Ontario Court of Appeal dismisses stay of proceedings motion due to lack of fresh consideration

Goberdhan v. Knights of Columbus 2023 ONCA 327 is a recent case before the Ontario Court of Appeal, the appellant, Knights of Columbus appealed a decision by the motion judge to dismiss their motion for a stay of proceedings in favour of arbitration.

Background, motion judge decision

Knights is a fraternal benefit society that provides insurance products to its members and the respondent is a former field agent for Knights. The respondent signed three contracts throughout his employment with Knights: the first on April 17, 2011, when he began his employment with Knights; the second on Oct. 5, 2018; and the third on April 5, 2019. The respondent was terminated on April 30, 2019. The respondent brought a wrongful dismissal claim, asserting that he was an employee of Knights and entitled to severance pay, termination notice pay, outstanding wages and commissions and punitive damages. Knights had moved to stay the action and relied on mandatory arbitration clauses contained in two of the three contracts signed by the parties.

The motion judge dismissed the motion, finding that the respondent was an employee rather than an independent contractor and that the two contracts with arbitration clauses were invalid for lack of fresh consideration and as were the mandatory arbitration clauses contained within them.

Ontario Court of Appeal reasoning

On appeal, Knights raised two issues: whether the motion judge erred in concluding that there was no valid arbitration clause, and whether the motion judge erred in making a decision on their stay motion regarding the respondent’s status as an employee. The respondent raised a preliminary issue arguing that there was no right of appeal because of s. 7(6) of the Arbitration Act.

The Court of Appeal first addressed the respondent’s preliminary challenge to its jurisdiction to hear the appeal based on s. 7(6) of the Act, which prohibits an appeal from a decision dismissing a motion to stay. The respondent argued that the motion judge’s determination that the arbitration agreement was invalid, and dismissal of the motion fell within the scope of s. 7(6). However, the Court of Appeal found that the motion judge was correct in deciding that the absence of fresh consideration for the contracts containing the arbitration clause meant that there were no subsequent contracts and no arbitration clause. In turn, the Arbitration Act had no application and, therefore, s. 7(6) did not prohibit its jurisdiction to hear the appeal.

Knights argued that the motion judge erred in refusing to stay the action, asserting that the motion judge should have granted a stay so long as it was “arguable” that the dispute fell within the scope of arbitral jurisdiction, with the arbitrator to determine whether the arbitration clause applied. The Court of Appeal disagreed and found that the motion judge was able to determine the question of fresh consideration on the evidence before him, and that this was not a proposition that was “merely arguable.”

Knights further argued that the motion judge erred in concluding that the respondent was an employee rather than an independent contractor. The Court of Appeal found that this was not a final determination of a central issue in the proceedings and that it was open to Knights to argue, on a full record at trial or on a motion for summary judgment, that the respondent was an independent contractor.

The Court of Appeal dismissed the appeal and awarded costs to the respondent in the agreed and inclusive amount of $19,000. The case highlights the importance of ensuring that fresh consideration is provided when having employees sign new contracts to ensure added provisions, such as arbitration clauses, are enforceable.

This article was written by Alisa Mirkovic and was originally published in Law360 on May 15, 2023. Alisa Mirkovic is an employment lawyer with Monkhouse Law Employment Lawyers.

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