESA, the clause was still unenforceable because it was unconscionable. The court found it to be unconscionable primarily because it was a unilateral arbitration agreement which eliminated the drivers’ bargaining power and because drivers had agreed to the arbitration clause in the absence of legal advice.

In a subsequent decision, Rhinehart v. Legend 3D Canada Inc.2019 ONSC 3296, the court applied the reasoning from Heller, above. Mr. Rhinehart worked at a U.S. branch of a company, Legend 3D USA. Mr. Rhinehart signed several arbitration agreements with Legend 3D USA. Mr. Rhinehart then began to work for Legend 3D Canada. His employment was later terminated.

When Mr. Rhinehart sought damages for wrongful dismissal, Legend Canada sought to stay the action and submit the matter to arbitration pursuant to the arbitration agreements between Mr. Rhinehart and Legend USA. However, the court found the arbitrations agreements were not enforceable because they were (a) not between Mr. Rhinehart and Legend CA; (b) the arbitration agreements between Mr. Rhinehart and Legend USA did not apply to issues arising from his Ontario employment; and (c) applying the same reasoning from Heller, the arbitration clauses constituted an impermissible contracting out of the ESA.

These cases indicate that where arbitration clauses in employment agreements force employees to proceed to arbitration, rather than using the complaint process under the ESA or advancing a civil action, such clauses will be found unenforceable. Moreover, if the arbitration clause demonstrates a clear inequality of bargaining power, and leaves parties to the contract with no other reasonable choice but to agree in the absence of legal advice, such clauses will likely be invalid as they will be deemed unconscionable.

If you would like more information on arbitration clauses or would like legal advice on this subject, please contact Marty Rabinovitch at 416.446.5826 or  marty.rabinovitch@devrylaw.ca

 

“This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.”

 


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