Choice of Law Clause Enforced
January 14, 2019
What will an Ontario Court do when faced with a California based employee who is seeking to enforce rights pursuant to a contract against his American employer, for termination of his employment? If his employment contract provides that the contract would be governed by, and construed in accordance with the laws of the Province of Ontario (a “choice of law clause”), it will hear the dispute and decide it as a local matter.
The employee had commenced employment approximately 12 years before his termination. The employee was a Canadian, hired to relocate and work in the U.S. for a U.S. company as its Vice President of Operations, following two and a half years of performing consulting services for the Canadian entity. The employment contract for services in California included a termination provision that detailed entitlements in the event of a termination without cause during the first three years. It provided, should that occur, the employee would receive 12 months’ notice. Thereafter, it was silent. However, the agreement contained a choice of law clause. The 63 year old employee, upon termination, commenced proceedings in Ontario, seeking 24 months’ notice.
The Court declined to interfere with the intention of the parties and it applied the principles of Ontario common law to award the employee damages for 22 months’ reasonable notice. The Honourable Mr. Justice Diamond relied upon the principle established by Justice Cullity of the Court of Appeal that “[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.”
Justice Diamond held that “granting [the employee] the relief sought would not violate conceptions of essential justice and morality…I cannot conclude that such public policy grounds exist.”
The stage is set. In the writer’s view, this is not a floodgate to the incorporation of foreign laws into Canadian employment contracts for those employed here in Canada. They would still need to comply with legislated statutory minimums established by the province in which the employee was employed. Further, no doubt public policy and concepts of justice would derail legal ideology in some other jurisdictions such as perhaps: specific performance, multiple short- term contracts, or “at will” employment.
We are therefore not likely to see Ontario courts willing to enforce employment contracts to be “governed pursuant to the laws of Mexico” any time soon.
The other concept though is that while choice of law and forum for determination are two separate provisions in contract drafting, we could unwittingly become a jurisdiction labored with the cost of determination of disputes between parties who, as here, have no real and substantial connection to Ontario, in order to avoid the use of expert evidence on Ontario law in the jurisdiction in which the contract was entered into and performed.
McMichael v. The New Zealand & Australian Lamb Company, 2018 ONSC 5422 (CanLII)