Legal News

Supreme Court refuses to enforce employee forum selection clause & choice of law clause

Parties to a contract are generally free to select how and where they will deal with disputes arising under their contract. As a general rule, Canadian courts will enforce provisions of a contract that require the parties to litigate disputes in a particular jurisdiction, unless there is a “strong cause” or a very good reason not to do so.

In the employment context, courts are often reluctant to compel an employee to litigate their dispute in a different jurisdiction from the one in which they worked, even if there is a forum-selection clause. The point was recently demonstrated in a recent case of the BC Supreme Court: Nowak v. Biocomposites Inc., 2018 BCSC 785.

In the case, the Plaintiff Mr. Nowak, a travelling salesperson, was employed by Biocomposites, a UK company, which had an office in North Carolina. Nowak primarily worked out of BC and western Canada.

Nowak had verbally accepted an offer of employment and later received an offer letter that set out the basic terms of his employment, including salary and other compensation, benefits, vacation and equipment. The letter also made reference to a service agreement, which Nowak would need to sign.

Nowak commenced work and, a month later, was given a copy of the service agreement to sign. The service agreement contained a choice of law clause applying the laws of North Carolina and a forum selection clause in favour of that State. The agreement provided that Nowak’s employment could be terminated “at will” in accordance with North Carolina law, though Biocomposites would still pay two weeks’ pay in lieu of notice.

After Nowak was terminated, allegedly for just cause, he brought a wrongful dismissal claim in British Columbia. Biocomposites brought an application to have the claim stayed pursuant to the forum selection clause.

The Supreme Court concluded that Nowak was not bound by the forum selection clause for the simple reason that his contract had already formed with Biocomposites when it sent the offer letter. The employer could not bind the employee to new terms including the forum selection clause without providing some kind of benefit or “fresh consideration” for that clause. The Court also found that the choice of law clause was also unenforceable because it left Nowak with a legal entitlement that fell below the basic minimum employment entitlements set out in the BC Employment Standards Act.

Although these two determinations were sufficient to dispose of the matter, the Supreme Court went on to find that enforcing a forum selection clause in the circumstances of this case would be contrary to the public policy of this province. The Court found that an employment contract is akin to a consumer contract and that the “inequality of bargaining power … along with the juridical disadvantage, expense and inconvenience imposed on Mr. Nowak justify a refusal of the Court to uphold the forum selection clause.” The Court would have refused to uphold a clause in a contract that would have the effect of denying a resident who worked primarily in BC the protections and privileges of BC Law.

Nowak confirms that public policy provides a basis for the Court to decline to enforce a forum selection clause and a choice of law clause (the combined effect of which would be to force an employee to litigate in a different jurisdiction than the one in which they worked and which would result in the application of law granting them fewer legal entitlements or protections). While it is possible that a forum selection clause alone might have been enforceable – resulting in the application of BC law in North Carolina – Nowak demonstrates that such clauses will nonetheless face intensified scrutiny in the employment context. The bottom line is that where such a clause may visit unfairness upon an employee, our courts will look for a means to relieve from that unfairness.