Using arbitration clauses in employment agreements

In Ontario, where a dispute between an employer and an employee (or former employee) cannot be resolved informally – which is usually a more expedient and practical option - recourse to the courts is generally available.

The court process, however, is public in nature and can be costly and slow-moving. These concerns may cause some parties to consider opting out of the court process in favour of an agreement to arbitrate their differences.

Arbitration provides an (almost) exclusive dispute resolution mechanism whereby the parties forego recourse to the civil courts and agree instead to have their disputes decided by a third-party decision-maker. Arbitration may appeal to some employers given:

1. it is inherently private in nature (there is no public decision issued);

2. it can be more informal and flexible than the court process;

3. the parties get to choose their arbitrator (as such, unlike in the court system, the parties can guarantee their dispute will be considered by an individual with a deep understanding of employment law); and

4. the dispute may be heard, and resolved, sooner than the parties may expect a court case to come before a judge for a final determination (and ideally at a lower cost).

Guidance for employers

Where employers opt to replace the default court process with private arbitration, they need to do so carefully in writing.

In a decision rendered earlier this year, Wasylyk v. Lyft, 2024 ONSC 664, the Ontario Superior Court of Justice stayed a proposed class action in favour of private arbitration. In so doing, the court provided helpful guidelines for employers looking to implement, and rely upon, a written agreement to arbitrate employment disputes.

In Wasylyk, the representative plaintiff (a driver) had agreed to Lyft’s terms of service, which included an arbitration agreement. This agreement confirmed, among other things, that arbitration would be the parties’ exclusive dispute resolution mechanism “except as otherwise provided in the agreement or required by applicable law” and it would take place in the nearest municipality to the plaintiff’s billing address (which differed significantly from an earlier, and similar case, Uber Technologies v. Heller, 2020 SCC 16, where it was found unconscionable to require Canadian drivers to arbitrate disputes in the Netherlands).

In finding the arbitration agreement to be enforceable, and ordering that the dispute proceed in that forum, rather than via the civil courts, the court in Wasylyk noted the following:

• The arbitration agreement was accessible. The were no material barriers to the plaintiff in terms of expense or inconvenience in seeking to address disputes. The court opined that:

  “the arbitration takes place in the municipality where the Driver provides services. Lyft agrees to pay any fees unique to arbitration except for the filing fee. The Driver is required to pay a portion of the filing fee up to the amount that would be required to file an action in the Ontario Superior Court. The Arbitration Agreement provides the option for the claim to be heard in writing or on the telephone if the claim is for $10,000 or less. Moreover, as I will discuss further below, Lyft’s Arbitration Agreement is procedurally flexible and can accommodate the principles of proportionality that infuse modern approaches to civil procedure.” (para 63)

• The arbitration agreement was not unconscionable due to inequality in bargaining power between the parties. While the court acknowledged there was an inequality in bargaining power (and that Lyft had drafted the agreement), it found that “the Arbitration Agreement in the immediate case is not a substantially improvident or unfair bargain. In the immediate case, arbitration is an accessible, feasible, and a fair dispute resolution system.” (para 78)

• The arbitration agreement was not contrary to public policy. In this regard, the court opined that public policy “actually favours arbitration agreements as an acceptable, preferable, and generally available alternative to court actions.” (para 89)

• The arbitration agreement did not unlawfully contract out of the Employment Standards Act, 2000 (“ESA”). The court found that the arbitration agreement included as a caveat that arbitration was the exclusive mechanism for dispute resolution “to the extent permitted by law”, thus properly preserving rights under the ESA. For clarity, in no circumstances was the plaintiff agreeing to a process which purported to subsume or replace mandatory entitlements under the ESA (such as the right to file a complaint with the Ministry of Labour or assert a reprisal).

Takeaway for employers

In the right circumstances, implementing an agreement to arbitrate employment disputes may be a sound business decision. It can allow for an expedited, private and cost-efficient process before a specialized third-party.

Any employer considering such an agreement should work with experienced employment counsel to draft clear and enforceable language ensuring, as the Wasylyk decision reminds us, that the language complies in all circumstances with applicable statutory requirements (including those under the ESA), while offering a fair and accessible process.

This article was originally published on June 21, 2024 at First Reference Talks.

Vey Willetts LLP is an Ottawa-based employment and labour law firm that provides timely and cost-effective legal advice to help employees and employers resolve workplace issues in Ottawa and across Ontario. To speak with an employment lawyer, contact us at: 613-238-4430 or info@vwlawyers.ca.