When Can an Employment Agreement be Voided for Duress?

The recent decision of the Ontario Superior Court in Riskie v. Sony of Canada Ltd. provides a useful reminder of the way in which the court will deal with an employment agreement where the employee later complains that he executed the agreement under duress.

In this case, Mr. Riskie was a management level employee of Sony of Canada Ltd. based in Toronto. He began working at Sony in 1989 without a written employment agreement. He lived and worked in Toronto.

In the spring of 2014, after having worked at Sony for about 25 years, he announced that his wife had obtained new employment and that he and his family were planning to move to Ottawa. He asked whether he could continue in his existing job from his home in Ottawa notwithstanding that there were a number of Toronto-based employees reporting to him.

While Mr. Riskie’s immediate superior was supportive, Sony’s President and CEO was opposed to the idea.

Mr. Riskie planned to move to Ottawa in mid-June 2014, even though he knew of senior management’s opposition to the idea of his continuing to work from there. Several days before the move, his immediate superior advised him that Sony would consider accommodating his request but would require that his position change from that of an indefinite employee to a contract employee with a fixed term, as a condition of approving the arrangement.

Mr. Riskie was given a proposed contract with a fixed term ending December 31, 2014, with no renewal rights. He was able to negotiate the end date to March 31, 2015. He asked for a right to renew the contract unless he failed to prove that the new arrangement could work, but that request was denied. Ultimately, he signed the contract after he had already moved to Ottawa. At no time was he ever told that he could not remain in Toronto and continue in the same capacity as before by, for example, commuting to Ottawa on weekends.

Mr. Riskie proceeded to carry on his previous duties remotely from Ottawa. Several months later, Sony announced internally that its North American operations were being reorganized. A number of people were let go in February 2015 and at that time, Mr. Riskie was told that his contract would not be renewed on its expiration date.

At that date, he was provided with all of the benefits called for under his fixed term employment agreement. Mr. Riskie responded by suing Sony for wrongful dismissal, saying that the employment agreement was void for a variety of reasons. One of his arguments was that he signed it under duress. Sony insisted that the agreement was valid and Mr. Riskie brought a motion for summary judgment.

At the motion, Mr. Riskie argued that he had been required to sign the contract “in order to continue the teleworking arrangement from Ottawa” even though he had already moved before actually signing the contract. On cross-examination, he admitted that had had the option of signing the contract and accepting its terms, resigning and looking for alternative employment, or returning to Toronto on a full-time basis. He admitted that he preferred to sign the contract and make every effort to demonstrate its value to Sony so as to convince Sony to extend it.

The court pointed out that there is a five-part list of criteria to determine whether or not an employment agreement was executed under duress.

Firstly, the court will consider whether the party protested at the time that the contract was entered into. In this case, the court found that while Mr. Riskie had protested numerous aspects of the proposed deal, he never protested that he was being placed under duress at the time that he actually signed it. He acknowledged that he had been given several weeks to think it over and the court concluded that this was not consistent with coercion or duress.

Secondly, the court will consider whether there is an effective alternative course open to the party alleging duress. In this case, Mr. Riskie certainly had the alternative of staying in Toronto and commuting frequently but he declined to select it.

Thirdly, the court will consider whether the party received independent legal advice. The court concluded that as a highly paid senior executive, Mr. Riskie could have sought such advice if he had chosen to do so. There was no time pressure applied to him to preclude him from seeking advice and he had the means, the time and the opportunity to do so.

Fourthly, the court will consider whether, after entering into the contract, the party took any steps to get out of it. In this case, no such steps were taken and there was no suggestion that Mr. Riskie did anything other than to perform his duties to the best of his ability.

Finally, the court will consider whether the party was placed under any illegitimate pressure. In this case, the court found that Mr. Riskie could have simply resumed his duties full time in Toronto had he chosen to do so. While his reasons could be readily understood, not having a preferred option available is not a test for duress. There must be an illegitimate application of coercive pressure in order to void a contract for duress. In this case, Sony had no obligation to accommodate the move to Ottawa and every right to propose terms on which it might do so. There was nothing wrong in Sony attaching conditions to its willingness to accommodate Mr. Riskie’s request.

As a result, there was no basis for concluding that the employment agreement was entered into under duress.

After disposing of Mr. Riskie’s other arguments, the motion for summary judgment was dismissed.

With increasing frequency, companies with employees of indefinite duration are turning to written employment contracts with those employees and asking them to execute them during the course of their employment. There a number of rules that have been established by the jurisprudence that must be followed for those contracts to be enforceable. This case provides useful clarification as to the circumstances under which such an agreement may be set aside for duress.

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When Will the Court Refuse to Enforce an Arbitration Clause?

The recent Ontario Court decision in Hargraft Schofield LP v. Fluke provides some interesting reminders as to problems that can arise when one attempts to enforce an arbitration clause in a contract.

In this case, the plaintiff sued its former employer for an alleged breach of a variety of clauses in the employment agreement that had existed between them.

The parties had entered into an employment agreement in June 2000 with a three-year fixed term. The agreement included an arbitration clause that required that all disputes relating to the agreement would have to be referred to arbitration.

After the first employment agreement expired, the parties entered into a second employment agreement for another fixed term. That document did not include an arbitration clause. It did include a clause providing that it represented the entire agreement between them.

Over the ensuing years, the parties entered into further employment agreements as the terms of each one expired. Eleven years after the first agreement had been entered into, the defendant resigned.

Several months after the defendant’s resignation, the plaintiff sued in Ontario Court. Over the course of the next two years and ten months, the dispute proceeded through the litigation process. The parties exchanged pleadings, negotiated a discovery plan, agreed to a timetable for the balance of the steps in the action, exchanged sworn affidavits of documents, scheduled examinations for discovery, and conducted a mediation (which failed). The defendant then raised the argument that the matter should be proceeding by way of arbitration. The plaintiff refused to change its course of action and the defendant brought a motion for an order staying the action and referring the issues to arbitration.

The first question that the court dealt with had to do with whether or not there even existed an arbitration clause in the agreement between the parties. The initial employment agreement had contained such a clause but the court found that it had been superseded by the second employment agreement which did not include such a clause. Even though one of the subsequent employment agreements specifically indicated that the defendant’s employment would continue on the same terms and conditions as had been contained in all of the previous agreements, so that they were deemed to be incorporated in the most recent agreement, the court determined that as the first agreement had been superseded by the second, and the second included an “entire agreement” clause, there did not exist a valid arbitration clause upon which the defendant could rely.

One of the interesting points in this respect had to do with whether or not the court even had the jurisdiction to make this decision. The Ontario Arbitration Act provides that:

    “An arbitral tribunal may rule on its own jurisdiction to conduct the arbitration and may in that connection rule on objections with respect to the existence or validity of the arbitration agreement.”

It was suggested that based on that provision, where there is an issue as to whether or not there even exists a valid arbitration clause, an arbitrator would have to be appointed to make that determination. Fortunately, in this case, the court took a more common sense approach and considered that this provision in the Act was not mandatory and that the court had the jurisdiction to determine whether or not an arbitration clause was in existence.

Secondly, the court went on to consider whether or not, if there did exist an arbitration clause, there was a valid basis for refusing to refer the matter to arbitration. The court pointed out that while the Arbitration Act requires the court to stay a proceeding that has been commenced in the face of a valid arbitration clause, there are exceptions. One of the exceptions arises where a motion for a stay of the proceeding is brought with undue delay.

The court pointed to the fact that almost three years had elapsed since the law suit had started. During that time, there had been a substantial amount of progress made along the litigation path. The court seemed to suggest that the defendant had either forgotten about the arbitration clause, or deliberately refrained from insisting on arbitration until after the mediation had failed. While not stated in the court’s decision, the idea that the defendant was now raising this argument merely to delay may also have been a concern.

In any event, the court dismissed the motion and the matter was ordered to proceed to trial in the usual course.

Among other things, this is an important reminder to parties to a contract with an arbitration clause that if they do not address the arbitration clause promptly but rather proceed by way of a legal action, they may lose the ability to insist on arbitration at a later date.