The Enforceability of Arbitration Agreements in Employment Law

In a recent Ontario case, a Canadian employer attempted to stay an employee’s action on the basis of arbitration agreements the employee had signed with its U.S. counterpart.

What Happened?

The employeeis a U.S. citizen who began to work with the employer (the “U.S. employer”) in 2012. The U.S. employer is a company incorporated in the U.S. and operating in California.

The employee entered into four employment agreements with the U.S. employer in the thirteen-month period from then until December 2013 and continued to work with the U.S. employer in California until December 2016.

Each of the employment contracts that the employee entered into contained a term requiring that all disputes arising from his employment be determined by arbitration conducted in California. The employee also executed two separate arbitration agreements to this effect during his employment with the U.S. employer.

In December 2016, the U.S. employer offered the employee the opportunity to move to Ontario, Canada, to work with one of its related entities (the “Canadian employer”), which the employee accepted. On January 2, 2017, the employer began working with the Canadian employer in Ontario.

However, the employee did not, at any time, execute any written employment contract with the Canadian employer. Additionally, the employee did not enter into any written agreement with the Canadian employer requiring that any dispute arising from his employment in Canada would be determined by arbitration.

The employee was terminated from his employment with the Canadian employer on February 6, 2018, effective March 30, 2018. He brought an action against the Canadian employer seeking damages for his dismissal. 

The employee also sued the U.S. employer for the U.S. employer’s role in causing or contributing to the damages that he alleged to have sustained by the termination of his employment in Ontario with the Canadian employer. He claimed that the U.S. employer made misrepresentations to him that caused him to re-locate to Canada, and that he relied on these misrepresentations to his detriment. He also sued two directors of the Canadian employer.

In response, both the U.S. employer and the Canadian employer brought a motion to stay or to dismiss the action as against them on the basis of the arbitration provision contained in the agreements that were executed by the employee with the U.S. employer during the period of his employment in California. The employers relied on section 7(1) of the Arbitration Act, 1991, which states:

If a party to an arbitration agreement commences a proceeding in respect of a matter to be submitted to arbitration under the agreement, the court in which the proceeding is commenced shall, on the motion of another party to the arbitration agreement, stay the proceeding. 

In response to both employers’ motion, the employee submitted that his action should not be stayed as against both or either of the employers because he did not enter into an arbitration agreement with the Canadian employer, and because his agreement to arbitrate with the U.S. employer was in relation to his employment in California. Further, he submitted that even if the employers could establish an applicable arbitration agreement, it should not to be enforced on the basis that it was invalid because it was an attempt by the employers to contract out of the provisions of the Employment Standards Act, 2000.

Issue

The sole issue was whether the employee’s action should to be stayed as against both employers, or either of them, on the basis of an arbitration agreement.

The Decision

Citing previous case law, the court began by setting out a five-part analytical framework for conducting its analysis on whether to stay proceedings due to an arbitration agreement:

(a)    Is there an arbitration agreement?

(b)   What is the subject matter of the dispute?

(c)    What is the scope of the arbitration agreement?

(d)   Does the dispute arguably fall within the scope of the arbitration agreement?

(e)    Are there grounds on which the court should refuse to stay the action?

After analyzing each element of the five-part test, the court concluded that neither employer had established an entitlement to a stay on the basis of a valid, applicable arbitration agreement.

The court stated that, while case law is clear that a court must, on motion, stay the court proceeding in favour of arbitration where there is a valid arbitration agreement, there must be proof of a valid and binding arbitration agreement.

In this case, the court determined that not one of the arbitration agreements submitted by the employers were executed with the Canadian employer, and that the applicable arbitration agreement executed between the U.S. employer and the employee did not pertain to the claim brought in Ontario for the termination of the employee’s employment with the Canadian employer in Ontario. 

As a result, the court dismissed the employers’ motion to stay the employee’s actions against them.

Get Advice

At Campbell Bader LLP, our Mississauga employment lawyers have been representing non-unionized employees in workplace disputes since 1999. We know that such disputes can be very stressful and can get emotional quickly. We seek to simplify the law so that you understand your options and make informed decisions. We leverage our extensive experience advising employers to provide insightful guidance to employees who are facing challenging circumstances at work. We work hard to protect you.

If you have questions about unfair practices in the workplace, wrongful dismissal, or any other employment matter, contact the Mississauga employment lawyers at Campbell Bader LLP. Our knowledgeable employment lawyers can counsel you on your rights, advise you on your options, and help you create a plan for moving forward. We represent employees in Mississauga and areas west of Toronto. Contact us online or at 905-828-2247 to learn how we can help.