The Supreme Court of Canada has released the long-awaited decision in Seidel v. Telus Communications Inc. regarding arbitration clauses and whether they act as a bar to class actions. The plaintiff (Seidel) entered into a standard written cell phone contract with Telus which included a clause which required that disputes be referred to private and confidential mediation and then arbitration (the arbitration clause). It also contained a clause which purported to waive any right to commence or participate in a class action.

Seidel complained that Telus had falsely represented to her (and all other consumers) how Telus calculated air time for billing purposes. She sought remedial relief pursuant to the British Columbia Business Practices and Consumer Protection Act (“BPCPA”) for the province of British Columbia for what she contended were deceptive and unconscionable practices on the part of Telus. She sought to have the complaint certified as a class action on her own behalf and on behalf of a wide class of overcharged customers of Telus.

After an initial motion by Telus to stay (or suspend) the class action on the basis that the arbitration clause ought to be enforced (thus requiring Seidel to start an arbitration to address her complaint), the question of whether the case should proceed or not in court eventually found its way to the Supreme Court of Canada. In a narrow 5 – 4 decision, the majority of the Court held that the right to pursue certain “public interest” remedies provided for under the BPCPA could not be waived by contract, while the right to recover damages under the statute was essentially a private right of action which could be waived. However, since the class action waiver provision could not be severed from the arbitration clause on a whole, it too was void.

In reaching these conclusions, the Supreme Court of Canada made two important points when it comes to arbitration clauses and whether they will bar a plaintiff from proceeding in court by way of class action:

  1. Where an arbitration clause exists, it will operate to stay a class proceeding with respect to a common law or other statutory claim that does not have the specific “court access enabling sections” in them.
  2. Where consumer protection legislation (or other legislation) exists that provides a specific right of access to the court, an arbitration clause will not act as a bar to a class action being certified for claims that emanate out of the specific “court access enabling clause”.

While most franchisors are not unduly concerned with consumer protection legislation in respect of maintaining good franchisee relations, this decision should revive interest in the inclusion of an arbitration clause in franchise agreements. The comments of Justice Binnie, writing for the majority are informative:

“Absent legislative intervention, the courts will generally give effect to the terms of a commercial contract freely entered into, even a contract of adhesion, including an arbitration clause.”

Justice Binnie therefore concluded that Seidel’s claims that did not emanate out of the specific enabling legislation contained in the BPCPA were to be stayed pending arbitration.

Action Point

If you are redrafting your franchise agreement or considering doing so, contact us to discuss whether it is advisable to include an arbitration clause.

But What About No Class Action Waivers?

As noted, the arbitration clause that was the subject of the dispute contained a class action clause. It read: “By so agreeing (to arbitration), you waive any right you may have to commence or participate in any class action against Telus…and where appropriate, you hereby agree to opt out of any enforceability proceeding against Telus otherwise commenced.”

It was open to the Supreme Court of Canada to deal with the question of no class action clauses, one way or the other. Unfortunately, it did not do so, other than to say that in the particular circumstances of this case, the no class action waiver was determined to be unenforceable with respect to the BPCPA claims, because it was inextricably connected to the arbitration clause which was held inapplicable for the consumer protection claims. Justice Binnie stated: “It is not necessary on this appeal to determine whether class action waivers are unconscionable (and I do not purport to do so), because in my view, as a matter of interpretation, the Telus class action waiver is not severable from the arbitration clause as a whole and as a whole, the arbitration clause is rendered void …”.

Action Point

The enforceability of no class action waiver clauses in Canada therefore continues to be an open question most likely determined in the particular circumstances of each case.

There will always be some public policy argument that such clauses are unenforceable on the basis of unconscionability. Nonetheless, the case stands for the proposition that if a no class action clause is to be enforceable, it cannot be connected to an arbitration clause that otherwise is rendered unenforceable through legislation.

Bottom Line

While Seidel v. Telus does not establish hard and fast rules, it does provide support for the argument that arbitration clauses in and of themselves can be a bar to an action being advanced. If the action is a class action, it is also a bar, at least in this situation, to that action commencing.