In Aspen Technology, Inc. v. Wiederhold, 2025 BCCA 261 (“Aspen“) the Court reversed a lower court’s finding that an arbitration clause was void and inoperative. In concluding the motions judge erred, the Court confirmed the very limited grounds upon which a court can refuse to stay an action in favour of arbitration. It closes a door the lower court in Aspen had opened and corrects the lower court’s application of the Dell Computer and Uber frameworks.
Background facts – Aspen Technology, Inc. operates in Canada through its subsidiary, “ACC”, the other defendant in this case. Mr. Wiederhold is an executive employee of ACC based in Vancouver.
Wiederhold began working for ACC on July 15, 2008, when he signed his initial employment contract. In addition to his base salary, he was entitled to participate in the employer’s incentive plan, “in accordance with its terms” but the employer “reserve[d] the right to modify and/or amend its incentive and bonus plans from time to time in its sole discretion and/or in accordance with business needs with or without prior notice to employees”.
In July 2008, Wiederhold signed off on the annual incentive plan terms. He did this each year for the next 12 years. Each iteration of the plan set out Wiederhold’s commission targets and bonus formula and included the same three provisions:
- A severability clause, saying any term or condition of the plan determined to be unenforceable would have no effect on any other term or condition;
- A dispute resolution clause, requiring actions in respect of the plan to be resolved exclusively by arbitration under the American Arbitration Association’s commercial arbitration rules by a three-arbitrator panel in Boston, Massachusetts, with all costs shared equally between the employer and Wiederhold; and
- A choice of law clause, making Delaware law the governing law.
In July 2020, Wiederhold signed off on the plan as usual. But in September the defendants withdrew the July form and issued a new set of terms. The new terms would reduce the size of Wiederhold’s bonuses and commissions for that fiscal year but otherwise contained the same provisions noted above. Wiederhold refused to sign it but the defendants continued to calculate his bonuses and commissions under the new terms.
In March 2023, Wiederhold sued in the BC Supreme Court for the difference between what he would have received under the original (July 2020) plan and what he actually received under the revised (September 2020) plan ($103,060).
Stay motion – The defendants moved to stay the action in favour of arbitration. The motions court dismissed the application finding the arbitration clause was “void, inoperative or incapable of being performed” because:
- Wiederhold received no fresh consideration in exchange for its imposition after he was hired, rendering it unenforceable;
- It was contrary to public policy by purporting to deprive Wiederhold of mandatory protections under the Employment Standards Act, R.S.B.C. 1996, c. 113 (the ESA), namely, his entitlement to “wages”; and
- It was unconscionable under the “brick wall” framework (from Uber Technologies v. Heller, 2020 SCC 16)“particularly in view of the disproportionate cost to Mr. Wiederhold of pursuing arbitration as stipulated, relative to the size of his claim (as a result, he says, if this court does not hear his claim, no one will)”.
The motions judge set out the applicable legal framework for a stay application. He noted Spark Event Rentals Ltd. v Google LLC, 2024 BCCA 148, which summarized the “two distinct but potentially complementary approaches to displacing the competence-competence principle”, namely, the “Dell framework” (from Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34) and the “brick wall” framework established in Uber.
Under Dell a court can decide the jurisdictional challenge if it’s based solely on a question of law, or on a question of mixed fact and law where the court can decide the issues based only on “a superficial review of the record”.
The motions court held that under the “brick wall” framework, the “preliminary question” was whether, on a limited assessment of the evidence, Wiederhold had demonstrated a real prospect that as a practical matter, if the court deferred the question to the arbitrator, the issue would never be resolved.
The court dismissed the stay application. The defendants appealed.
[A more detailed review of the facts and the motion judge’s reasons can be found in Stephanie Clark’s comment on the lower court ruling Stay motion test and the “brick wall framework” – 874.]
The appeal – The B.C. Court of Appeal reversed each of the lower court’s findings.
(i) Was the arbitration clause unenforceable for want of fresh consideration?
The Court held the motions judged erred in interpreting the employment contract, noting the incentive plan was expressly part of the original (July 15, 2008) employment agreement. That Weiderhold didn’t know the specific terms of the plan at that moment was irrelevant; he knew he would be eligible to participate in the plan, “in accordance with its terms”. From the outset the arbitration clause was one of the plan’s terms and it did not change.
The motions judge erred in focusing on the employer’s “right to modify” the terms of the plan. Whether the appellants were entitled to unilaterally reduce Wiederhold’s entitlement to commissions and bonuses without his agreement was a merits question for the arbitrator.
(ii) Was the arbitration clause contrary to public policy and therefore unenforceable?
The motions judge found the combined effect of the clauses described above was to strip Wiederhold of the mandatory statutory protection of the ESA. In doing so the judge rejected expert evidence of Delaware law but went on to conclude that under Delaware law “the ESA would be ignored and the severability clause would be of no assistance to Mr. Wiederhold”. There was no evidence to support the judge’s conclusion.
The Court concluded the judge failed to properly apply the Dell framework because (1) he assumed without evidence the ESA would be ignored and that (2) in doing so went beyond the “superficial regard to the record” permitted under the Dell framework.
(iii) Unconscionability and “brick wall” analysis
The Court found the judge only answered the first part of a two-part question. He concluded there was a “brick wall” without engaging – as Uber contemplates – with whether the arbitration clause was in fact unconscionable. The Court went on to say there was no evidence in the record to support such a finding.
The Court of Appeal stayed Wiederhold’s action in favour of arbitration.
Commentary
Aspen doesn’t lay down new law. However, it corrects what would have been an unfortunate precedent that substantially widened the grounds upon which to refuse a stay.
The presence of an arbitration clause may be somewhat unusual in an employment context but, from an employment law perspective, the facts in Aspen aren’t otherwise unusual. An employee enters into an employment contract. For years the parties conduct themselves in accordance with its terms. The employer later makes a unilateral change to the contract. If the change is material, depending on the facts it may or may not be a constructive dismissal. There’s plenty of law as to what happens in that situation.
From an arbitration law perspective, the Court of Appeal got it right. In the face of an arbitration clause, competence-competence is the default; it’s for the arbitral panel to decide on its jurisdiction.
By focusing on the employer’s right to amend the plan rather than whether the arbitration clause was part of the plan from the outset, the motions court stepped into the arbitrator’s territory. It was for the arbitrator to decide the effect of the “right to modify” clause, e.g., whether it permitted a modification like the one in this case.
By deciding without evidence that the ESA would be ignored under Delaware law, the judge not only committed a reviewable error but went beyond the very limited “superficial review of the record” contemplated by Dell.
As for the “brick wall”/Uber analysis, it’s a welcome development that the Court has confirmed it isn’t enough to simply say the presence of an arbitration clause may mean a claimant’s case will never be heard. Rather a court must also look at the particular circumstances and decide whether in that case, that arbitration clause is in fact unconscionable.
The motions judge appeared to have based his conclusion solely on his assumptions about the cost of addressing a preliminary jurisdictional challenge. The judge didn’t consider a variety of factors distinguishing this case from Uber. He didn’t analyze the “inequality of bargaining power”. This wasn’t a standard-form, contract of adhesion and Wiederhold was content to live with the arbitration clause for more than a dozen years before deciding it was unconscionable. (I’ll leave aside the question of whether it would truly have been materially more expensive to deal with the issue via arbitration, likely conducted virtually, than in the B.C. Supreme Court.) There is much more to unconscionability than “it might be too expensive.” On the contrary, it requires a much more robust analysis commensurate with the importance of ignoring the party’s decision to choose arbitration over the courts.