CITATION: Rhinehart v. Legend 3D Canada Inc., 2019 ONSC 3296
COURT FILE NO.: CV-18-599942
DATE: 20190529
ONTARIO
SUPERIOR COURT OF JUSTICE
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| ANDREW RHINEHART
Plaintiff
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LEGEND 3D CANADA INC., LEGEND 3D INC., JOSEPH CASHION and SARITA MANDANNA
Defendants
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Rich Appiah, for the Plaintiff
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Evan Campbell, for the Defendants |
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| ) | HEARD: May 13, 2019 |
ENDORSEMENT
SANFILIPPO J.
Overview
[1] The Plaintiff, Andrew Rhinehart, is a citizen of the United States of America who, on November 26, 2012, began to work with Legend 3D Inc., a company incorporated in the U.S.A. and operating in California (“Legend USA”). He entered into four employment agreements with Legend USA in the thirteen-month period from then until December 2013 and continued to work with Legend USA in California until December 2016.
[2] Each of the employment contracts that Mr. Rhinehart entered into with Legend USA contained a term requiring that all disputes arising from his employment be determined by arbitration conducted in California. Mr. Rhinehart also executed two separate arbitration agreements to this effect during his employment with Legend USA.
[3] In December 2016, Legend USA raised with Mr. Rhinehart the prospect of moving to Ontario, Canada, to work with a related entity: Legend 3D Canada Inc. (“Legend Canada”). Mr. Rhinehart agreed to do so. On January 2, 2017, he initiated work with Legend Canada in Ontario.
[4] Mr. Rhinehart did not, at any time, execute any written employment contract with Legend Canada. Mr. Rhinehart did not enter any written agreement with Legend Canada requiring that any dispute arising from his employment in Canada would be determined by arbitration.
[5] Mr. Rhinehart was terminated from his employment with Legend Canada on February 6, 2018, effective March 30, 2018. He brought this action against Legend Canada seeking damages for claims that arise from his dismissal from Legend Canada.
[6] Mr. Rhinehart has also sued Legend USA, not for damages arising out of his employment in California, but rather for Legend USA’s role in causing or contributing to the damages that he alleges to have sustained by the termination of his employment in Ontario with Legend Canada. Mr. Rhinehart pleaded that Legend USA made misrepresentations to him that caused him to re-locate to Canada, and that he relied on these misrepresentations to his detriment. Mr. Rhinehart has also sued two directors of Legend Canada.
[7] Legend USA and Legend Canada bring this motion to stay or to dismiss this action as against them on the basis of an arbitration provision contained in agreements that were executed by Mr. Rhinehart with Legend USA during the period of his employment in California with Legend USA.
[8] Mr. Rhinehart submitted that his action should not be stayed as against both or either of the Legend corporations because he did not enter into an arbitration agreement with Legend Canada, and because his agreement to arbitrate with Legend USA was in relation to his employment by Legend USA in California. Further, he submitted that even if the moving party defendants establish an applicable arbitration agreement, it ought not to be enforced on the basis that it is invalid because it is an attempt by the Legend companies to contract out of the provisions of the Employment Standards Act, 2000, S.O. 2000, c. 41 (the “ESA”).
[9] For the reasons that follow, this motion by Legend USA and Legend Canada to stay this action as against them is dismissed.
- FACTUAL BACKGROUND
- The Parties
[10] Legend USA is a company incorporated in the United States of America that is in the business of providing digital media services both there and abroad. Legend Canada is a related entity incorporated pursuant to the laws of Ontario that conducts business in Ontario. Mr. Rhinehart is a citizen of the U.S.A. who resided and worked in Ontario from January 2, 2017 to February 6, 2018.
- The Employment Between Mr. Rhinehart and Legend USA
(a) The November 2012 Employment Agreement
[11] Mr. Rhinehart began to work with Legend USA in its Los Angeles location on November 26, 2012. At that time, Legend USA and Mr. Rhinehart entered into an employment agreement for Mr. Rhinehart to work as a temporary employee in the capacity of a Junior Compositor on a specific project, referred to as “project 291”, from November 26, 2012 to April 5, 2013, at an hourly rate of $15.00 per hour. Legend USA required that Mr. Rhinehart execute an arbitration agreement as a condition of his temporary employment.
(b) The November 2012 Arbitration Agreement
[12] On November 26, 2012, Mr. Rhinehart executed an arbitration agreement that stated, in operative part, as follows:
[Legend USA] and I each agree to submit to final and binding arbitration any and all disputes that we could otherwise pursue in court that arise from or relate in any way to my recruitment, hiring, employment, or the termination of my employment, with Legend [USA]. …
[13] The November 2012 Arbitration Agreement is not executed by Legend USA.
(c) The February 2013 Employment Agreement
[14] On February 13, 2013, Legend USA and Mr. Rhinehart entered into a further letter agreement whereby Mr. Rhinehart agreed to provide services as a temporary employee in the capacity of a Jr. Stereo Compositor on two specific projects, referred to as project 334 and project 312, from April 6, 2013, to June 21, 2013, at an hourly rate of $18.50. Legend USA did not require that Mr. Rhinehart execute an arbitration agreement as part of the February 2013 Employment Agreement, but this document contains a paragraph that addressed the use of arbitration to resolve any dispute that might arise (the “Employment Letter Arbitration Provision”), as follows:
“All of us at Legend are very excited about you re-joining our team and look forward to a beneficial and fruitful relationship. However, should any dispute arise with respect to your employment or the termination of that employment, we both agree that such dispute shall be conclusively resolved by final, binding and confidential arbitration in accordance with the Voluntary Labor Arbitration Rules of the American Arbitration Association (AAA) in San Diego, rather than by a jury court or administrative agency.” (the “Employment Letter Arbitration Provision”)
(d) The June 2013 Employment Agreement
[15] There was a gap in Mr. Rhinehart’s employment with Legend USA in the period between June 21, 2013 and August 12, 2013. Mr. Rhinehart resumed employment with Legend USA on August 12, 2013, through execution of a letter agreement that bears date of June 20, 2013, whereby Mr. Rhinehart agreed to provide service as a temporary employee in the capacity of a Junior Compositor on a specific project, LON_356, from August 12, 2013 to February 28, 2014, at an hourly rate of $18.50. The June 2013 Employment Agreement contained the same Employment Letter Arbitration Provision as was contained in the February 2013 Employment Agreement.
(e) The August 2013 Arbitration Agreement
[16] On August 12, 2013, Mr. Rhinehart executed an Arbitration Agreement that is substantively identical to the November 2012 Arbitration Agreement. Like the November 2012 Arbitration Agreement, the August 2013 Arbitration Agreement is executed only by Mr. Rhinehart, not by Legend USA.
(f) The December 2013 Employment Agreement
[17] The final employment agreement entered into between Mr. Rhinehart and Legend USA was on December 28, 2013. The letter agreement entered into by these parties that day was stated to be specific to two projects and was expected to be initiated by March 3, 2014 and completed by June 2, 2014.
[18] The December 2013 Employment Agreement contained the same Employment Letter Arbitration Provision as agreed to by Legend USA and Mr. Rhinehart in the February 2013 Employment Agreement. I will refer to this term as the “December 2013 Arbitration Provision”.
(g) Continued Employment with Legend USA to December 31, 2016
[19] Unlike the first three employment agreements, which the parties agree were temporary, fixed term employment contracts, Legend USA contends that the December 2013 Employment Agreement was an indefinite term employment contract. Mr. Rhinehart disagrees, and submits that the December 2013 Employment Agreement terminated on June 2, 2014.
[20] Mr. Rhinehart continued to work with Legend USA in California after June 2014. Legend USA submitted that his employment was further to the December 2013 Employment Agreement, whereas Mr. Rhinehart contended that this agreement was not applicable. The parties agree that Mr. Rhinehart was employed by Legend USA to December 2016, at which time Legend USA raised with him the possibility of relocating to Canada to work with Legend Canada.
- The Employment Between Mr. Rhinehart and Legend Canada
[21] On January 2, 2017, Mr. Rhinehart began employment in Ontario, Canada, with Legend Canada.
[22] The evidentiary record established that no agreement was executed between Mr. Rhinehart and Legend Canada. In particular, Mr. Rhinehart and Legend Canada did not enter into an employment agreement or an arbitration agreement.
[23] On February 6, 2018, Legend Canada provided Mr. Rhinehart with notice of termination of his employment, with effective date of March 30, 2018.
- ISSUE
[24] The sole issue raised by this motion is whether Mr. Rhinehart’s action ought to be stayed as against Legend USA and Legend Canada, or either of them, on the basis of an arbitration agreement.
III. ANALYSIS
- Applicable Principles
[25] This motion is brought under section 106 of the Courts of Justice Act, R.S.O. 1990, c. C.43:
“A court, on its own initiative or on motion by any person, whether or not a party, may stay any proceeding in the court on such terms as are considered just”
[26] The moving party defendants rely on section 7(1) of the Arbitration Act, 1991, S.O. 1991, c. 17 (the “Arbitration Act, 1991”), which states as follows:
If a party to an arbitration agreement commences a proceeding in respect of a matter to be submitted to arbitration under the agreement, the court in which the proceeding is commenced shall, on the motion of another party to the arbitration agreement, stay the proceeding. [Emphasis Added]
[27] Since Legend USA has its place of business in California, I considered whether the International Commercial Arbitration Act, 2017, R.S.O. 2017, c. 2, Sched. 5 (the “ICAA”) was applicable. I concluded that it is not, because labor or employment disputes were not intended to be covered by the term “commercial” within the ICAA: Ross v. Christian & Timbers Inc. (2002), 2002 CanLII 49619 (ON SC), 23 B.L.R. (3d) 297 (Ont. S.C.) at para. 11, applying Carter v. McLaughlin (1996), 1996 CanLII 7962 (ON SC), 27 O.R. (3d) 792 (Ont. Gen. Div.); Borowski v. Heinrich Fiedler Perforiertechnik GmbH (1994), 29 C.P.C. (3d) 264 (Alta. Q.B.) at 277. The Arbitration Act, 1991 applies.
[28] In TELUS Communications Inc. v. Wellman, 2019 SCC 19 (CanLII) at para. 63, the Supreme Court stated that section 7(1) of the Arbitration Act, 1991 establishes a “general rule” that where a party to an arbitration agreement initiates a legal proceeding that involves at least one matter that is dealt with by the arbitration agreement, the court shall stay the proceeding in favour of arbitration. Moldaver J. explained the basis for this:
The use of the word “shall” in s. 7(1) indicates a mandatory obligation (see Haas, at paras. 10-12; see also R. Sullivan, Statutory Interpretation (3rd ed. 2016), at p. 90). This general rule reaffirms the concept of party autonomy and upholds the policy underlying the Arbitration Act that parties to a valid arbitration agreement should abide by their agreement.
[29] However, as Moldaver J. stated in paragraph 64, “this general rule is not absolute”. Section 7(2) lists five exceptions to the general rule under section 7(1), and section 7(5) addresses partial stays of proceedings where only a part of the claims set out in the action come within the arbitration agreement. I will have more to say later about the exception in section 7(2)(2): namely, that the Court may refuse to stay the proceeding where “the arbitration agreement is invalid”.
[30] The moving party defendants submitted that once an arbitration agreement is identified, the Court is required to stay the proceeding and refer the matter to arbitration, leaving the issue of jurisdiction to the arbitrator. The moving parties rely on what is known as the ‘competence-competence principle’, which provides that the arbitrator should decide first any challenge to the arbitrator’s jurisdiction. This principle is explained by Deschamps J. in Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34(CanLII), [2007] 2 S.C.R. 801 at para. 84:
First of all, I would lay down a general rule that in any case involving an arbitration clause, a challenge to the arbitrator’s jurisdiction must be resolved first by the arbitrator.
[31] The ‘competence-competence’ principle has been recognized and applied by the Ontario Court of Appeal in Ontario Medical Association v. Willis Canada Inc., 2013 ONCA 745 (CanLII), 118 O.R. (3d) 241 at para. 20-22, and in Ciano Trading & Services C.T. v. Skylink Aviation Inc., 2015 ONCA 89 (CanLII), at para. 7: “However, the case law recognizes that where it is unclear if the arbitrator has jurisdiction, it is preferable to leave the issue to the arbitrator pursuant to the competence-competence principle”.
[32] However, for the competence-competence principle to be applicable, there must first be an arbitration agreement affecting at least some of the parties and at least some of the issues. Further, even when an arbitration agreement has been identified, the validity of an arbitration agreement is a question to be determined by the Court: Heller v. Uber Technologies Inc., 2019 ONCA 1 (CanLII), 52 C.C.E.L. (4th) 10, leave to appeal granted, [2019] S.C.C.A No. 58 at para. 39.
[33] In Mantini v. Smith Lyons LLP (2003), 2003 CanLII 20875 (ON CA), 64 O.R. (3d) 505 (C.A.) at para. 17, Feldman J.A. explained that in order to determine whether a claim should be stayed under section 7(1) of the Arbitration Act, 1991, the Court must first interpret a valid arbitration provision and then analyse the claims to determine whether they must be decided by an arbitrator under the terms of the agreement. In Haas v. Gunasekaram, 2016 ONCA 744 (CanLII), 62 B.L.R. (5th) 1 at para. 17, the Court of Appeal set out a five-part analytical framework for conducting this analysis:
(a) Is there an arbitration agreement?
(b) What is the subject matter of the dispute?
(c) What is the scope of the arbitration agreement?
(d) Does the dispute arguably fall within the scope of the arbitration agreement?
(e) Are there grounds on which the court should refuse to stay the action?
[34] I will analyse each of these sub-issues in turn.
Sub-Issue #1: IS THERE AN ARBITRATION AGREEMENT?
[35] As there are two moving party defendants, I will address the issue of whether there is an arbitration agreement specific to each of Legend Canada and Legend USA.
(a) Is There an Arbitration Agreement between Mr. Rhinehart and Legend Canada?
[36] Legend Canada did not tender into evidence any contractual document executed between Legend Canada and Mr. Rhinehart. There is no arbitration agreement, or even arbitration provision within a broader contractual agreement between Legend Canada and Mr. Rhinehart. As the Court of Appeal stated in Secure Solutions Inc. v. Smiths Detection Toronto Ltd., 2011 ONCA 337 (CanLII) at para. 4: “If there is no arbitration provision contracted for at the relevant time, that ends the matter.”
[37] Legend Canada submitted that as a party related to Legend USA, it is entitled to rely on Legend USA’s rights under its arbitration agreement with Mr. Rhinehart. Even leaving for the moment the issue of whether there is an arbitration agreement between Mr. Rhinehart and Legend USA, I see no merit in this submission. Legend Canada was unable to provide any legal basis or authority for the proposition that it so significantly relied upon: that a party is entitled at law to a stay of an action to compel a non-contracting party to arbitrate based solely on the non-contracting party’s agreement to arbitrate with another, related party. This proposition would violate the principle that a corporation has a separate legal personality from the people or corporations that own or control it. The principle of separate corporate identity of related companies was stated by the English Court of Appeal in The Albazero, [1975] 3 All E.R. 21, at p. 521:
[It is a fundamental principle of law] long established and now unchallengeable by judicial decision. . .that each company in a group of companies (a relatively modern concept) is a separate legal entity possessed of separate legal rights and liabilities so that the rights of one company in a group cannot be exercised by another company in that group even though the ultimate benefit of the exercise of those rights would accrue beneficially to the same person or corporate body. . .
[38] Further, Legend Canada did not establish on this motion a factual basis for its submission to support any common employer or agency relationship. Legend Canada did not tender any evidence on this motion, but relied on the affidavit evidence of Mr. Barry Stagg, the Chief Administrative Officer of Legend USA. Mr. Stagg deposed that Legend Canada is a “related entity” to Legend USA, and that the companies operate under “common control and direction”. This falls well-short of establishing a factual basis for Legend Canada’s submission that it was in some manner entitled to advance contractual rights belonging to Legend USA.
[39] There is no evidence that Legend USA purported to assign to Legend Canada its obligations under its contract, but even if that were the case, Legend USA could not have assigned its obligations under its contract with Mr. Rhinehart to Legend Canada without Mr. Rhinehart’s permission: Rodaro v. Royal Bank of Canada, (2002), 2002 CanLII 41834 (ON CA), 59 O.R. (3d) 74 (C.A.) at para. 33.
[40] Although there is case law establishing that an employee may be employed by two or more “common employers”, this case law is squarely aimed at ensuring “that permissible complexity in corporate arrangements does not work an injustice in the realm of employment law”: Downtown Eatery (1993), 2001 CanLII 8538 (ON CA), 54 O.R. (3d) 161 (C.A.), leave to appeal refused, [2001] S.C.C.A. No. 397 at para. 36. There is no authority in this line of cases to show that an arbitration agreement executed with a previous employer in a previous location would govern employment by a new employer in a new location.
[41] I have concluded that there is no arbitration agreement between Mr. Rhinehart and Legend Canada.
(b) Is there an Arbitration Agreement between Mr. Rhinehart and Legend USA?
[42] Legend USA submitted that the history of employment and arbitration agreements between Legend USA and Mr. Rhinehart shows an established pattern of conduct between the parties of selecting arbitration to determine any disputes that might arise. Legend USA relies primarily on the two most recent documents as applicable arbitration agreements: the August 2013 Arbitration Agreement, and the December 2013 Arbitration Provision. I analyse each in turn.
(i) The August 2013 Arbitration Agreement
[43] The August 2013 Arbitration Agreement suffers from a flaw: it is a bilateral agreement that is executed by only one of the two contracting parties – by Mr. Rhinehart but not by Legend USA. Mr. Rhinehart contends that it is invalid on its face. However, it is unlikely that this flaw prevented an agreement to arbitrate from forming between the parties. Nothing in the contract states that the contract is conditional on Legend USA’s signature. The Court of Appeal emphasized in Bawitko Investments Ltd. v. Kernels Popcorn Ltd. (1991), 1991 CanLII 2734 (ON CA), 79 D.L.R. (4th) 97 (Ont. C.A.) at 104 that a formal written document does not create a contract – the agreement of the parties on all essential provisions does.
[44] Examining the facts, there was an offer by Legend USA to agree to arbitrate issues arising from Mr. Rhinehart’s employment, and an acceptance by Mr. Rhinehart, and the parties were ad idem on the terms of the contract, as documented by the agreement that Mr. Rhinehart signed. There was no contemplation of a further “meeting of the minds” or that the formality of Legend USA’s signature was necessary.
[45] Mr. Rhinehart submits that the August 2013 Arbitration Agreement is also invalid on the basis that it was superseded by the December 2013 Employment Agreement. The August 2013 Arbitration Agreement was executed by Mr. Rhinehart on August 12, 2013, the first day of the employment term of the June 2013 Employment Agreement. Mr. Rinehart contends that it is applicable only to his employment in the term of the June 2013 Employment Agreement: specifically, August 12, 2013 to February 28, 2014. Mr. Rhinehart submitted that the December 2013 Employment Agreement, which replaced the June 2013 Employment Agreement, supersedes all prior agreements by reason of the following clause:
Upon your signature below, this will become our binding agreement with respect to your employment and its terms merging and superseding in their entirety all other or prior offers, agreements and communications, whether written or oral, by you and Company as to the specific subjects of this letter. [Emphasis Added]
[46] Mr. Rhinehart referred to this as a form of “Entire Agreement” clause, that caused any “prior agreement” to be superseded by the December 2013 Employment Agreement: Shelanu Inc. v. Print Three Franchising Corp. (2003), 2003 CanLII 52151 (ON CA), 64 O.R. (3d) 533 (C.A.), at para. 50. Legend USA submitted that the Entire Agreement clause operates to merge the August 2013 Arbitration Agreement with the December 2013 Employment Agreement, thereby making the August 2013 Arbitration Agreement part of the December 2013 Employment Agreement.
[47] I assess this issue by application of principles of contractual interpretation, as set out in Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53 (CanLII), [2014] 2 S.C.R. 633 at para. 47. In synthesizing the modern principles of contractual interpretation, the Court stated that the over-riding objective is to determine the intention of the parties by reading the contract as a whole, “giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract.”
[48] This common-sense approach to contract interpretation builds upon the Supreme Court’s statements in Eli Lilly & Co. v. Novopharm Ltd., 1998 CanLII 791 (SCC), [1998] 2 S.C.R. 129, that the contractual intention of the parties is to be ascertained by reference to the words used in the contract read in light of the surrounding circumstances, with the objective of achieving a contractual interpretation that is a fair and sensible commercial result. It is the surrounding circumstances that are paramount in this analysis, not evidence concerning the subjective intentions of the parties: Eli Lilly at para. 54; Healy v. Gregory (2009), 75 C.C.P.B. 178 (Ont. S.C.J.) at para. 61.
[49] There is a patent ambiguity in the wording of the Entire Agreement clause in that it states that “prior agreements” both “merge” with and are “superseded” by the December 2013 Employment Agreement. As “merging” involves combining, uniting or coalescing, and as “superseding” involves setting aside or replacing, the two terms cannot be read harmoniously in the Entire Agreement clause.
[50] An analysis of the surrounding circumstances leading to December 2013 shows that Mr. Rhinehart had been employed by Legend USA in three previous fixed-term contracts: the November 2012 Employment Agreement; the February 2013 Employment Agreement, and the June 2013 Employment Agreement. These were all stand-alone agreements, compartmentalized in time and task, providing compensation on an hourly basis to Mr. Rhinehart for fixed time periods referable to specified projects. Each of these agreements started when the previous agreement ended, each superseding the one before.
[51] Legend USA demonstrated by conduct that the rights in the various agreements did not merge, but were superseded by subsequent agreements. Legend USA requested that Mr. Rhinehart execute the August 2013 Arbitration Agreement at the time that he started work pursuant to the June 2013 Employment Agreement even though he had previously executed the November 2012 Arbitration Agreement that had identical wording. This reflects Legend USA’s understanding that the earlier arbitration agreement required reinstatement to be effective.
[52] In Consolidated-Bathurst v. Mutual Boiler, 1979 CanLII 10 (SCC), [1980] 1 S.C.R. 888 at pp. 899-900, Estey J. stated that when an ambiguity is found, the doctrine of contra proferentem may be applied: also, Mohamed v. Information Systems Architects Inc., 2018 ONCA 428 (CanLII), 423 D.L.R. (4th) 174 at para. 14. This requires that the ambiguity be resolved against the party who authored the ambiguous term and is now relying on it. In this case, the contra proferentem principle requires that the ambiguity in the interpretation of the Entire Agreement clause be resolved against the interpretation promoted by Legend USA, the drafter of the December 2013 Employment Agreement. As a result, I find that the December 2013 Employment Agreement superseded “all other or prior … agreements”, including the August 2013 Arbitration Agreement.
[53] I conclude that the August 2013 Arbitration Agreement is not an arbitration agreement applicable to the claims pleaded by Mr. Rhinehart in his Ontario action because it was superseded by the December 2013 Employment Agreement.
(ii) The December 2013 Arbitration Provision
[54] The December 2013 Employment Agreement was executed by Mr. Rhinehart and by Legend USA and contains the December 2013 Arbitration Provision.
[55] Mr. Rhinehart stated that the December 2013 Arbitration Provision is invalid because it is housed within the December 2013 Employment Agreement which, he contends, expired on June 2, 2014. Mr. Rhinehart submitted that the December 2013 Employment Agreement was a fixed term temporary employment contract that was specific to the certain stipulated projects by reason of the following clause:
Legend [USA] is pleased to offer you the non-exempt position of Jr. Compositor at the hourly rate of $19.30, payable every two weeks. This is a temporary position. We expect the duration of this position to be through to the completion of projects E74377 and JUP367 which we anticipate will be completed by June 2, 2014. Your effective start date is March 3, 2014. Your department manager will be Robert McInnis.
[56] Legend USA and Mr. Rhinehart have conflicting evidence on the nature of their employment relationship in the period from June 2, 2014 to December 2016. Mr. Stagg deposed that in or around June 2014, coincidentally with the conclusion of the term of the December 2013 Employment Agreement, Legend USA extended Mr. Rhinehart’s employment on an indefinite term and, in December 2014, promoted Mr. Rhinehart to the position of Lead Compositor.
[57] Mr. Stagg swore that in or about December 2016, Mr. Rhinehart accepted Legend USA’s offer to transfer to Toronto, and that Mr. Rhinehart commenced employment in Toronto on January 3, 2017, in the position of Compositing Supervisor. Mr. Stagg deposed that Mr. Rhinehart’s employment with Legend USA did not terminate when he moved to work in Toronto, but rather that the December 2013 Employment Agreement remained in effect.
[58] Mr. Rhinehart provided evidence on this motion through a succinct affidavit of five substantive paragraphs sworn March 15, 2019. Mr. Rhinehart swore that the December 2013 Employment Agreement was a fixed term agreement that expired on June 2, 2014 and was not extended to continue after June 2, 2014 even though Mr. Rhinehart’s employment continued. As a result, Mr. Rhinehart deposed that the December 2013 Employment Agreement, and the December 2013 Arbitration Provision contained in it, have no effect on his current claim.
[59] I do not have a sufficient evidentiary record to determine whether Mr. Rhinehart’s continued employment by Legend USA after June 2, 2014 was pursuant to the December 2013 Employment Agreement, as Legend USA contends, or whether his employment with Legend USA took place in the absence of any contract of employment. However, I do not need to determine this issue for my analysis, for two reasons. First, the parties agreed in their submissions that Mr. Rhinehart was employed in Ontario by Legend Canada and that the claims for damages in this action pertain only to his employment in Ontario by Legend Canada and not to his employment in California by Legend USA. Second, the December 2013 Arbitration Provision can continue as a separate agreement regardless of the ongoing applicability of the employment contract in which it is housed.
[60] An arbitration clause that forms part of a contract can be severed from other terms of the contract and continue independently: s. 17(2) of the Arbitration Act, 1991; Nazarinia Holdings Inc. v. 2049080 Ontario Inc., 2010 ONSC 1766 (CanLII), 69 B.L.R. (4th) 64 at para. 20; MDG Kingston Inc. v. MDG Computers Canada Inc., 2008 ONCA 656 (CanLII), 92 O.R. (3d) 4 at para. 32.
[61] Mr. Rhinehart and Legend USA had a consistent, common approach, cultivated over three previous employment agreements and two arbitration agreements, of agreeing that disputes arising from their employment relationship would be determined by arbitration. The December 2013 Arbitration Provision flowed from this pattern of conduct. I find that the December 2013 Arbitration Provision was agreed upon by Mr. Rhinehart and Legend USA and has not, in any manner, been waived, rescinded or revoked and exists as an independent agreement regardless of whether the employment agreement in which it is contained was of fixed term and has expired or was of indefinite term. I conclude that the December 2013 Arbitration Provision is an arbitration agreement between Mr. Rhinehart and Legend USA.
Sub-Issue #2: WHAT IS THE SUBJECT MATTER OF THE DISPUTE?
[62] Mr. Rhinehart brings this action for damages resulting from the termination of his employment in Canada. In his Amended Statement of Claim, Mr. Rhinehart pleads that he was employed by Legend USA from September 2012 (para. 8); was advised in the summer of 2016 by Legend USA’s human resources director that a position had “opened up at Legend [Canada] in Toronto” (para. 9); and was told by this Legend USA representative that the position was for three years. Mr. Rhinehart claims that representations were made by Legend USA that induced him to consider the Legend Canada position favourably (paras. 10-11); he accepted the position with Legend Canada and started working with Legend Canada on January 2, 2017 (paras. 12-14); soon after commencing employment with Legend Canada he realized that he had been misled by Legend USA about his hours of work, routinely being required to work 70 to 90 hours each week (para. 15); and that he was dismissed on February 6, 2018, effective March 30, 2018 (para. 16).
[63] Mr. Rhinehart seeks the following damages against both Legend USA and Legend Canada, jointly and severally:
(a) Damages in the amount of 21 months of wages, on the basis that he was hired by Legend Canada on a three-year fixed-term employment agreement and terminated after 15 months. As there is no written employment agreement, this position is based on Mr. Rhinehart’s claim that Legend USA’s human resources director represented to him that the position with Legend Canada was for a fixed three-year term;
(b) In the alternative, damages in the amount of six months’ reasonable notice of termination on dismissal of his employment from Legend Canada;
(c) Damages in the amount of $169,082.50 for unpaid overtime work that he claims to have been required to work while employed with Legend Canada (the “Unpaid Overtime Claim”);
(d) Damages in the amount of $25,000 on the basis of negligent misrepresentations said to have been made to him by Legend USA.
[64] Mr. Rhinehart seeks from the Director Defendants unpaid debts not exceeding six months’ wages that accrued while they were directors of Legend Canada and, in particular, the Unpaid Overtime Claim.
[65] The Statement of Defence, delivered jointly on behalf of all defendants, pleads that Mr. Rhinehart was employed jointly by the Legend corporations throughout (that is, from September 2012 to March 30, 2018). This results in imprecision in analyzing the subject matter of the dispute, as there is no evidence that Mr. Rhinehart was employed by Legend Canada prior to January 2, 2017, and no evidence to contradict Mr. Rhinehart’s pleading, supported by the evidence on this motion, that he was employed by Legend Canada alone after January 2, 2017.
[66] In the course of submissions, counsel for the parties clarified the scope of this dispute. Counsel for Mr. Rhinehart made clear that his client’s claim against Legend USA is for its alleged misrepresentations regarding the employment available in Ontario with Legend Canada, and in regard to the plaintiff’s contention that the notice period he was entitled to upon dismissal should be based on the total period of his employment with Legend USA and with Legend Canada. The parties clarified and conceded that Mr. Rhinehart does not bring any claim in this action for damages arising from his employment in California with Legend USA.
Sub-Issue #3: WHAT IS THE SCOPE OF THE ARBITRATION AGREEMENT?
[67] The arbitration agreement between Legend USA and Mr. Rhinehart, the December 2013 Arbitration Provision, states, in its entirety:
All of us at Legend are very excited about you re-joining our team and look forward to a beneficial and fruitful relationship. However, should any dispute arise with respect to your employment or the termination of that employment, we both agree that such dispute shall be conclusively resolved by final, binding and confidential arbitration in accordance with the Voluntary Labor Arbitration Rules of the American Arbitration Association (AAA) in San Diego, rather than by a jury court or administrative agency. [Emphasis added]
[68] This arbitration agreement sets out an agreement between Mr. Rhinehart and Legend USA to submit to arbitration any dispute “with respect to your employment”, and; any dispute with respect to “the termination of that employment”. In order to assess the scope of this arbitration agreement, I must interpret the word “employment”.
[69] My contractual interpretation of the word “employment” is guided by the principles of contractual interpretation that I outlined earlier. I must “read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract”: Sattva at para. 47.
[70] This arbitration agreement is contained in a contract that pertained to Mr. Rhinehart’s employment with Legend USA, entirely in California. It does not refer to working in any other location or for any other employer. At the time that this arbitration agreement was implemented, in December 2013, there was no contemplation between these parties that Mr. Rhinehart might work in Canada or that he might work for an entity other than Legend USA. Mr. Stagg deposed, on behalf of Legend USA, and I accept because it is consistent with the evidence on this motion, that Mr. Rhinehart was first offered the ability to work in Toronto, Ontario, in December 2016: a full three years after the implementation of this arbitration agreement. When Mr. Rhinehart and Legend USA used the word “employment” in the December 2013 Arbitration Provision they could not have been referring to employment in Canada between Mr. Rhinehart and another company, Legend Canada.
[71] Contracts are to be interpreted in their context. In considering the surrounding circumstances known to the parties at the time that the arbitration agreement was formed, I have determined that the intent of the parties and the scope of their understanding was that they would submit to arbitration in California any dispute regarding the employment that Mr. Rhinehart had with Legend USA which, at the time of contracting, was entirely in California. This is consistent with my reading of the December 2013 Employment Agreement as a whole. For these reasons, I find that the term “employment”, as the core element of the arbitration agreement, pertains to employment by Mr. Rhinehart with Legend USA, which involved work in California.
[72] I conclude that the scope of the arbitration agreement covered any dispute between Legend USA and Mr. Rhinehart arising from his USA-based employment by Legend USA. The parties agreed to submit any such dispute to arbitration in California.
Sub-Issue #4: DOES THE DISPUTE ARGUABLY FALL WITHIN THE ARBITRATION AGREEMENT?
[73] I have determined that the substance of the present action is a claim for damages resulting from Mr. Rhinehart’s dismissal from his employment in Canada with Legend Canada. If there was any doubt through imprecision of pleading, the parties clarified in submissions that Mr. Rhinehart does not bring any claim for damages arising from his employment in California with Legend USA.
[74] I have also determined that the scope of the arbitration agreement, the December 2013 Arbitration Provision, is to submit to arbitration in California any dispute between Legend USA and Mr. Rhinehart arising from his USA-based employment by Legend USA.
[75] On the basis of these determinations, I conclude that the dispute advanced in this action by Mr. Rhinehart against Legend USA does not arguably fall within the scope of the arbitration agreement.
Sub-Issue #5: ARE THERE GROUNDS ON WHICH THE COURT SHOULD REFUSE TO STAY THE ACTION?
[76] In light of my determinations that there is no arbitration agreement between Mr. Rhinehart and Legend Canada, and that the dispute by Mr. Rhinehart against Legend USA does not come within the scope of their arbitration agreement, the motion by the Legend corporations to stay this action in favour of arbitration cannot succeed. This renders unnecessary my determination of whether there are grounds on which I should refuse to stay the action.
[77] However, for completeness of analysis, I will address the issue of whether I would have refused to stay this action, as against Legend Canada and/or Legend USA, on the basis that the arbitration agreement is invalid as an attempt to contract out of the ESA.
[78] Section 7(2)(2) of the Arbitration Act, 1991, provides that a Court may refuse to stay a proceeding where “the arbitration agreement is invalid”. In Heller, at para. 39, Nordheimer J.A. stated that the validity of an arbitration agreement is to be decided by the Court, and is not an issue going to the jurisdiction of the arbitrator and therefore left to the arbitrator to decide first in accordance with the competence-competence principle:
I am aware of the general approach that any dispute over an arbitrator’s jurisdiction should first be determined by the arbitrator but that addresses situations where the scope of the arbitration is at issue. That is not this case. There does not appear to be any dispute that, if the Arbitration Clause is valid, the appellant’s claim would fall within it. Rather, the issue here is the validity of the Arbitration Clause. The answer to that question is one for the court to determine as s. 7(2) of the Arbitration Act, 1991 makes clear.
[79] In Heller, the plaintiffs in a proposed class action sought a declaration that drivers in Ontario who have used the Uber Driver App to provide food delivery and/or personal transportation services to customers are employees of Uber and governed by the provisions of the ESA. The defendants sought to stay the action on the basis of an arbitration clause contained in the online services agreement that the plaintiffs entered into in order to use the Uber Driver App. The plaintiffs/ appellants contended that the arbitration agreement was invalid because it amounted to an attempt to contract out of the ESA, contrary to s.5(1) of the ESA. The Court of Appeal agreed, at para. 41, holding that the arbitration clause constituted a contracting out of the ESA because it eliminated the employees’ right to make a complaint to the Ministry of Labour regarding the actions of the employer and the employer’s possible violation of the ESA. This finding supported the Court’s determination that the Ontario class action would not be stayed in favour of arbitration.
[80] The Legend corporations contended that this reasoning in the Heller decision is not applicable to this motion based on: (1) the history of Mr. Rhinehart’s work in the U.S.A., which is factually distinguishable from the Uber driver’s work in Ontario; (2) the distinction that the December 2013 Arbitration Provision does not eliminate Mr. Rinehart’s right to make a claim under the ESA; and (3) the fact that Mr. Rhinehart’s claim is not based on the ESA. Respectfully, I do not accept these submissions.
[81] Mr. Rhinehart’s Unpaid Overtime Claim is based on employment standards set out in the ESA. Section 17 of the ESA sets out the employment standard for limits on hours of work. Mr. Rhinehart’s claim for damages for this breach of an employment standard is brought against both Legend Canada and Legend USA and, indeed, the Defendant Directors. Section 3 of the ESA provides that the employment standards set out in the act apply to an employee and his employer where the work is performed in Ontario, as in this case. Section 5 renders void any contract that purports to waive or contract out of an employment standard.
[82] The December 2013 Arbitration Provision requires that “any dispute” that arises from Mr. Rhinehart’s employment must be determined by arbitration in California. There is no evidence in the record as to what remedy Mr. Rhinehart could expect to obtain if he were successful in an arbitration in California. There is no stipulation, definition or clarification of the law that would be applied, creating the potential that Ontario law, including the ESA, would not be applicable in an arbitration in California. Mr. Rhinehart is entitled under the ESA to avail himself of the complaint process or the “civil proceeding” exception to the complaint process. An arbitration is not a “civil proceeding”: Hellerat para. 33. The fact that I have no evidence that Mr. Rhinehart has chosen to pursue the complaint process under the ESA is immaterial to my analysis.
[83] I have concluded that the decision of the Court of Appeal in Heller is directly applicable to my analysis. Had I not determined that this motion must be dismissed on the basis that there is no arbitration agreement involving Legend Canada and that the claims do not come within the scope of the arbitration agreement involving Legend USA, I would have dismissed this motion, and thereby declined to stay this action against the Legend corporations, on the basis of section 7(2)(2) of the Arbitration Act, 1991. Specifically, I would have done so because the December 2013 Arbitration Provision is invalid as an impermissible contracting out of the ESA. I would have reached the same conclusion on analysis of the August 2013 Arbitration Agreement and the arbitration provisions contained in the earlier employment agreements, had I found any of them to be applicable.
- CONCLUSION
[84] The case law is clear that where a party to a valid arbitration agreement commences a proceeding in respect of a matter dealt with in the agreement, the Court shall, on motion, stay the court proceeding in favour of arbitration: TELUS at para. 63; Haas at paras. 10, 12. In TELUS at para. 90, the Supreme Court held that this mandatory requirement to give effect to a valid arbitration agreement that deals with a matter in dispute prevails even where giving effect to the arbitration agreement would cause a multiplicity of proceedings with resultant inefficiencies.
[85] To uphold an arbitration agreement, there must be a valid and binding arbitration agreement: TELUS at paras. 51, 52, 55, 103; Haas at para. 17; Heller at para. 39. Here, the moving parties Legend USA and Legend Canada relied on a succession of four Arbitration Provisions contained in consecutive employment agreements and two sequential Arbitration Agreements to submit that the sheer weight and volume of these agreements must mean that this action ought to be stayed as against them.
[86] When these agreements were unpacked, however, I determined that not one of these proposed arbitration agreements was executed with Legend Canada, and that the applicable arbitration agreement executed between Legend USA and Mr. Rhinehart did not pertain to the claim brought in Ontario for the termination of Mr. Rhinehart’s employment with Legend Canada in Ontario. Had I found that the scope of the arbitration agreement between Mr. Rhinehart and Legend USA, alone or in combination with its predecessors, was broad enough to encompass the dispute arising from Mr. Rhinehart’s termination from Legend Canada, I would have found the arbitration agreement(s) invalid on the basis that they contracted out of the provisions of the ESA, in violation of s. 5(1) of the ESA, applying Heller at paras. 42-49.
[87] As such, I have concluded that Legend Canada and Legend USA have not established an entitlement to a stay on the basis of a valid, applicable arbitration agreement.
- DISPOSITION
[88] This motion by Legend USA and Legend Canada to stay this action as against them is dismissed.
- COSTS
[89] I encourage the parties to discuss and agree on the issue of costs.
[90] If the parties are not able to agree on the issue of costs by June 14, 2019, the Plaintiff may serve on the Defendants Legend Canada and Legend USA and deliver to me no later than June 28, 2019, written submissions on costs of no more than four pages in length, plus his cost outline, any offer to settle and authorities relied on. The Defendants Legend Canada and Legend USA shall then serve on the Plaintiff and deliver to me, within 15 days of receipt of the Plaintiff’s cost submissions or by July 12, 2019, whichever is earlier, their written submissions of a similar length on the issue of costs.
[91] If neither party delivers written costs submissions by July 12, 2019, I will deem the issue of costs to have been settled.
