The essential purpose of an arbitration clause is to mandate that any dispute which arises within its terms, be the subject of arbitration. Often this clause is used to escape class action proceedings by contracting out of the right of civil action.
The arbitrations statute of all jurisdictions will give the right to the court to order a stay of a civil action when the parties have contracted to use arbitration. Section 7 of the Ontario statute provides such an example. Presuming a valid agreement is in place, the first question the court will ask is whether there is an arguable case that the dispute is one which is caught by the agreement. If this is so, the court will not stay the action and give the issue to the arbitrator for their determination.
The Ontario Court of Appeal in a 2016 decision 1 provided the test for answering this question of whether the action should be stayed:
- Is there an arbitration agreement?
- What is the subject matter of the dispute in the action?
- What is the scope of the arbitration agreement?
- Does the present dispute arguably fall within the jurisdiction of the agreement?
- Are there grounds for which the court should refuse to stay the action?
General Principles of Interpretation
The first step is to examine the agreement and by using normal principles of interpretation, to determine what is the agreement that the parties have struck. 2
Given that the arbitration clause is one component of the contract, it is to be read in the context of the commercial legal relationship created by this contract.
Arbitration agreements are to be given a “large and liberal interpretation”. 3 The Supreme Court of Canada held in its 2019 decision that, presuming no legislation to the contrary, courts must enforce the arbitration agreement. 4 It must be clear that the issue falls beyond the ambit of the agreement for the stay application to be denied. 5
Ambiguity in the Agreement
The above presumes an enforceable contract. One example of a case showing that this was not so is below.
In Huras v Primerica, the Ontario Court of Appeal agreed with the motions judge that the contract in this question was not enforceable, as reviewed below. It continued, however, to reflect on the broad interpretation usually given to an arbitration clause, stating that in the case of any ambiguity in the construction of such a clause, an interpretation favouring its enforceability should be employed. This is contrary to the general rule that the ambiguous term should be read against its creator:
[18] I recognize that it is established policy that courts should encourage the resolution of disputes through arbitration. As this court recently reiterated, where the language of an arbitration clause is capable of bearing more than one interpretation, one of which provides for arbitral resolution, a court should favor that interpretation.
Statutory Exceptions
The court, as authorized by the governing statute, may decline the stay motion where: 6
- One party to the agreement was under a legal disability;
- The agreement is otherwise invalid;
- The subject of the action is one which is not capable of arbitration under the governing law;
- There was inordinate delay in bringing the stay motion;
- The dispute is one which is properly the subject of a default or summary judgment.
The two modern decisions dealing with this subject are the Heller v Uber and Davis v Amazon cases, discussed below. Both cases involved motions for certification of a proposed class action.
Invalid Agreement
In Huras v Primerica, the claim in question was a proposed class action for minimum wages for attendance at a mandatory training seminar required to become a licensed sales representative. An employment agreement had been signed on August 26, 1996 which contained the arbitration clause.
Prior to signing the agreement, Huras had attended such training in the spring of 1996 for a period totaling 30 to 40 hours. She secured her insurance license and signed the contract as noted.
The defendant moved to stay the action on the basis of the arbitration clause. The motions judge, Cumming J., refused to give the agreement retrospective effect and dismissed the motion. The Court of Appeal agreed.
Jurisdiction of the Arbitrator Set by the Court
In a 2004 decision of the Ontario Court of Appeal, the facts showed that the parties had entered into an agreement providing for the organization of Cosmic, a computer software development agreement. 7
The contract set out terms for the sale of the respective shares of each party in given situations. Woolcock became CEO and Bushert the president. Each was a director and each held equal shares. It contained a mandatory arbitration clause, which read as follows:
Any dispute or controversy between the parties hereto relating to the interpretation or implementation of any provision(s) of this Agreement shall be resolved by arbitration. …The arbitration shall proceed in accordance with the provisions of the Arbitration Act (Ontario). It is further agreed that such arbitration shall be a condition precedent to the commencement of any action at any court. The decision arrived at by the arbitrator shall be final and binding and no appeal shall lie therefrom. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction.
Unhappy differences arose in December of 2002. Bushert caused the company to stop salary payments to Woolcock and also locked him out of the business premises. In February of 2003, Bushert purported to exercise buy-sell provisions of the agreement. Woolcock sued. Bushert moved for a stay, which was refused on the basis that only some of Woolcock’s claims were caught by the arbitration clause and a partial or full stay was not appropriate. Bushert and the company appealed.
The Court of Appeal referred to section 17(1) of the Act which states:
Section 17(1) of Ontario’s Arbitration Act reads:
An arbitral tribunal may rule on its own jurisdiction to conduct the arbitration..”
This being said, the Court of Appeal also stated that the courts may determine the scope of the arbitration clause to determine if the disputed claims are caught by the clause:
[14] This court has recognized that where a stay application can be brought and a dispute arises between the parties to an arbitration agreement concerning the scope of the agreement, the courts may determine the arbitrability of the disputed claims.
The Court of Appeal concluded that the motions judge had jurisdiction to determine the scope of the arbitration clause.
The motions judge had stated that that certain claims made by the plaintiff were not included in the initial agreement. These included damages for wrongful dismissal, inducing Cosmic to breach the employment contract, and the oppression remedy.
The Court of Appeal disagreed with this conclusion and found that all of Woolcock’s claims were within the reach of the arbitration clause, given the words of the agreement which contemplated a broad interpretation of the ambit of the arbitration clause.
Essentially, this decision illustrates the point emphatically that the construction of the mandatory arbitration clause is a matter of appropriate drafting.
This issue was again considered in the 2002 decision of Swinton, J. in Ross v Christian Timbers. Ross was a trained lawyer, who was hired as an executive search consultant with the defendant company, whose head office was in Cleveland, Ohio, also maintaining a business premises in Toronto.
Ross was given an employment contract by January 20, 2000. He took independent advice and did negotiate the elimination of one clause dealing with references. Ross began employment on February 21, 2000. He had still yet to sign the agreement. There was no evidence that he had expressed any concerns about the agreement in writing. The company denied any issues were expressed orally. Two weeks later, Ross, in response to concerns raised by Ohio as to the agreement, stated that it had been sent.
The agreement contained a mandatory arbitration clause to be conducted in Ohio and by Ohio law.
Following his termination on March 19, 2001, Ross sued for wrongful dismissal in Ontario and was met with a stay motion.
The Court noted that the legislation makes it clear that courts are to defer to arbitration, except in “the very limited” context of 7(2) above, in which case the court has discretion to do so. No circumstance was found to invoke 7(2).
The Court also determined that the provision to incorporate Ohio law as the governing law was effective. The plaintiff had argued that this term effectively ousts Ontario ESA provisions and hence by Machtinger principles, the arbitration clause should be ousted.
Swinton J. found Ross was not a vulnerable victim as he was a lawyer and had taken independent advice and had bargained over the terms of the agreement. She made it clear that this decision was predicated on these facts, concluding “Therefore, I leave it for another day whether such clauses may sometimes be unenforceable”.
There was no evidence before the court on Ohio law, although the employer agreed Ohio was an at-will state.
The court concluded that because the agreement chooses to use Ohio law to govern an employment dispute does not render the agreement unenforceable. This decision is also reviewed here on the subject of the choice of jurisdiction. This decision is very unlikely to be followed today.
Heller & Uber
The two modern decisions of Heller v Uber and Davis v Amazon have followed recently.
In the Heller decision, the Supreme Court of Canada determined that the arbitration clause mandating that the Uber driver proceed to arbitration in the Netherlands on onerous financial terms was unconscionable. It is reviewed here. It was then concluded that the contract was an unconscionable contract of adhesion.
In this case, the initial motion to stay the proposed class action was successful. That decision was reversed by the Court of Appeal which did so on two reasonings. The first was that it was unconscionable. The second was that it was contrary to public policy as it contracted out of the protections of the Employment Standards Act. The Supreme Court did not consider the public policy issue in its decision. This remains a live submission.
A similar issue was raised in the proposed class action claim against Amazon brought by its drivers. 8 The judge on the stay application agreed with the defendant that the agreement was not unconscionable, as it did not contract out of the statutory protections.
The plaintiff also submitted that the agreement was unenforceable as against public policy. This submission was based on two arguments. The first was that the agreement allowed for a contracting out of protective employment statutes. The agreement in the Amazon case, however, unlike that of Heller, did not contract out of the statutory protections.
One of the arguments made in support of this plea was that all arbitration agreements are in themselves unfair. The response to this position by Perell, J., is one worth noting.
I am not persuaded that in Canada, it is impossible to fashion an arbitration provision to resolve employment disputes because arbitration in the employment context is inherently biased in favour of the employer. In Canada, except where it is expressly precluded for certain kinds of disputes, arbitration is accepted as a fair and efficient dispute resolution mechanism for all disputes including disputes between an employer and an employee or between a business and its independent contractor workers. There is nothing in the Heller v. Uber Technologies Inc. decisions that suggests that in the employment sector, arbitration agreements are per se disadvantageous and therefore per se unconscionable.
The second branch of the public policy argument was that the proposed class members were denied access to the civil courts and more precisely, the remedy of a class proceeding. This is the argument dealing with the class action waiver term.
In this case, the fact that the waiver of class action proceedings was part of the arbitration contract was of no moment. A free standing waiver which is not part of an arbitration agreement would likely fail.
In the Amazon case, the motion to stay was allowed.
These cases illustrate the broad and liberal views given to uphold the arbitration clause. The party seeking to sue in the normal course must be prepared to show that the foundation of the contract is unenforceable or that the contract is unconscionable and/or contrary to public policy.