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 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:
- 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.
- 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).
- 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:
- A complaint under the Human Rights Code
- A complaint under the Labour Relations Act
- 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.
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