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Employers reassured: Court confirms there is no appeal for a stay order based on an arbitration agreement

In Leon v Dealnet Capital Corporation, the Divisional Court of Ontario confirmed that civil courts do not have jurisdiction to grant an appeal to a previous court decision that, due to the presence of an arbitration clause within an employment contract, ordered a stay of the proceeding.

This decision, and its predecessor, can reassure employers that courts are willing to give effect to properly drafted and implemented arbitration clauses within employment contracts.

Background

John Leon worked for Dealnet Capital Corporation as its senior vice-president, technology and mobile solutions. In April of 2018, Leon gave notice of his resignation from employment with Dealnet. In June 2018, both parties agreed to extend Leon’s resignation notice period, and agreed that the terms of his employment agreement would continue to apply. Contained within that employment agreement was an arbitration clause that stated:

“All disputes arising out of or in connection with this contract, or in respect of any legal relationship associated therewith or derived therefrom, will be referred to mediation and, if unsuccessful, finally resolved by arbitration under the statutes of the Province of Ontario.”

In May of 2019 Leon brought a lawsuit against Dealnet alleging breach of contract, unjust enrichment, and an unpaid transaction-based bonus.

Given the arbitration clause in Leon’s employment contract, Dealnet brought a motion to stay the proceeding pursuant to section 7(1) of the Arbitration Act, 1991, which states that if a proceeding is commenced by a party regarding a matter covered by an arbitration agreement, the court shall stay the proceeding. (To “stay” a proceeding is to stop or put a hold on a lawsuit).

The court granted the motion and ordered the stay. As a result, the matter could not continue within the civil courts and would instead need to proceed by way of arbitration.

Leon appealed that decision.

The appeal

Leon appealed the stay order in the Divisional Court, arguing that the lower court had made an error in law by finding that there was a valid arbitration clause because the employment agreement had violated the Employment Standards Act, 2000 (ESA), making the agreement, and therefore the arbitration clause, void.

The Divisional Court’s decision

The Divisional Court assessed whether section 7(6) of the Arbitration Act barred the appeal and whether the lower court had erred in finding that there was a valid arbitration agreement.

Section 7(6) of the Arbitration Act states that “there is no appeal from the court’s decision” to stay a lawsuit under section 7, including section 7(1). The Divisional Court followed previous case law which held that courts lack jurisdiction over such an appeal.

Leon argued that section 7(6) did not apply because the employment agreement violated the ESA, which would void the entire agreement, including the arbitration clause. Leon argued that if the arbitration clause was void, there was no arbitration agreement for a decision to be made under section 7(1), and as such, the section 7(6) bar does not apply.

The Divisional Court rejected that argument, giving deference to the lower court’s conclusion that Leon’s ESA argument was not enough to establish that the arbitration clause was invalid or void. The lower court came to that conclusion because the employment agreement included a “Governing Law” clause that specifically stated the agreement was subject to the ESA. Further, there was nothing in the employment contract that prevented Leon from making an ESA complaint to the Ministry of Labour.

As such, the Divisional Court determined section 7(6) did in fact apply and dismissed Leon’s appeal for lack of jurisdiction.

Lessons for employers

This decision serves as reassurance to employers that if they wish to use an arbitration clause in their employment contracts, such a clause can be effective and enforceable if it is drafted and implemented properly.

It also reassures employers that once a court has made the decision that a proceeding is to be stayed pursuant to section 7(1) of the Arbitration Act, that decision cannot be appealed in the civil courts.

It is important to note that this case (and its preceding lower court decision) did leave open the possibility that Leon’s argument (about an arbitration clause becoming void if the employment agreement contracts out of the ESA) may still be successful in another situation and with a different employment contract. As such, employers should be reminded that it is important to make sure all parts of an employment agreement are properly drafted and comply with the ESA.

John Hyde is the managing partner at Hyde HR Law in Toronto. He advises management on all aspects of employment and labour law, including representation before administrative tribunals, collective agreement negotiation, arbitrations, wrongful dismissal defence and human rights.