Ontario Court of Appeal: Arbitration clause disputes are heard by arbitrators, not courts, with rare exceptions

The Ontario Court of Appeal has confirmed that arbitration clauses in employment agreements are, in most cases, an effective means of referring a dispute to arbitration as opposed to being determined in civil court.

An arbitration clause is an agreement between contracting parties that certain disputes will be resolved by an arbitrator, not a civil court. Arbitration proceedings are often faster, less costly and more private than those in a court. If an agreement contains an arbitration clause and one party brings a civil claim, the defendant may ask the court to stay the claim and order the matter to arbitration instead.

Two years ago, the Supreme Court of Canada released its decision Uber Technologies Inc. v Heller, 2020 SCC 16, which some have interpreted as limiting the enforceability of arbitration clauses, particularly in employment contracts or independent contractor agreements. However, the Ontario Court of Appeal’s recent decision Irwin v Protiviti, 2022 ONCA 533 confirms that (1) the exception articulated in Uber is a rare exception to the general rule that challenges to arbitration clauses should be referred to the arbitrator, and (2) most arbitration clauses can be relied upon to refer a dispute to arbitration, even in the face of arguments that the clause is not enforceable.

A refresher on Uber v Heller

In Uber v Heller, the SCC developed a narrow exception to the enforceability of arbitration agreements. It found that the employment dispute between Uber and its drivers fell outside of the normal framework for enforcing those agreements. 

Normally, if a party brings a civil claim, arguing its arbitration agreement does not apply, a court will stay the claim, leaving the question of the application of the agreement to an arbitrator. A court will decide the matter only if the challenge to the arbitration clause raises (i) pure questions of law; or (ii) questions of mixed fact and law that require only superficial consideration of the evidence in the record. 

The SCC majority explained that there are “abnormal” cases not contemplated by this framework, and recognized that the framework does not contemplate a scenario where the dispute would never be resolved if a stay is granted. This was the circumstance seen in Uber v Heller: the contract required costly arbitration in the Netherlands, which would be a “brick wall” to the participation of Canadian Uber drivers in the arbitration.  

The SCC carved out a rare exception to the general rule of referring disputes to arbitration when the terms of the arbitration agreement would effectively insulate the agreement from challenge. In “abnormal” cases such as Uber v Heller, a court may determine the validity of the arbitration agreement, as opposed to the arbitrator. 

Irwin v Protiviti

In Irwin v Protiviti, the issue was, much like in Uber v Heller, the enforceability of an arbitration clause in an employment contract. The arbitration clause provided that any claim related to terminating the appellant’s employment must be submitted to arbitration. The plaintiff employee argued the arbitration clause was unconscionable, and was also unlawful because it prevented the employee from making statutory claims under Ontario’s Employment Standards Act, 2000 and Human Rights Code. In response, the employer moved to stay the action. The motion judge held that the validity of the arbitration clause was itself a matter for arbitration. 

On appeal, the employee argued that the motion judge should have determined whether the arbitration clause was invalid. The Ontario Court of Appeal confirmed the general rule of arbitral referral set out in Dell: a court can only determine the enforceability of an arbitration agreement where the challenge raises a pure question of law, or of mixed fact and law requiring not more than a superficial consideration of evidence.

In this case the arbitration clause could not be determined by a superficial consideration of the evidence. A determination of unconscionability is a “probing factual inquiry,” requiring findings of credibility, and assessing the parties’ sophistication, bargaining power, and the facts related to drafting the agreement. The question of the arbitration clause’s consistency with the Ontario employment legislation was a question of mixed fact and law, and could not be decided without interpreting the employment agreement.

Notably, there were no access to justice concerns like those in Uber v Heller. There was no suggestion that the costs of arbitration would be a “brick wall” to the claimant’s participation, or that barriers to arbitration would effectively leave the dismissed employee without a remedy.

Implications

Irwin v Protiviti, 2022 ONCA 533 reinforces the general rule that courts should decline jurisdiction to determine the enforceability of an arbitration provision in an employment contract. Courts may decline jurisdiction to do so even where there are questions regarding unconscionability and compliance with employment-related legislation. 

The concern flagged by the SCC in Uber v Heller – that in very rare cases the structure of an arbitration agreement might effectively prevent a dispute from ever reaching arbitration – was specific to the facts in Heller. This exception to the rule is unlikely to arise in typical employment contracts that contain arbitration agreements, particularly where there are no access to justice issues that would effectively bar the employee’s participation in arbitration.