Do All Arbitration Clauses in Employment Agreements Violate the ESA?

In Rhinehart v Legend 3D Canada ( 2019 ONSC 3296) Justice Sanfilippo was faced with a motion by the defendants to stay the action as the employment contract had an arbitration clause that said as follows:

All of us at Legend are very excited about you re-joining our team and look forward to a beneficial and fruitful relationship. However, should any dispute arise with respect to your employment or the termination of that employment, we both agree that such dispute shall be conclusively resolved by final, binding and confidential arbitration in accordance with the Voluntary Labor Arbitration Rules of the American Arbitration Association (AAA) in San Diego, rather than by a jury, court or administrative agency.”

This agreement was signed by the Plaintiff when he worked in California for the US parent. He was then was moved to Ontario and employed by the Canadian subsidiary, but he never signed an agreement with the Canadian company.

The judge ruled on a number of issues:

  1. As there was no arbitration agreement between the Plaintiff and his Canadian employer, it was not applicable to his termination of employment from the Canadian company .
  2. It is for a Court, not the arbitrator,  to determine the validity of the arbitration clause because the court shall only stay arbitration proceedings that flow from a valid arbitration agreement . ( Heller v UBER Technologies 2019 ONCA 1, appeal pending to the SCC) .
  3. As the arbitration clause purports to cover all claims arising from employment , this offends the Employment Standards Act which provides for a complaint and enforcement process that cannot be contracted out of. ( see Heller).

The action was therefore not stayed.

I find the third reason very interesting. The clause in question refers to purporting to  oust  the jurisdiction of any ” administrative agency “.

The same logic would seem to apply to invalidate this type of clause in the following situations:

  1. A complaint under the Human Rights Code.
  2. A complaint under the Labour Relations Act
  3. A complaint under the Occupational Health & Safety Act

All of these statutes have administrative complaint procedures that cannot be contracted out of, thus an arbitration clause that purports to deny access to these tribunals would be additional grounds for invalidating an arbitration clause.

Almost every arbitration clause in an employment contract that I have ever seen would seem to have this fatal defect. Does this mean that they are all null and void?

How  does one  avoid this issue ?

I suppose one way would be to try to limit the arbitration clause only to those matters that would otherwise be determined by a court and not purport to cover those items covered by administrative tribunals or the types of statutes that I referred to above.


Costs Award Reduced from $171,000 to Zilch:

In Evans v Paradigm Capital, ( 2019 )NSC 3046) Gans J was called upon to reconsider his trial award of costs after the Court of Appeal reduced the Plaintiff’s damages from $137,000 to $57,000.

At trial the Plaintiff was awarded costs of $171,000 plus disbursements . On the reconsideration of costs, for reasons which are not all that clear, Justice Gans said as the results were mixed, there would no order as to costs.

So originally the Plaintiff the Plaintiff won a total of $308,000.

After her failed  appeal, she is only getting $57,000.

In other words by appealing, she lost over $250,000.

Remember the  old adage:

Quit when you are ahead.


Failure to Repeat Termination Clause after Multiple Promotions Voids Clause:

In McKercher v Stantec Architecture ( 2019 SKQB 100) Justice Elson had a situation where at the time of his hiring as a staff architect , the plaintiff signed an enforceable contract limiting his notice to a maximum of 3 months.

When he was terminated 11 years later, he had been promoted a number of times and ultimately  held the position of Business Centre Sector Leader, reporting to a VP.

Applying the change in substratum argument, the judge had this to say :

Further, and as informed by the longstanding authority in Bardal v Globe & Mail Ltd. (1960), 24 DLR (2d) 140 (Ont H Ct) [Bardal], the period of reasonable notice increases with, inter alia, the length of service and the level of responsibility. In my view, it necessarily follows that where an employer wishes to rely on a comparatively short notice limit in the original employment contract, it must take reasonably consistent and meaningful efforts to protect the limit’s enforceability. This means that where an employee advances to higher levels of compensation and responsibility, it is incumbent on the employer to reassert its reliance on the contractual notice limit and to ensure that the employee both understands and accepts the employer’s position.

Having failed to this, the Judge found that the termination clause was unenforceable and awarded reasonable notice of 12 months.

There are three ways that an employer can avoid this from happening :

  1. Include a clause in the original contract that the  termination clause continues to apply throughout the employment period notwithstanding any change in position or compensation.
  2. Include a line in all promotion and compensation letters reconfirming the termination clause.
  3. Have a termination clause which is more reflective of common law reasonable notice.