Ontario – When is an appeal of a stay decision barred? – #757

In Leon v Dealnet Capital Corporation, 2023 ONSC 3657, the Appellant, John Leon, appealed an order that stayed his action for breach of an employment contract in favour of arbitration, pursuant to section 7(1) of the Ontario Arbitration Act, 1991, S.O. 1991, c. 17 (“Arbitration Act”). Section 7(6) of the Arbitration Act provides that there is no appeal from stay decisions under section 7. However, the Appellant argued that section 7(6) did not apply in this case based on the recent decision of Goberdan v. Knights of Columbus, 2023 ONCA 327 (“Goberdan”) and the line of cases cited therein. Those cases stand for the proposition that if there is no arbitration agreement, the Arbitration Act does not apply and section 7(6) does not bar an appeal. In Goberdan, the motions judge concluded that there was no arbitration agreement because there had been no consideration for the contracts and therefore no contracts. As there was no arbitration agreement, the Court of Appeal found that the Arbitration Act including section 7(6) did not apply to bar the appeal. Here, it was argued that section 7(6) did not apply because the employment agreement, and therefore the arbitration clause, were void ab initio because the contract contracted out of the Employment Standards Act, 2000, S.O. 2000 c. 41 (“ESA”) contrary to the Ontario Court of Appeal decision in Heller v. Uber Technologies Inc., 2019 ONCA 1 (“Heller CA”). Heller CA held, among other things, that an arbitration clause in an agreement between a presumed employer and employee was invalid as it constituted an illegal contracting out of the ESA. 

In this case, the Ontario Divisional Court applied section 7(6) and dismissed the appeal for lack of jurisdiction. In doing so, it followed the Ontario Court of Appeal decision of Irwin v. Protiviti, 2022 ONCA 53. That case, like this one, concerned an appeal of a stay decision involving the validity of an arbitration clause in an employment contract in the face of the ESA. In that case the motions judge deferred the question of the validity of the arbitration agreement to the arbitrator. As no decision was made on the issue of invalidity, the Court of Appeal found that an appeal of that decision was barred by operation of section 7(6). The appellant in that case had argued that the motions judge erred in not making an assessment of validity in the first instance. The Court of Appeal disagreed, citing Uber Technologies Inc. v. Heller, 2020 SCC 16, 447 D.L.R. (4th) 179 (“Heller SCC”)and Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34, [2007] 2 S.C.R. 801 and stating that, “questions of jurisdiction are to be arbitrated. A court has discretion to decide otherwise but only where the jurisdictional question is based on a pure question of law, or of mixed fact and law requiring not more than a superficial consideration of evidence.” The Court of Appeal found the motions judge in that case did not err as the arbitration clause’s consistency with the ESA (and Human Rights Code) was a question of mixed fact and law requiring more than a superficial consideration of the evidence and so it was appropriate for it to be decided by the arbitrator. 

The Appellant tried to distinguish Irwin here, arguing that the motions judge actually made a finding on the issue of invalidity. The Court rejected that argument, noting that the motions judge stated only that she was “not satisfied” that the arbitration clause was invalid and so a stay of the action was warranted. In any event, the Court concluded at para.13 that, “[t]he decision not to refuse a stay for one of the grounds listed in s. 7(2), including invalidity, is also a decision under s. 7 to which the s. 7(6) appeal bar applies”. 

The Court also rejected the Appellant’s argument that the issue of validity was decided in a previously denied motion to quash the appeal. He noted that the justice in that case made the decision before Irwin and, in any event, did not decide the issue of jurisdiction but only that the high threshold of demonstrating that the appeal was completely devoid of merit was not met. 

As to the argument that the arbitration clause was void ab initio based on Heller CA and, therefore, the Arbitration Act including section 7(6) did not apply, the Court noted that the issue had not been raised before the motions judge, but in any event, it agreed with the interpretation that Heller CA was distinguishable because the motions judge found that unlike the governing law clause in Heller CA which completely ousted the operation of the ESA, here, the employment agreement was made subject to Ontario law, including the ESA. 

Contributor’s Notes:

Whether section 7(6) of the Ontario Arbitration Act bars an appeal of a decision under section 7 depends on whether the motions judge decides the issue of invalidity in the first instance or determines that it should be decided by the arbitrator. As noted, Ontario has a line of authority that says if the Arbitration Act is inapplicable, including because the arbitration agreement is found invalid, section 7(6) does not apply to bar an appeal:  Huras v. Primerica (2000), 2000 CanLII 16892 (ON CA), 137 O.A.C. 79 (C.A.) reaffirmed by a five-member panel in Toronto Standard Condominium Corporation No. 1628 v. Toronto Standard Condominium Corporation No. 1636, 2020 ONCA 612 (See Case Note: Ontario – appeal court reaffirms jurisdiction for appeal of stay decision where decision holds arbitration agreement does not apply – #385) and recently applied in Goberdan (See Case Note: Ontario – Appeal allowed where arbitration agreement “invalid”; Arbitration Act not engaged – #746) and Ismail v. First York Holdings Inc., 2023 ONCA 332 (See case note:  Ontario – Doctrine of separability cannot apply where contract nonexistent – #749)

However, as made clear in Irwin and this case, if on a stay application the motions judge defers the determination of the validity of the arbitration agreement to the arbitrator (which should frequently be the situation given the guidance from the Supreme Court of Canada in Dell, Uber and Petrowest that the Court should only decide the issue in the first instance in a “clear” case), section 7(6) applies and bars an appeal of that decision. 

For a Case Note on Irwin see: Ontario – Arbitrator to determine jurisdiction/validity of arbitration clause in employment dispute – #654.

Previous Case Notes concerning this case are:  Ontario – agreement to arbitrate not unconscionable where governing law preserves executive’s Employment Standards Act rights – #490 and Ontario – Motion to quash appeal dismissed in light of conflicting policy implications – #558. Finally, if you are wondering why the Appellant relied on Heller CA and not Heller SCC, that is because the Supreme Court found it was unnecessary to address the issue of whether the arbitration clause in that case was an illegal contracting out of the ESA as it decided the matter on another ground (unconscionability).