Home or visitors? (issue: jurisdiction), Canadian Employment Law Today, at 4-7 (September 19, 2012)

When an employer operates in multiple provinces or countries, it can be subject to varying laws of different jurisdictions. Things can also get tricky if its operations in different locations overlap and employees in one jurisdiction are overseen by an office in another jurisdiction. If an employment contract is breached or one party decides to launch a legal action, there are factors to take into account before the courts of a particular region assume jurisdiction, and also precautions employers can take with their employment contracts to give them a better indication of where legal proceedings will take place. The assumption of jurisdiction by courts over tort cases in which plaintiffs sue in one province, but at least some of the events that gave rise to the claims occurred outside the province, is often highly discretionary and unstable.

In Van Breda v. Village Resorts Ltd., the Supreme Court of Canada crafted a new test, which requires a plaintiff to identify “presumptive connecting factors” that might link a legal situation to a court’s jurisdiction. If no presumptive connecting factor applies in the circumstance of a case, or if the presumption of jurisdiction resulting from such a factor is properly rebutted, the court will lack jurisdiction on the basis of the common law real and substantial connection test.

While vacationing in Cuba, Morgan Van Breda suffered catastrophic injury, which rendered her a paraplegic. Upon her return to Canada, Van Berda sued the resort and its associates in the Ontario Superior Court of Justice. Some of the defendants, including those who were served outside Ontario, moved to dismiss the action for want of jurisdiction. At each level, the Canadian courts found there was a connection between Ontario and the resort, because prior to their departure Van Breda’s husband, a professional squash player, entered into a contract with the resort through an Ottawa-based travel agent, requiring him to provide two hours of tennis lessons a day in exchange for bed, board and other services. The benefit of this contract was extended to Van Breda, who was injured in the context of her husband’s performance of his contractual obligations. The existence of a contract made in Ontario was the presumptive connecting factor, which entitled the Ontario courts to assume the jurisdiction.

The Supreme Court of Canada acknowledged that a sufficient connection existed between Cuba and the subject matter of the litigation to support an action in Cuba. However, the court concluded that Cuba would present serious challenges to litigation due to problems with witnesses, concerns about the application of local procedures and expenses linked to litigation in Cuba. The court determined that the burden on Van Breda would be far heavier if she were required to bring her action in Cuba.

Connecting factors important in determining jurisdiction

Van Breda draws a clear line between the assumption of jurisdiction and forum non conveniens, which concerns the court’s discretion to decline to exercise its jurisdiction. Forum non conveniens comes into play only after the court’s jurisdiction over a claim is established. It is not relevant to the jurisdiction analysis itself.

Presumptive connecting factors entitling a court to assume jurisdiction over a dispute, exist if:

The defendant’s location or resident is in the province
The defendant carries on business in the province.
A contract connected with the dispute was made in the province
The tort is committed in the province.
The Supreme Court of Canada made it clear that this “list of presumptive connecting factors is not closed.” It acknowledged that, over time, courts may identify new factors that also presumptively entitle a court to assume jurisdiction and the burden of rebutting the presumption of jurisdiction rests on the party challenging the assumption of jurisdiction. For example, where the presumptive factor is a contract made in the province, the presumption can be rebutted by showing that the contract had little or nothing to do with the subject matter of the litigation.

In the context of employment law, the working of jurisdiction is aptly demonstrated by the Ontario Divisional Court’s decision in Elguindy v. Core Laboratories Canada Ltd., which involved the claim for damages based on the tort of inducing breach of contract. The employee asserted that sometime after he was hired in Ontario, there was a telephone communication between his new employer and his former employer in Alberta, which resulted in his dismissal. The central issue was whether the tort of inducing breach of contract was committed in the province of Ontario. The court held that the geographical source of the inducement was of no consequence. Having referred to cases which held that the representation cannot be said to have been made until received, the court concluded that if the representation is received in a particular province, the tort of inducing breach is deemed to be committed in that province.

The Ontario Rules of Civil Procedure and the Supreme Court of Canada — since the 1994 decision of Tolofson v. Jensen — have stipulated that claims related to a tort committed in Ontario entitles the province’s courts to assume jurisdiction over a dispute. In addition, the use of damage sustained, which in the context of the tort of inducing breach of contract is an actual breach of contract, serves as a connecting factor which would squarely place a claim within the jurisdiction of the Ontario courts.

However, in Van Breda, the top court cautioned that the unreserved use of damage as a connecting factor may raise difficult issues and therefore presumptive effect cannot be accorded to this factor. For torts like defamation and inducing breach of contract, sustaining damage often completes the commission of the tort and often tends to locate the tort in the jurisdiction where the damage is sustained. In other cases the situation is less clear, because an injury may happen in one place, but the pain resulting from it might be felt in another country.

Important clause in employment contracts for interjurisdictional employers

Given that the list of presumptive connecting factors is not closed, in order for inter-jurisdictional and international employers to potentially avoid courts of a specific jurisdiction, they should include the forum selection clause in their employment contracts.

A recent case in point is Mackie Research Capital Corp. v. Mackie, where a corporate merger was followed by dissatisfaction that caused employees to resign and take positions with a competitor. The action concerned the rights of the company and the obligations of some of the employees under the merger agreement made in Ontario and breached in Alberta. Under the merger agreement, it was agreed that the Ontario courts should have jurisdiction, even though the employees lived in Alberta. Justice Low had no difficulty in holding that Ontario had jurisdiction over the matter and despite the fact that the majority of defendants reside in Alberta, the conduct alleged to have been engaged in by the defendants took place in Alberta and that a significant number of witnesses reside in Alberta, he refused to exercise his discretion to override the forum selection clause. The Ontario Superior Court of Justice observed that: “the balance may favour Alberta as the more convenient forum does not per se constitute strong cause.” It explained that the agreement was not the product of uneven bargaining position. Both parties “were sophisticated business people, represented by solicitors, concluding a sophisticated series of transactions.”

In circumstances of unequal bargaining power, employers should be mindful of the public policy concerns when imposing the forum selection clause on their employees without notice and fresh consideration, as exemplified in Hayes v. Peer 1 Network Service Solutions Inc., where the Ontario Divisional Court set the master’s decision with regards to jurisdiction aside, in circumstances where a dismissed employee’s employment contract contained a clause in which the law of the state of Washington was chosen to govern the agreement.