Background
Declan Friel was employed by HUB International HKMB Limited (“HUB Ontario”), an Ontario insurance brokerage and subsidiary of the Delaware-based HUB International Limited. His 2012 Employment Agreement was governed by Ontario law and contained an ADR clause requiring mediation-arbitration in Ontario under the Arbitration Act, 1991 for any claim “contemplated by or arising out of or in connection with” the agreement. Separately, in December 2014, Friel received an option to purchase Class B shares in Hockey Parent Inc. (“HPI”), a Delaware entity, under a Share Option Agreement that expressly incorporated an Equityholders Agreement designating the Delaware Court of Chancery as the exclusive forum for disputes. The Option Agreement stated unambiguously that the options did not constitute employment compensation and did not form part of the Employment Agreement.
Friel’s Class B options vested on December 22, 2021. He resigned from HUB Ontario the following day to join a competitor and, in March 2022, served notice to exercise his vested options. The respondents acknowledged the options had vested but asserted that joining a competitor constituted “misconduct” under the Equityholders Agreement, entitling them to repurchase any acquired shares at cost and extinguishing their value.
Friel commenced proceedings in Ontario seeking a declaration that the options dispute was governed by the Employment Agreement’s ADR clause, an order appointing an arbitrator, and a declaration that the forum selection clause was unconscionable. The motion judge (Justice Shin, Superior Court of Justice) rejected all three arguments, finding the ADR clause inapplicable and the Delaware forum selection clause valid and enforceable. Friel appealed.
The Court’s Holding
The Court of Appeal dismissed the appeal. On the competence-competence issue, the court held that the motion judge was entitled to resolve jurisdiction herself rather than refer the question to an arbitrator. Where determining arbitral jurisdiction requires only a superficial examination of the evidentiary record — here, the interpretation of three contracts — a court may decide the jurisdictional question: Peace River Hydro Partners v. Petrowest Corp., 2022 SCC 41; Uber Technologies Inc. v. Heller, 2020 SCC 16; Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34.
On the scope of the ADR clause, the court affirmed the motion judge’s interpretation. The Option Agreement expressly stated that the options were not employment compensation, were not a term or condition of employment, and did not form part of the Employment Agreement. The Employment Agreement itself contained no reference to Class B equity in HPI. The dispute therefore fell outside the ADR clause’s reach as a matter of unambiguous contractual language, a conclusion entitled to deference under Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53.
On unconscionability, the court agreed with the motion judge that, although an inequality of bargaining power existed, the forum selection clause was not improvident and there was no evidence it would place a remedy beyond Friel’s reach. The case was distinguishable from Uber v. Heller and Rose v. Carnival Corporation, 2022 ONSC 6506, where forum clauses were found to effectively deny access to justice. The Delaware Court of Chancery accordingly has exclusive jurisdiction over the options dispute. Costs of $15,000 (inclusive of HST and disbursements) were awarded to the respondents.
Key Takeaways
- A court may resolve arbitral jurisdiction without referring the question to the arbitrator where doing so requires only a superficial review of the record — particularly when jurisdiction turns solely on interpreting written contracts.
- An equity compensation agreement that expressly disclaims any connection to employment will not be pulled into an employment agreement’s arbitration clause, even where the employee would not have received the equity but for the employment relationship.
- A forum selection clause designating a foreign court is not unconscionable merely because of unequal bargaining power; the party challenging the clause must also show the chosen forum would effectively deny access to a remedy.
- Employees who receive equity grants from parent or affiliate entities should examine the governing documents of those grants — including incorporated-by-reference agreements — before assuming that employment-contract dispute resolution provisions will apply.
Why It Matters
This decision reinforces that Canadian courts will enforce carefully drafted forum selection clauses in equity compensation arrangements, even when the employee’s receipt of that equity was tied to their employment relationship. Employers and their affiliates who grant stock options or equity interests through separate agreements — governed by the law of another jurisdiction — can take comfort that those agreements’ dispute resolution mechanisms will be respected, provided the documents clearly disclaim any integration with the employment contract itself.
For employees and their counsel, the case is a caution: the mere fact that equity compensation would not have been granted without the employment relationship does not make a dispute over that equity subject to an employment agreement’s ADR clause. Where the option or equity agreement expressly states it is not employment compensation and incorporates a foreign forum selection clause, Ontario courts will hold that bargain to its terms unless the forum clause demonstrably denies access to justice — a high bar that proximity to an Uber-style power imbalance alone will not satisfy.