Quick Hits

• The Court of Appeal for British Columbia in Aspen Technology, Inc. v. Wiederhold, 2025 BCCA 261, ordered a stay in favour of arbitration, reversing a Chambers decision that had voided an employer’s arbitration clause.
• The appellate court found no need for fresh consideration because the arbitration clause formed part of the original incentive plan terms referenced in the 2008 employment offer.
• The court rejected public policy and unconscionability arguments, emphasizing that challenges to arbitral jurisdiction must respect the competence-competence principle unless the Dell or “brick wall” tests are truly met.
• The decision offers guidance on drafting incentive plans and employment agreements in Canada, specifically concerning arbitration provisions.

Background

David Wiederhold, an executive employee for the employer, sought to recover approximately $103,000 in unpaid bonuses and commissions, claiming entitlement under the company’s annual incentive plan. The employer sought to stay the action in favour of arbitration, relying on an arbitration clause in the incentive plan that required disputes to be resolved by arbitration in Boston, Massachusetts, under Delaware law.

The Chambers judge initially found the arbitration clause void and inoperative, citing a lack of fresh consideration, public policy concerns regarding the Employment Standards Act (“ESA”), and the disproportionate cost of arbitration (the “brick wall” principle). The Court of Appeal overturned this decision, finding errors in the lower court’s legal analysis and holding that the arbitration clause was enforceable.

Takeaways from the Court of Appeal’s Decision

The employee’s civil action hinged on three key questions: (1) whether the arbitration clause was supported by consideration; (2) whether the clause contravened public policy by ousting the ESA; and (3) whether the cost of arbitrating rendered the clause unconscionable. The Court of Appeal answered all three in the employer’s favour.

First, the court held that the employee’s 2008 offer letter explicitly entitled him to participate in “the FY ’08 Sales Account Manager incentive plan, in accordance with the terms of such plan” (emphasis added by the court), thereby making the arbitration requirement a condition for participating in the incentive plan and part of the original employment contract negotiation. Since the clause was included in the initial employment contract and not introduced as a post-contractual modification, no additional consideration was necessary.

Second, the court found no evidence, expert or otherwise, that an arbitrator applying Delaware law (as specified in the agreement) would disregard mandatory ESA protections. Without such evidence, the public policy challenge, which argued that it would deprive Mr. Wiederhold of the benefits of the mandatory provisions of the ESA, failed at the Dell “superficial review” stage and should have been left for the arbitrator to address. In other words, after a brief review of the record, it was not possible to conclude that the arbitration clause violated public policy. As such, the Chambers judge erred in assuming, without any evidence of Delaware law, that the impugned terms of the plan were void for reasons of public policy.

Third, the court addressed concerns about the cost of arbitration, including a mandatory up-front filing fee of approximately $11,000 CAD. While the lower court believed this created a “brick wall” that could prevent the employee from pursuing his claim, the Court of Appeal clarified that cost alone does not render an arbitration clause unconscionable. For a clause to be set aside on grounds of unconscionability, there must be both an inequality of bargaining power and an improvident bargain. The Court of Appeal found that the lower court failed to conduct a proper unconscionability analysis, having focused solely on the cost aspect without determining whether the necessary elements of unconscionability were present. In the absence of proof of both inequality of bargaining power and an improvident bargain, the arbitration clause could not be set aside on these grounds.

Lastly, the decision reinforces the “competence-competence” principle, which dictates that courts will generally defer questions about an arbitrator’s jurisdiction to the arbitrator, unless the Dell or “brick wall” exceptions are clearly met. The court will only intervene at the outset if, based on a superficial review of the record, it is evident that the arbitration agreement is void, inoperative, or incapable of being performed.

Practical Implications

• Incorporation language: The language of incorporation is crucial. The Court of Appeal’s ruling indicates that by explicitly binding an employee to “the terms of such plan,” an employer may include an arbitration clause in the original employment offer without needing to renegotiate or provide additional consideration each year. However, the situation may differ if the arbitration clause in the incentive plan requires that any dispute about the employment relationship be referred to arbitration. In that case, it might not be considered a term of the plan but rather a term of the contract imposed after the offer letter had been signed. This distinction is significant because, as clarified by the Court of Appeal, when the arbitration clause is limited to disputes arising under the incentive plan itself, and the employment offer expressly incorporates the plan’s terms, the clause is part of the original bargain and does not constitute a post-contractual modification. No fresh consideration may be required in such circumstances. Conversely, if the arbitration clause extends to all employment-related disputes beyond the scope of the incentive plan, it may be viewed as a substantive change to the employment contract. In that scenario, the clause could potentially be unenforceable unless supported by fresh consideration, since it would not have been contemplated as part of the original agreement between the parties. Therefore, careful drafting and clear incorporation language may help ensure that arbitration provisions are enforceable and that their scope is properly limited to avoid unintended legal consequences.
• Choice-of-law and severability clauses: Pairing a choice-of-law clause with a severability clause can help ensure that, even if a foreign law is chosen, statutory rights under local law are preserved. Although the Court of Appeal did not need to sever the Delaware choice-of-law clause, the presence of severability language gave the court comfort that the employee’s statutory rights would remain intact if necessary.
• Transparent arbitration rules: Employers can help address concerns about the enforceability and fairness of arbitration clauses by selecting well-known, transparent arbitral rules. Using established arbitration organizations and clearly defined procedures can demonstrate that meaningful remedies remain available to employees and that the process is not unduly burdensome or opaque. Transparent rules also make it easier to show that the arbitration process is accessible and fair, which may help counter arguments that the clause is unconscionable or creates a “brick wall” to dispute resolution.