BC Court of Appeal Upholds Arbitration and Foreign Law Clauses in Employee Incentive Plan

Written By David Price and Cameron Penn

In Aspen Technology, Inc. v. Wiederhold, 2025 BCCA 261 (Wiederhold), the British Columbia Court of Appeal enforced an arbitration/forum selection clause in an employee incentive plan, overturning a lower court decision and staying the employee's civil claim in favour of arbitration in Massachusetts (with the arbitration to be conducted in accordance with Delaware law). The decision is a welcome addition for employers in the developing jurisprudence around the enforceability of arbitration clauses in the employment context.

Background

The plaintiff began his employment with Aspentech Canada Corporation (Aspentech) in 2008. He was a professional engineer, earned a six-figure income and eventually was promoted to the position of Sales Account Executive. His initial offer letter stated that he would be eligible to participate in Aspentech's incentive plan "in accordance with the terms of such plan", and that Aspentech reserved the right to "modify and/or amend its incentive and bonus plans from time to time in its sole discretion and/or in accordance with business needs with or without prior notice to employees".

For every year of his employment, he received and signed new incentive plans which each included, among other things:

(i) an arbitration provision, requiring that disputes under the plan (but not with respect to all aspects of his employment) be "resolved exclusively by arbitration in the City of Boston, Massachusetts, USA in accordance with the commercial arbitration rules of the American Arbitration Association in a three-arbitrator panel with all arbitrator fees and expenses shared equally" between the parties (Arbitration Clause); and

ii) a governing law provision, providing that all claims raised under the plan would be "subject in all cases to the laws of the State of Delaware, USA, without regard to its conflicts of law provisions" (Governing Law Clause).

In 2020, the employer withdrew the yearly incentive plan that had been signed by the plaintiff and issued to the plaintiff a new form of plan, which the plaintiff refused to sign. The employer subsequently calculated the plaintiff's commissions based on the new plan. The plaintiff commenced a civil action in British Columbia, suing his employer and its parent company for the difference in amounts owed under the withdrawn plan versus what was paid under the new plan. Both plans contained the same Arbitration and Governing Law Clauses.

Lower Court Proceedings

The defendants applied to stay the civil claim on the basis of the mandatory Arbitration Clause. The lower court judge was satisfied that, on its face, the arbitration clause applied to the dispute. However, the question became whether the Arbitration Clause was "void, inoperative or incapable of being performed", being the exception to the mandatory arbitration stay provisions of the Arbitration Act.

The lower court acknowledged the "competence-competence" principle requires that challenges to an arbitrator's jurisdiction should ordinarily be decided in the first instance by the arbitrator. However, there are two approaches to displacing the "competence-competence" principle, such that a court may decide the jurisdictional question at first instance:

(i) the framework from Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34 (Dell framework) permits a court to decide challenges to an arbitrator's jurisdiction that either raise questions of pure law, or questions of mixed fact and law that can be resolved by the court on a superficial review of the record, in the sense that the facts are either evident on the face of the record or undisputed by the parties; and

(ii) the "brick wall framework" from Uber Technologies Inc. v. Heller, 2020 SCC 16 (Uber) permits the court to decide the jurisdictional challenge if it is shown on a limited assessment of the evidence that there is a real prospect that referring those questions to arbitration would result in the issues never being resolved.

The lower court refused the defendants' application on three separate grounds, finding that:

(i) on a superficial review of the record, the arbitration clause was unenforceable for lack of consideration. The plaintiff's offer letter granted him the right to participate in the incentive plan as it may be amended from time to time, the employment offer itself was silent on dispute resolution mechanisms, and thus fresh consideration was required for the addition of the Arbitration Clause in the incentive plan;

(ii) on a superficial review of the record, the Arbitration Clause and Governing Law Clause combined to circumvent the minimum protections under the Employment Standards Act (ESA). The lower court reached this conclusion despite an expert opinion on Delaware law provided by the Defendants, which stated that an arbitrator applying Delaware law would apply the provisions of the ESA. The lower court rejected this evidence because the expert did not specifically address the sentence in the Governing Law Clause which stated that Delaware law applied "without regard for its conflicts of law provisions", and that the expert's opinion rested on Delaware's conflicts of law jurisprudence. Therefore, the lower court substituted its own opinion for that of the expert, assuming that Delaware law would violate the ESA's minimum standards; and

(iii) the costs of arbitrating even the preliminary jurisdictional question would be disproportionate to the total value of the plaintiff's claim, finding as a fact that the up-front arbitration filing fee was over 10 percent of the plaintiff's claim. Given this, it concluded that there was a real prospect that requiring the plaintiff to arbitrate the jurisdictional challenge would prevent the challenge from being resolved at all. However, the lower court ended its analysis there and did not proceed with the remainder of the brick wall framework to determine whether the Arbitration Clause was unconscionable.

The BC Court of Appeal Overturns the Lower Court Decision

The Court of Appeal overturned the lower court's decision on all three grounds, staying the action in favour of arbitration.

On the issue of fresh consideration, the Court of Appeal held that the lower court judge erred in failing to account for the fact that the offer letter only entitled the plaintiff to participate in the incentive plan "in accordance with the terms of such plan". The Arbitration Clause was thus not a change to a term of the plaintiff's employment requiring fresh consideration, but rather was a term of the incentive plan pre-authorized by the employee to be introduced. Indeed, the bargain struck between the parties in the offer letter contemplated that such plans would be governed according to their own terms and it was immaterial that the specific terms of the plan were not communicated to the plaintiff until after he had already signed the employment offer. Given the lower court's finding that the same Clauses appeared in every iteration of the plaintiff's incentive plan from 2008 to 2020, it was an error of law to conclude that fresh consideration was needed to make the Arbitration Clause enforceable. This was not a situation where an arbitration clause purported to require any or all employment disputes to be referred to arbitration, in which case the Court noted the clause may well have required fresh consideration.

The Court of Appeal next found the lower court erred by assuming the Governing Law Clause would result in an arbitrator ignoring the ESA and therefore resulting in the Arbitration Clause being unenforceable for circumventing the ESA's statutory minimum standards. Once the lower court rejected the employer's expert opinion and found that there was no expert evidence available to it to determine the effect of Delaware law, it was not then open for the court to substitute its own opinion and assume, on a superficial review of the record, that the Arbitration Clause and Governing Law Clause were contrary to public policy.

Finally, the Court of Appeal found the lower court erred by failing to complete the full legal analysis required under the brick wall framework. The existence of a brick wall is not a standalone basis for voiding an arbitration provision. Accordingly, once the lower court found a brick wall existed, creating a real prospect that the jurisdictional issue would not be resolved, it was then required to determine the merits of the jurisdictional dispute (i.e., whether the Arbitration Clause was unconscionable, such that there was an inequality of bargaining power and a resulting improvident bargain). It did not do so. The Court of Appeal proceeded to determine that there was no evidence that the Arbitration Clause was unconscionable. It distinguished the plaintiff's circumstances from the plaintiff in Uber. In Uber, the plaintiff was an Uber driver earning C$20,000 and C$30,000, with a high school education, who signed a standard form contract. By contrast, the plaintiff in Wiederhold was a "far more sophisticated party" with "significantly greater resources available to him". Accordingly, the Arbitration Clause was "far less of an obviously insurmountable impediment to him than the clause in Uber was to Mr. Heller and the others in his position".

Key Takeaways for Employers

Wiederhold is a significant win for employers and freedom of contract generally, affirming not only that parties can be held to their bargain to arbitrate disputes in the employment context but that a foreign law clause will not automatically undermine an arbitration provision. The decision contains many important lessons for employers.

First, sophisticated employment agreements often state (in more or less words) that employees will be eligible to participate in a benefit plan or an incentive plan "according to its terms, as may be amended from time to time in the employer's sole discretion". Wiederhold affirms that such language is binding on an employee and that it is immaterial as to whether they have seen the ancillary plan's terms prior to signing their employment agreement, provided that those terms do not otherwise conflict with the employment agreement.

Second, where a foreign law clause exists, Wiederhold requires courts to consider expert evidence on the effect of the foreign law in a stay application to enforce arbitration, without assuming the foreign law will void the arbitration clause for illegality. Accordingly, if plaintiffs wish to validly challenge an arbitration clause on the basis of a foreign law provision, they must come prepared with expert evidence. However, practically, the stalemate of dueling expert opinions on the effect of foreign law is likely to result in the jurisdictional dispute being referred to the arbitrator.

Thirdly, Wiederhold is a welcome appellate authority distinguishing from Uber on the unconscionability analysis. The Court of Appeal outright rejected the plaintiff's reliance on Uber to invalidate the Arbitration Clause for unconscionability because unconscionability is an individualized assessment that examines the relative bargaining power of the parties, looking at an employee's level of sophistication and access to resources. Wiederhold and other post-Uber case law suggest an emerging jurisprudential consensus that senior employees and/or executives will have difficulty relying on the unconscionability doctrine to escape arbitration.

Notwithstanding the above, employers should remain cautious of routinely including arbitration clauses in employment agreements and seek legal counsel as to the appropriateness of their enforceability in a given circumstance.

If you have any questions about any of the issues discussed in this post, or if we can help advise your business on similar or other labour-related issues, please contact one of the authors, or another member of the Bennett Jones Employment Services group, for more information. 

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