Ontario Court of Appeal determines that courts should generally decline jurisdiction to assess the enforceability of an arbitration clause, even in employment agreements
Ms. Irwin sued her former employer, Protiviti, for constructive dismissal. Her employment contract included an arbitration clause, which excluded the arbitral tribunal's ability to award costs and punitive damage awards. Protiviti brought a motion to stay the court proceeding and refer the dispute to arbitration. Irwin responded that the arbitration clause was invalid due to unconscionability and for inconsistency with the Ontario Employment Standards Act, 2000 ("ESA") and Ontario Human Rights Code ("HRC").
Applying the competence-competence principle, the motion judge held that the validity of the arbitration clause was a matter for the arbitral tribunal to decide in the first instance and stayed the court proceedings. Irwin appealed to the Court of Appeal for Ontario.
The question of whether an arbitration clause is inconsistent with the ESA or HRC is a question of mixed fact and law that is best determined by the arbitration process.
The Court cited the Supreme Court of Canada's decision in Dell Computer Corp. v. Union des consommatuers, 2007 SCC 34. In that case, the Supreme Court held that where there is a challenge to the arbitral tribunal's jurisdiction, the tribunal should assess the question in the first instance unless the challenge raises (i) pure questions of law; or, (ii) questions of mixed fact and law requiring only superficial consideration of the evidence, and where the court is convinced the challenge is not a delaying tactic or will not prejudice recourse to the arbitration. The Supreme Court confirmed in the more recent Uber Technologies Inc. v. Heller, 2020 SCC 16 ("Uber") that this analysis also applies when a party challenges the arbitration agreement's validity.
The Court of Appeal determined that the unconscionability of an arbitration clause is a "probing factual inquiry" that ought not to be determined by superficial consideration of evidence. As such, the question of unconscionability in this case needed to be decided at arbitration in the first instance.
The Court's decision further reinforces the principle that a challenge to an arbitrator's jurisdiction must generally be decided first by the arbitrator. This is what is known as the competence-competence principle, which holds that the arbitral tribunal has the jurisdiction (the first "competence") to assess whether it has jurisdiction (the second "competence"). Moreover, courts may decline jurisdiction even when questions of unconscionability and compliance with employment-related legislation are raised.
This case also distinguished Uber, a leading case on arbitration clauses in the employment context. The Court emphasized that, unlike the individual in that case, who was an Uber driver of modest means, Irwin was well paid and had the benefit of legal advice prior to the execution of the arbitration agreement. The Court did not identify the access to justice concerns that existed in Uber, where the agreement was a click-through standard form agreement, subject to the laws of a foreign jurisdiction, and where the administrative costs of commencing and maintaining the arbitration proceedings effectively prevented the individual from pursuing their claim.