Arbitration clauses in employment agreements and related contracts are often the subject of extensive preliminary skirmishes. There is, in short, a tension between the strong judicial and legislative policies in favour of arbitration in Canada and the equally strong policies to protect employees from arbitration agreements that amount to a denial of access to justice.
In Aspen Technology, Inc. v. Wiederhold, 2025 BCCA 261 ("Aspen Technologies"), the Court of Appeal for British Columbia overturned a decision from the Supreme Court of British Columbia which refused to enforce such an arbitration clause, finding it for various reasons void, inoperative, and incapable of being performed. The Court's decision is a signal that arbitration clauses may be enforced in employment-related agreements, particularly where the employee is a reasonably sophisticated individual.
Background
The defendant employer hired the plaintiff in 2008. In addition to signing an employment contract, the plaintiff signed a new annual incentive plan each year. These incentive plans included a severability clause, a dispute resolution clause, and a choice of law clause. The dispute resolution clause stipulated that any legal dispute arising from the plan would be resolved exclusively by arbitration, in accordance with the commercial arbitration rules, before a three-arbitrator panel in Massachusetts, with all costs to be shared equally between the parties (the "Arbitration Clause"). The plaintiff employee sued their employer seeking unpaid bonuses and commissions, totalling $103,000, pursuant to the annual incentive plan. The defendant employer applied to the court to stay the plaintiff's action in favour of arbitration, relying on the Arbitration Clause.
After reviewing the contract and the evidence, the chambers judge dismissed the defendant employer's application to stay the action. He found that the Arbitration Clause was void and inoperative for a number of reasons, including that it:
- constituted a post-contractual modification unsupported by fresh consideration;
- circumvented the provisions of the Employment Standards Act[1] ("ESA") and was therefore contrary to public policy; and
- the cost to arbitrate (estimated at $35,000) was likely to be disproportionate to the size of the claim and was therefore contrary to the "brick wall" principle established by the Supreme Court of Canada in Uber Technologies Inc. v. Heller[2].
The defendant employer appealed this decision.
The Court of Appeal Allows the Appeal and Enforces the Arbitration Agreement
The Court of Appeal overturned the judge's decision and stayed the action in favour of arbitration. It disagreed with each of the judge's conclusions.
First, the Court of Appeal disagreed that the presence of the Arbitration Clause in the incentive plan constituted a change to the employment contract that required consideration. Instead, the Court found that the incentive plan was explicitly contemplated in the employee's offer letter, including that the right to participate in the incentive plan would be on specific terms. Accordingly, the Arbitration Clause did not change or amend the employment contract; it was simply part of the incentive plan that the parties agreed the plaintiff would be entitled to participate in. No fresh consideration was required to render the arbitration clause an enforceable contract.
Second, the Court of Appeal found that the judge had erred in concluding that the Arbitration Clause was contrary to public policy (and accordingly unenforceable). At the Supreme Court of British Columbia, the employer tendered expert evidence on Delaware law that said the ESA would be applied despite that choice of law clause. The judge disregarded this evidence for failing to consider the effect of the language "without regard to Delaware's choice of law provisions" in the incentive plan, particularly as the expert evidence was based entirely on Delaware's choice of law jurisprudence. The judge instead found that the choice of law clause would cause the arbitrators to ignore the ESA and accordingly concluded that the arbitration clause was unenforceable for circumventing the ESA. The Court of Appeal found that, by rejecting the expert evidence, there was no evidence on which the judge could conclude the ESA would not be applied and that the clause was contrary to public policy. In short, "if the judge made a finding on the application of foreign law in the absence of evidence, this was a reviewable error. If he purported to draw his own conclusions from the evidence of Delaware law before him, without the assistance of expert evidence, this was an error of law" because coming to that conclusion would amount to more than "superficial" assessment of the record, which is impermissible under the law governing an application for a stay in favour of arbitration.
Third, the Court allowed the appeal from the judge's conclusion that the costs of the arbitration would present a "brick wall" to the employee's access to justice. The judge found that the cost to proceed with the arbitration, including any jurisdictional challenges, would mean there was a real prospect the dispute would not be resolved at all. The Court of Appeal found that the judge erred in his "brick wall" analysis because he only considered the first stage in that analysis, that is, whether "there is a real prospect, for whatever legitimate reasons, that the challenge to the validity of the arbitration agreement may never be resolved by an arbitrator". Once the judge answered that question in the affirmative, he was required to actually engage with the jurisdictional question of whether the arbitration clause was "unconscionable", that is whether it was forced on a party of weaker bargaining power in an "improvident bargain". The judge did not make findings on either score. The Court of Appeal concluded that there was no unconscionability here:
[69] I do not accept [the plaintiff's] submission that the facts of this case are essentially the same as the facts before the Court in Uber. There are clear and important differences on the face of the record: for example, unlike in Uber, [the plaintiff's] employment contract was not a standard form contract. He is also a far more sophisticated party than Mr. Heller was in Uber, and has significantly greater resources available to him. As such, the arbitration clause here is far less of an obviously insurmountable impediment to him than the clause in Uber was to Mr. Heller and the others in his position.
In such circumstances, the Arbitration Clause was not void, inoperative or incapable of being performed. The Court of Appeal was required to enforce it and stay the proceedings in court.
Key Takeaways
Aspen Technologies is further indication that British Columbia's appellate court will enforce arbitration agreements even in the context of an employment relationship. No doubt the result in this case was impacted by the relative sophistication of the employee here and the absence of expert evidence from the plaintiff on foreign law to be applied in the arbitration. In other cases—such as where an arbitration clause is imposed on an employee of lesser means and sophistication, where the arbitration clause is sprung on an employee, mid-contract, without some fresh consideration (such as a cash bonus on execution), or where there is expert evidence showing that the foreign law would not apply mandatory British Columbia law—courts may not uphold a referral to an arbitrator.
Aspen Technologies, despite the result in this case, is still a good reminder that employers seeking to maintain and enforce references to arbitration in the employment context must always consider the practical means to access that arbitration. If there are significant fees required to engage that process, courts will naturally be sympathetic to the argument that arbitration is meant to stymie access to justice, not facilitate it, providing the court a reason to decide whether the clause is itself otherwise not enforceable. A safer strategy, if arbitration is indeed preferred, is to make access to that forum relatively permissive, practically and financially.
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