In 2023, the delay in obtaining Court dates in Ontario’s civil justice system became notably worse. Where once wrongful dismissal litigants enjoyed relatively speedy trials and summary judgment motions, their actions now languished. On the bright side, Alternative Dispute Resolution (ADR) mechanisms like mediation and arbitration helped to avoid Court backlogs – provided they were used.
Mediation helps by increasing early settlement opportunities, especially in jurisdictions where mediation is mandatory under R. 24.1 of the Rules of Civil Procedure. Arbitration removes cases from the public courts, or ensures litigation is avoided altogether, thereby freeing up judicial resources. For the parties, arbitration usually results in an earlier (and private) hearing on the merits, with fewer procedural steps along the way, and restricted appeal rights. Mediation-arbitration (“med-arb”), a hybrid process, has the best of both worlds.
However, it’s rare that an employment contract provides for mediation before litigation or arbitration. Otherwise, mediation is not mandatory until after the commencement of an action. Even then, it is not mandatory outside of Toronto, Ottawa and Essex County (Windsor). Despite this, voluntary mediation in wrongful dismissal actions is still common in parts of southern Ontario, but uptake is far from universal.
And while voluntary (or “ad hoc”) arbitration - including med-arb - of wrongful dismissal disputes is slowly on the rise for many reasons, arbitration resulting from a contractual arbitration clause is far more common. Further, in many cases, the clause is not discovered until after the start of litigation.
Given the limitations above, a way to encourage voluntary mediation is to penalize parties by way of costs orders, following trial, for failure to participate in one.
Courts can also stay an action where there is an arbitration agreement, and they can leave the issue of the enforceability of the agreement to the arbitrator to determine.
So, how did our Courts fare in 2023 in terms of promoting mediation and arbitration?
Mediation
In the costs decision in Osmani v. Universal Structural Restorations Ltd., 2023 ONSC 1041 – and readers may be familiar with the trial decision in which the plaintiff labourer received a substantial damages award due to his supervisor’s abuse – the Court awarded the plaintiff partial indemnity costs. In considering quantum, the court was not prepared to find that the defendants acted unreasonably in declining the plaintiff’s offer to submit the matter to voluntary mediation. This offer was made after the action was commenced in a jurisdiction where mandatory mediation does not apply. The judge did not offer an explanation.
However, in Gregor Homes Ltd. v. Woodyer, 2023 ONSC 689, a construction case that applies equally to employment matters, the court allowed the plaintiff its partial indemnity costs. The parties had scheduled a voluntary mediation (again, mediation was not mandatory), but the plaintiff cancelled it. No mediation took place in the end. The Court ordered that the mediator cancellation fee of $1,977.50 incurred by the defendant be set off against the costs otherwise owing by the defendant. Further, the judge “took into consideration in connection with the Plaintiff’s claim for costs that the Defendants likely spent some time in arranging and preparing for the mediation.”
However, the extent to which the wasted time affected the ultimate costs award is unclear. Also, the court in Osmani did not consider the earlier Gregor Homes decision.
What’s in Store for 2024?
While it’s tempting to conclude from the above decisions that a party won’t be penalized for refusing to take part in a voluntary mediation, but that it will be penalized for cancelling one. However, this is not in line with earlier caselaw. For example, in Canfield v. Brockville Ontario Speedway, 2018 ONSC 3288, a party was penalized in costs for failing to agree to voluntary mediation. Yet in Saltsov v. Rolnick, 2010 ONSC 6645 the Divisional Court held that “costs and disbursements incurred as a result of participating in a voluntary mediation should not be included in awards of costs determined by the Court”. Neither of these earlier decisions were considered in Osmani and Gregor Homes.
So, what’s in store for 2024 is anyone’s guess. One thing is certain: MAG should expand mandatory mediation for a variety of reasons, the least of which is contradictory case law regarding costs.
Arbitration
Section 17 (1) of the Arbitration Act, 1991 (the “Act”) provides that an arbitrator may rule on their own jurisdiction, and, in that connection, may also rule on objections with respect to the existence or validity of the arbitration agreement[1]. This is the codification of a legal principle known worldwide as competence-competence. Therefore, s. 7 (1) of the Act provides that where a party to an arbitration agreement commences a proceeding with respect to a matter to be arbitrated, the Court may, on motion of the other party, stay the proceeding. However, according to s. 7 (2), the Court may refuse to grant a stay if, among other exceptions, the arbitration agreement is invalid. There is no appeal from the court’s decision (s. 7 (6)).
In Leon v. Dealnet Capital Corporation, 2023 ONSC 3657, the Divisional Court dismissed the appeal of the employee, Leon, from a 2021 order of an Associate Justice staying his action with respect to an unpaid bonus, together with Dealnet’s sizeable counterclaim. Leon had unsuccessfully argued that the arbitration clause in his employment contract violated the Employment Standards Act, 2000 (“ESA”). The Divisional Court ruled that s. 7 (6) of the Act and Irwin v. Protiviti, 2022 ONCA 533 were dispositive of the appeal. As noted, s. 7(6) prevents appeals, while Irwin provides that a court should only decide issues of arbitrator jurisdiction where there is a pure question of law, or of mixed fact and law requiring not more than a superficial consideration of evidence.
The Court rejected Leon’s argument that s. 7(6) had no application because the arbitration clause violated s. 5(1) of the ESA and thus was void ab initio, as that argument was not raised before the Associate Justice. Further, the arbitration clause in this case, unlike in Heller v. Uber Technologies Inc., 2019 ONCA 1; aff’d on other grounds, 2020 SCC 16, did not preclude Leon from making a complaint to the Ministry of Labour (“MOL”). The Court also noted that Heller was decided under a different arbitration statute, the International Commercial Arbitration Act 2017.
Leave to appeal to the Court of Appeal of Ontario was denied, without reasons, on December 1, 2023. The court’s endorsement is unreported.
The Divisional Court’s decision in Leon was released in June 2023. In August, a Superior Court released Nohdomi v. Callidus Capital Corporation, 2023 ONSC 4469, which does not refer to Leon. There, the Defendants moved to stay a wrongful dismissal action due to an arbitration clause in the parties’ employment contract. The Plaintiff employee argued that the clause was invalid because, inter alia, it contracted out of the ESA. According to the Judge, “it is for the court, and not the arbitrator, to decide whether one of the exceptions in s. 7(2) applies so that the issue of whether to grant the stay becomes discretionary”. The arbitration clause was found to be invalid because it violated the ESA as it foreclosed a potential complaint to the MOL. As a result, a stay was refused.
The Defendants are appealing this decision. However, as noted above, an appeal should not actually not be possible. Space does not permit a more fulsome discussion of both Leon and Nohdomi, but a concise summary can be found here.
What’s in Store for 2024?
Look for the Court of Appeal to clear up the confusion following Nohdomi by revisiting its decisions in Irwin and Heller. Meanwhile, readers may want to consider if there is any substantive difference between the arbitration clauses in Leon and Nohdomi.
It is also critical to note that, over the course of the litigation in Leon, the employee was ordered to pay over $45,000.00 in costs – although this is offset by a $15,000.00 award against the employer. As well, the action was commenced in 2019. It is only in late 2023 that it is proceeding via arbitration after the Court of Appeal denied leave. Therefore, employee-side counsel must ask themselves if it is not better for their clients to simply agree to a stay (or refrain from commencing an action), even when factoring in arbitrator fees.
Finally, for now at least, lawyers who draft arbitration clauses in employment contracts need to devote as much time to Heller and Nohdomi-proofing those clauses as they already devote to Wood and Waksdale-proofing termination clauses.
About the author
Mitchell Rose, LL.B., C. Med, Q. Arb is a mediator and arbitrator of employment law disputes with Rose Dispute Resolution in Toronto. He is the former chair of the OBA’s ADR section and is, currently, a member-at-large of the Labour and Employment Law section executive. Mitch is the author of 40+ Mediation Advocacy Tips for Ontario Lawyers & Paralegals, 3d Edition.
[1] An “arbitration clause” and an “arbitration agreement” are used interchangeably given that s. 17 (2) of the Act provided that where an arbitration agreement forms part of another agreement, it shall be treated as an independent agreement that may survive a finding of the main agreement’s invalidity.
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