Jurisdiction and Choice of Law Clauses in Employment Contracts

COVID-19 has accelerated a shift towards the “virtual workplace”. Many of us will be called back into the office when the acute public health crisis subsides. However, it is likely that remote work will remain a permanent reality for a substantial number of employees.

Generally, if an employee and an employer reside in the same province, the employment law of that province will govern any disputes that arise in the course of employment. If an employee is working in a province or country different from the one where the employer resides, it will be up to the courts to answer two related but distinct questions:

1. which set of laws govern the employment relationship, and
2. where should any employment law disputes be litigated.

This blog post will offer a brief overview of the law of Ontario on both issues.

WHICH SET OF LAWS GOVERN: Choice of Law Clauses

If an employee works in a jurisdiction that is not the one where their employer resides, courts will determine which jurisdiction’s laws apply with reference to a variety of factors including:

• where the contract of employment was signed,[1]
• the residence of the employee,
• the head office of the employer, and
• the location of the administrative details connected with the employment.[2]

Employees and employers who do not want to leave this important aspect of their employment contract to the courts can resolve the issue in advance by including a “choice of law” clause in their contract of employment. In addition to providing clarity, a choice of law clause can limit aggravation if the employment relationship breaks down and save both parties money that would otherwise be spent on litigation.

The parties’ ability to negotiate a choice of law clause is not unfettered. For one thing, Ontario courts will not enforce choice of law clauses that result in employees receiving less than they otherwise would under the provincial Employment Standards Act.[3] However, if the terms of the contract satisfy minimum standards, parties have wide latitude to select the body of law that will apply.

Cavalluzzo lawyers successfully litigated the most recent leading decision on this very issue. In McMichael v The New Zealand & Australian Lamb Company, 2018 ONSC 5422, the Court concluded:

A choice of law clause often bears no relationship to the location in which the contract is to be performed.  A governing law can thus be the law intended by the parties.  As long as that choice is “bona fide and legal, and there is no reason for avoiding the choice on the ground of public policy”, then the law will govern the contract.[4]

This ground of public policy will only be invoked where “granting […] the relief sought would […] violate conceptions of essential justice and morality.”[5] Otherwise, the parties can rely on the courts to enforce choice of law clauses that comply with Ontario’s minimum statutory standards.

WHERE DISPUTES WILL BE LITIGATED: Jurisdiction clauses

A related but equally important question for employees working in a jurisdiction that is not the one where their employer resides is where employment disputes should be litigated. In the absence of a “jurisdiction clause” in the contract of employment identifying the appropriate forum, Ontario courts will employ a two-part test to decide whether they will assume jurisdiction over a dispute or defer to a foreign jurisdiction:

• First, an Ontario court will ask whether they can claim jurisdiction at all. This is called jurisdiction simpliciter;
• Second, even if an Ontario court can entertain the dispute, it will ask whether it should. This latter test is called forum non conveniens.

Jurisdiction simpliciter is determined with reference to several factors including whether the employer is located or carries on a business in Ontario, and whether the employment contract was made in the province.[6] Importantly, a choice of law clause is not itself a presumptive connecting factor for establishing jurisdiction simpliciter.[7] In other words, an employment contract governed by the laws of Ontario does not automatically fall within the jurisdiction of Ontario courts.

Once a court determines that it has jurisdiction simpliciter and that it can enforce the contract of employment, it must determine whether it should enforce the contract of employment. At this stage of the analysis, called the forum non conveniens stage, a court will consider the following factors:

1.      The location where the contract in dispute was signed;

2.      The applicable law of the contract;

3.      The location of witnesses, especially key witnesses;

4.      The location where the bulk of the evidence will come from;

5.      The jurisdiction in which the factual matters arose;

6.      The residence or place of business of the parties; and,

7.      The loss of a legitimate juridical advantage.[8]

With respect to the first factor, contracts signed virtually and sent via email will be considered to have been signed in the jurisdiction where the email was received.[9] With respect to the last factor, Ontario courts are often very reluctant to defer to American courts unaccustomed to applying the law of reasonable notice that applies in Canada.[10]

By including a jurisdiction clause in the employment contract, the parties can agree where disputes will be heard if the employment relationship falters. Just like choice of law clauses, courts will generally enforce jurisdiction clauses unless their practical effect is to make enforcing contractual rights impossible.[11]

CONCLUSION

Employees and employers may include choice of law and jurisdiction clauses in the contract of employment. As long as these clauses respect minimum legislative standards and do not render enforcement impractical, Ontario courts will defer to the wishes of the parties.

Choice of law and jurisdiction clauses present complicated legal issues. Finding a lawyer who can assist with both your complex employment matters and these cross-border issues can be challenging. Cavalluzzo lawyers are experienced in litigating these issues and can assist.