It is accepted that the two parties may agree to choose the law which governs the employment relationship. This principle was affirmed in a 1998 Ontario decision. ¹ in which Swinton, J., then a trial judge, noted:

In accordance with Canadian conflict of laws principles, courts respect the parties’ express choice of the law to govern their contract, absent vitiating factors. In the leading case, Vita Food Products Inc. v. Unus Shipping…., the Privy Council held that the parties’ expressed intention should determine the proper law of a contract, provided that the application of that law is not contrary to public policy, and the choice was bona fide and legal.

The plaintiff in the above case had been assigned to Venezuela from Canada and had argued that the law of Venezuela should apply to his claim. The trial judge did note that there may be objections raised to the contracted jurisdiction based on the above passage, but in this context, the choice was not one which attempted to avoid the jurisdiction with which the relationship was “most closely connected”. Ontario law was seen as the jurisdiction which allowed for the greatest connection,  despite the fact that the plaintiff was located physically in Venezula.

The contract defining jurisdiction, in a further case, the United Kingdom, was also upheld in a 2024 Ontario case involving a person transferred from the U.K. to Canada. ²

Challenges to the Contracted Term : Generally

Typically, a party may challenge a clause conferring jurisdiction, but to do so, must show that there is strong cause to override the agreement.  A court is not bound by an exclusive jurisdiction clause. A stay is discretionary. The test is expressed most frequently in The Eleftheria, referenced at paragraph 37 of the B.C. Court of Appeal decision in Sarabia v The Owners and All Others Interested in the Ship Mindoro.

 . . . (I) where plaintiffs sue in England in breach of an agreement to refer disputes to a foreign court, and the defendants apply for a stay, the English court, assuming the claim to be otherwise within its jurisdiction, is not bound to grant a stay but has a discretion whether to do so or not. (II) the discretion should be exercised by granting a stay unless strong cause for not doing so is shown. (III) The burden of proving such strong cause is on the plaintiffs. (IV) In exercising its discretion, the court should take into account all the circumstances of the particular case. (V) In particular, but without prejudice to (IV), the following matters, where they arise, may properly be regarded:  (a) In what country the evidence on the issues of fact is situated, or more readily available, and the effect of that on the relative convenience and expense of trial as between the English and foreign courts; (b) Whether the law of the foreign court applies and, if so, whether it differs from English law in any material respects; (c) With what country either party is connected, and how closely; (d) Whether the defendants genuinely desire trial in the foreign country, or are only seeking procedural advantages; (e) Whether the plaintiffs would be prejudiced by having to sue in the foreign court because they would‑‑ (i) be deprived of security for that claim, (ii) be unable to enforce any judgment obtained, (iii) be faced with a time-bar not applicable in England, or (iv) for political, racial, religious or other reasons be unlikely to get a fair trial.

Examples of the Defence

The B.C. Court of Appeal considered the same term in a 1989 decision which was not an employment based case. ³ The issue raised by the defendant was that the contract was illegal in the jurisdiction in which the contract was performed, in this case, the state of Washington. The contract was stated to be governed by B.C. law. The conduct was illegal in Washington state as the plaintiff lacked the required real estate broker’s licence. The Court of Appeal denied the application of B.C. law as it was seen in this context to be contrary to public policy.

A similar decision was reached in an earlier Ontario decision, again not dealing with employment issues ⁴ in which the parties had agreed by contract that the law of Ontario would apply. The claim involved an action for unpaid rental payments following the seizure of the leased automobile by the lessor. Ontario law allowed for both actions, the seizure and the claim for unpaid lease sums. B.C. law mandated that the lessor chose one remedy or the other. The car was seized in B.C. The agreement also stated that should the contract violate the law of any province where the agreement is to be performed, this clause is to be unenforced. The trial judge then concluded that this term was not part of the contract and further that as the agreement was more closed connected to B.C. that this law should apply. The claim was thus dismissed.

The Employment Context

At-Will – No Stat Protections

These principles may have application to an employment relationship where the jurisdiction set by the contract may violate the law of the jurisdiction where the contract is performed. Generally speaking, it is well recognized that the contract may not oust the minimum standards set by the local jurisdiction where performance takes place.

That being said, this is precisely what did follow in an Ontario decision in 2002. ⁵ The plaintiff entered into an agreement with his employer which mandated an arbitration process and also stated that the relationship would be governed by Ohio law, an at-will state. The plaintiff asserted before the trial judge, Swinton J., that the agreement thus violated Ontario’s minimum standards protections which should render it unenforceable. There was no saving provision to ensure this minimum standard would be met. This argument failed. The trial judge found that the plaintiff, a lawyer who had also sought legal advice, was a sophisticated party and could not claim the protections of the minimum standards submission. The decision is not consistent with modern authorities which do not make such a distinction.  The precise words of the decision suggested that this issue above would lie ahead for another day, yet this the court rejected the plea:

In my view, this is not a case where a vulnerable employee is being unfairly treated by the inclusion of an arbitration clause with a choice of foreign law in order to undermine his rights. Mr. Ross is trained as a lawyer, and he had independent legal advice when he signed the offer letter, and he bargained over its terms. Therefore, I leave for another day whether such clauses may sometimes be unenforceable.

The court allowed the clause to prevail and left the issue open for the arbitrator to determine. It also stated that failing the entitlement to minimum standards in the arbitration hearing, the plaintiff may pursue the ESA subsequently in Ontario. That respectfully, makes no sense. The decision contained three missteps. It is very unlikely to be followed today. This issue is reviewed in more detail here.

At-Will and Arbitration in California

The New Brunswick Queen’s Bench in 2006  considered an agreement which mandated arbitration in California. ⁶ The plaintiff had commenced employment with NB Tel or Aliant in June of 1995. In April of 2006 when her employment was transferred from Aliant to Exigen, she was offered and accepted a position defined in an employment agreement which created at “at-will” employment and that all disputes be governed by binding arbitration conducted by the American Arbitration Association of Santa Clara, California.

On termination, in June of 2005, she had held the position of Technical Account Manager for four years. The claim issued by the plaintiff was met by a stay motion. The employer admitted New Brunswick law would govern but requested that the hearing be conducted in California within which process New Brunswick witnesses would testify on New Brunswick law. This admission should be of no consequence. The agreement should stand or fall on its own words.

The fact that the plaintiff was dismissed soon after the fact of her pregnancy was known did not appear to assist the defence motion.

Justice H.H. McLellan found the clauses in the arbitration agreement invalid under section 7(2)b of the Arbitration Act. This act stated as follows:

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.

7(2 )However, the court may refuse to stay the proceeding in any of the following cases:

 (b)the arbitration agreement is invalid;

The Court determined that the offensive clauses were “so abusive of the rights of an employee in this jurisdiction that it taints the entire document, including the arbitration clause….” The word “unconscionable” was not used but this argument would be of a similar genre. There is no “abusive” defence to a contract term but clearly the sentiments led to the correct decision.

Uber Contract – Arbitration in the Netherlands

The contract in this case which came before the Supreme Court of Canada contained a mandatory arbitration process to take place in the Netherlands and required the posting of the sum of $14,500 for costs in advance. This agreement was found to be unconscionable. It is reviewed here. It did not contain a choice of law clause. It is reflective of the modern test to support this submission.

Forum Non Coveniens

The issue of the proper legal jurisdiction within which the claim should be brought is an issue distinct from the cases dealing with the contracted jurisdiction. Even should the claim served out of the jurisdiction fit within the rule allowing for such service, this does not end the issue. The issue must still be determined as to whether there is a “real and substantial” connection between the chosen jurisdiction and the claim. ⁷

The Ontario Court of Appeal in its 2008 decision set out the factors to be weighed in determining this issue. ⁸ These were stated as follows:

1. The standard to displace the plaintiff’s choice of jurisdiction is a high one to overcome;
2. The burden rests on the moving party;
3. The factors should be balanced to achieve the goals of efficiency and justice;
4. The motion judge should apply a “prudential”, not aggressive approach to fact finding.

The moving party, as stated by the Supreme Court of Canada in 2012, ⁹ must identify another forum that has an “appropriate connection” under the conflict rules, and also be able to establish a “real and substantial connection” and why it should be preferred. The factors regarded by the Supreme Court, which are noted as not all-inclusive, were as follows:

(a)   the comparative convenience and expense for the parties to the proceeding and for their witnesses, in litigation in the court or in the alternative forum;

(b)   the law to be applied to issues in the proceeding;

(c)   the desirability of avoiding multiplicity of legal proceedings;

(d)   the desirability of avoiding conflicting decisions in different courts;

(e)   the enforcement of an eventual judgment; and

(f)   the fair and efficient working of the Canadian legal system as a whole.

A 2012 Supreme Court of Canada decision ¹⁰ referenced the last point above as an important issue. A further decision of the Ontario court in 2013 ¹¹ noted that this is also a fundamental issue in employment cases, as “it is important to move the cases forward as quickly as possible, given that the plaintiff’s livelihood is at issue.”

No matter the jurisdiction chosen, the court may apply the law of a foreign jurisdiction where the contract dictates this result. Where there is no agreement on the legal system to be used to interpret the respective rights of the parties, one factor in the debate of the correct jurisdiction will be the existence of a juridical advantage. This issue often arises in disputes between Canadian provinces and American states, which typically apply the concept of at-will employment. The Ontario court in a 2006 decision looked to this factor as influential to the outcome, allowing the claim to proceed in Ontario, ¹² in which Perell, J., stated:

In the circumstances of this case, a particularly weighty factor is the matter of juridical advantage.  It was conceded that because Vermont is an “at-will jurisdiction” with respect to the principles of employment law, from an employee’s perspective, Ontario is a preferable jurisdiction to advance a claim.  This factor weighs heavily in Ms. Tisis’s favour in the case at bar.  See: Hodnett v. Taylor Manufacturing Industries Inc. (2002), 22 C.P. C. (5^th) (Ont. S.C.J.).

The impact of this factor was also noted in the Hodnett decision ¹³ referenced in the above passage. In that case, the opposing party put forward Georgia as the preferred jurisdiction. The court noted that “the most significant consideration, however, is the loss of juridical advantage”, given that this state was also an “at-will” one.

Consequently, when a Canadian company creates a physical relocation for its employee to transfer to its operation or a related one in the United States, it is likely Ontario law will follow with them. Both parties would be wise to set out by a written agreement the consequences of a termination in the foreign jurisdiction, or other issues such as the cost of relocation back to Canada, tax equalization payments and similar issues.