What is an Arbitration Clause in Ontario?

An arbitration clause in an Ontario employment contract stipulates that you agree to use a binding arbitration hearing to settle disputes arising from the employment contract instead of the court system.

People are understandably excited to receive an offer of employment, and many decide to give the employment contract a quick read and sign it as quickly as possible without consulting an employment lawyer in Ontario. But an employment lawyer can tell you what those conditions in the contract could mean for you down the road and why it’s to an employer’s advantage to include them in the contract. Once you sign the employment contract, however, for all intents and purposes, you’ve agreed to the conditions contained therein.

Below, you’ll learn about arbitration clauses in Ontario, how the arbitration process works and how they affect employees’ rights

Disclaimer: The information in this guide and everywhere else on this website is for general information only and is not intended to provide legal advice of any kind. No lawyer-client relationship is created by accessing or otherwise using Ertl Lawyers’ website or by communicating with a lawyer or staff member. If you need legal advice, contact the Toronto employment lawyers at Ertl Lawyers. We’re more than happy to speak with you.

Arbitration and Alternative to What is Alternative Dispute Resolution (ADR)?

Arbitration is a way to settle legal disputes through a hearing in front of an impartial third party. They can be a single arbitrator (also referred to as a “neutral”) or a panel of arbitrators (an “arbitral tribunal.”). Arbitrators are given the authority to make a legally-binding decision that settles the dispute by the parties involved. Along with mediation, arbitration is a form of alternative dispute resolution (ADR), i.e., an alternative to using the court system for settling contract disputes.

In mediation, the neutral third party facilitates negotiations between the two (or more) parties to help them come to a mutually agreed-upon resolution. Mediations are sometimes mandatory as part of the process in some legal proceedings. The thinking is that when parties work through a disagreement themselves and negotiate off of their positions to compromise somewhere in the middle, they feel heard and are more likely to abide by the conditions of the agreement.

Mediators often have a background in law, social work and other professions that frequently involve negotiating high-stakes disputes. That experience enables them to quickly identify core and underlying issues that need to be resolved, remain impartial and keep the parties focused on finding a path forward.

By contrast, the arbitration process is more like a trial, albeit one where the rules are a lot more relaxed. The adjudicator considers the position of the parties, reviews the evidence they present in support of their claims and makes a decision that will generally side with one party over the other. Most of the time, that decision is legally binding. However, arbitrations are governed in Canada by the Commercial Arbitration Act for commercial arbitrations where one of the parties is a federal department or Crown corporation, and Ontario’s Arbitration Act, 1991 for other arbitrations occurring in Ontario. An arbitration process and/or decision can be declared invalid if it violates the rules of the governing statute.

Some of those circumstances can include:

• One of the parties entered into the arbitration agreement while legally incapacitated.
• The arbitration agreement is invalid or no longer exists.
• The arbitration agreement does not cover the dispute.
• Either the administration, process or award of the arbitration did not conform to the ruling arbitration law. This includes rules in the Arbitration Act about fairness and equality for the parties involved and can invalidate an arbitration based solely on a reasonable apprehension of bias.
• There is a law governing the issue in dispute that prevents it from being handled through arbitration, or the arbitration violates an employee’s or a consumer’s rights guaranteed in legislation like the Employment Standards Act or the Consumer Protection Act, respectively. In other words, arbitration can’t be used to circumvent the law.
• One of the parties involved in the process committed a corrupt or fraudulent act.
• A family arbitration was presided over by an arbitrator, or a family mediation was facilitated by a mediator, who had not completed the training required to hear a family law dispute. This training includes screening for domestic violence and power imbalances to ensure fairness and the safety of all involved parties.

In Ontario, parties to an arbitration also have the right to appeal the arbitrator’s decision in the court of jurisdiction.

There is also an option to participate in non-binding arbitration. This is commonly done as mandatory “settlement conferences” in Ontario Superior Court civil and family law cases. These are confidential evaluations by a judge who will not be presiding over the court case. The judge will assess each party’s evidence, help them narrow down the issues to be argued, give an opinion as to how they feel the case will be decided and encourage the parties to negotiate a settlement – of at least some of the issues.

Understanding Arbitration – What are Some of the Advantages and Disadvantages?

Arbitration has become a viable alternative to a lawsuit because it is usually a much faster and cheaper way of settling disputes. Some of the other reasons two parties may choose an arbitration hearing to resolve a contractual conflict might include:

• Both arbitration and mediation proceedings can be kept confidential and confidentiality clauses are often included in ADR agreements. It should be noted, however, that confidentiality is generally preferred by the employer. By contrast, cases heard in court are accessible to the general public as per the Access to Information Act(ATIA).
• The ability to set the procedural rules of the hearing to make them less formal or stringent than court rules. For example, if the parties agree, they can relax the rules and allow evidence that wouldn’t be admissible in a lawsuit.
• The ability to choose a neutral who is a subject matter expert in your field and knows industry best practices and/or has experience with the specific issue to be decided. For example, both parties in a dispute over disability benefits may agree to have their case arbitrated by a former long-term disability lawyer.
• Hearings can be scheduled at times that are convenient to both parties.
• Some arbitration service providers offer expedited arbitrations that are completed faster than regular arbitrations. This is done by limiting the number of documents and the length of those documents, enforcing strict timeframes and other measures, and are sometimes available as a flat fee. This could be the right option if arbitration is needed to decide a single or narrow scope of issue(s).
• Binding decisions can reduce the risk of legal appeals that cause the dispute to continue dragging on.

On the other hand, arbitration decisions are generally difficult to have invalidated if the decision is not in your favour. Also, arbitrators are not bound to follow decisions made in similar cases as the courts do. This can make it challenging to predict what the final decision will be and, therefore, your chances of success.

What is an Arbitration Clause in an Employment Contract?

Many employment contracts, especially those in unionized workplaces, will contain a clause that requires disputes arising from the employment contract must be settled through arbitration. They will often also outline the process of how the arbitration is to be conducted by stipulating who will be arbitrating the matter, where the hearing will be held and whether the employer and employee must attempt to resolve the dispute through mediation first, along with other procedural, administrative and logistical rules of the arbitration hearing. This is commonly known as a ‘mandatory arbitration clause.’

How an Arbitration Clause Can Affect the Employee

An arbitration clause in an employment contract essentially takes away an employee’s ability to sue an employer if they feel the employer breached the terms of the employment contract. Typically, arbitration clauses only cover specific issues with respect to a breach of the employment contract and not all issues. For example, employers commonly pay employees less severance than what they are legally entitled to at termination. Normally, an employee could file a lawsuit for an amount of severance based on decisions made by judges in similar cases (assuming the employment contract didn’t address severance and termination pay.)

However, if that employee is bound by a mandatory arbitration clause, they could be awarded less than they would have in court as arbitrators are not required to follow legal precedents. It should be noted, however, that whatever the employee receives, it could not legally be less than the minimums provided for in the ESA.

(Curious to know what you could be entitled to in a severance package? Check out our severance calculator in Ontario to get an idea of how much severance you could potentially be owed.)

As you learned above, arbitrations and arbitration clauses are invalid if they are used to settle disputes that would limit an employee’s legislated employment rights. The procedures of how an arbitration hearing is to be conducted must also allow the employee to reasonably access the arbitration process.

For example, an arbitration that requires an employee to pay a fee that is disproportionate to their earnings or requires them to travel a far distance to attend the hearing could result in a ruling that the arbitration clause is prohibitive and therefore invalid.

That being said, however, deciding if an arbitration clause illegally deprives an employee of rights they are otherwise entitled to through legislation is not an easy analysis. By their nature, employment contracts regulate employment terms (such as pay cut laws) that governments try to protect through legislation.

Mandatory arbitration clauses, generally speaking, are presumed by judges to be valid, and the burden of proving that they infringed on an employee’s legislated rights lies with the employee. Court cases on this issue are constantly being argued and appealed, and escalated through the courts. In a nutshell, each case is essentially decided on by the specifics unique to it (commonly the exact wording of the arbitration clause.)

The bottom line is:

• Always have an employment lawyer review an employment contract before you sign it – if for no other reason than to avoid future unpleasant surprises; and
• Always consult an employment lawyer as soon as there is conflict at work, regardless of the issue or whether your employment contract contains a mandatory arbitration clause. It is possible that the clause is invalid, but even if a lawyer tells you that it is valid, they will also advise you of your best options moving forward.