In my last article for First Reference, I wrote about an Ontario Court of Appeal decision in which the Court declined to enforce an arbitration clause contained in an employment contract that was found to lack fresh consideration.

Recently, the Divisional Court released its appeal decision in the case of Leon v. Dealnet Capital Corporation, which also deals with interesting aspects of the law surrounding arbitration agreements in the employment law context.

Arbitration clauses generally

Arbitration has many advantages over litigation in the Courts. For example, arbitration allows the parties to choose a decision maker that is an expert in the subject matter, it allows more flexibility in the process, provides for full confidentiality, and is often more efficient and timelier. On the other hand, arbitration can be costly since the parties are required to pay the arbitrator’s fees.

The law on arbitration agreements is somewhat complex. My short summary of this area of law can be found here.

In general, where the parties have made an agreement to submit disputes to arbitration, the Courts will usually enforce that agreement and prevent a party from instead bringing the dispute through the Courts. In a situation where a party commences litigation in the Courts, and the dispute is subject to an arbitration agreement (either as its own agreement or as a clause in another agreement), the other party may bring a motion to the Court to stay (i.e. suspend) the lawsuit pursuant to section 7 of the Arbitration Act, 1991. Subject to certain exceptions, the Courts will enforce the arbitration agreement and stay the lawsuit whenever the legal dispute “arguably” falls within the scope of the arbitration agreement.

The lower court decision

The lawsuit in question was brought by John Leon, a former executive employee of the defendant Dealnet Capital Corp. Mr. Leon sued Dealnet for breach of contract related to an unpaid transaction-based bonus.

Dealnet brought a motion to stay the lawsuit in favour of arbitration, based on an arbitration clause contained in Mr. Leon’s employment agreement. In the lower Court decision before Associate Justice McAfee, the Court granted the motion and ordered a stay, based on the following findings:

1. The arbitration clause contained in the employment agreement constituted an arbitration agreement pursuant to the Arbitration Act, 1991;
2. The lawsuit “arguably” falls within the scope of the arbitration agreement;
3. The Court was not satisfied that the arbitration agreement was invalid; and
4. The motion was not brought without undue delay.

With respect to point number 4, the motion was not brought at the beginning of the lawsuit, as is usually the case. Instead, Dealnet defended the lawsuit and brought a counterclaim, the parties took further steps until the close of pleadings, and Mr. Leon served his affidavit of documents. It was only after that time that Dealnet’s counsel advised that it became aware of the arbitration clause in the employment agreement and brought a motion for a stay.

In other situations, the Courts have denied motions for a stay on the basis that either 1) there was undue delay in bringing the motion, or 2) the responding party attorned to the jurisdiction of the Court by taking steps in the lawsuit. In this case however, Associate Justice McAfee considered these arguments and determined that these were not sufficient reasons to deny the stay in the circumstances of the case. In making this finding, she accepted Dealnet’s position that its counsel was not aware of the arbitration clause until shortly before bringing its motion.

The result of the lower Court decision was that the lawsuit could not continue, and the parties were required to instead proceed by arbitration.

The divisional court decision

Mr. Leon appealed the decision. In the Divisional Court’s decision, the Court dismissed the appeal based on a finding that the Arbitration Act, 1991 precludes Mr. Leon’s ability to appeal the lower Court decision.

Section 7(6) of the Arbitration Act, 1991 states that “there is no appeal from the court’s decision” staying a lawsuit in favour of arbitration. Despite that section, we still have many appeal decisions on motions to stay lawsuits. For instance, I previously wrote about the Court of Appeal decision in Goberdhan v. Knights of Columbus, in which the Court upheld a decision denying the employer’s motion for a stay. However, the Divisional Court distinguished the Goberdhan decision on the basis that the prohibition on appeals in section 7(6) applies only when the Court grants the motion to stay, and not when the Court denies the motion.

Mr. Leon’s counsel attempted to argue that section 7(6) did not apply because the arbitration agreement was void and that Associate Justice McAfee made an error in finding that it was valid. Based on their argument, the Court could not have made a finding staying the lawsuit as there was no valid arbitration agreement, and therefore the prohibition on appeals in section 7(6) could not apply.

However, the Divisional Court rejected this argument and dismissed the appeal on the basis that there was no jurisdiction for the appeal pursuant to section 7(6).

Takeaways

It is generally more common for a Court to enforce an arbitration clause than to decline to do so. Nonetheless, the Leon decision is notable in a number of ways:

1. The Court stayed the lawsuit despite many steps being taken in the process prior to the motion;
2. The Court confirmed that a decision granting a stay cannot be appealed, while a decision denying a stay can be appealed; and
3. The appeal decision was ultimately dismissed on procedural grounds, rather than a full hearing into the merits of the employee’s arguments.

This case is a reminder that properly drafted arbitration clauses can be effective in employment agreements. If you wish to ensure that disputes are referred to arbitration rather than the Courts, it is best to get legal advice at an early stage.