Case In Point
Separate Agreements, Separate Forums: When Equity Disputes Escape the Employment Arbitration Clause
Date: July 6, 2026
Friel v. HUB International Limited, 2026 ONCA 313 offers a significant clarification on the interplay between employment agreements and separate equity participation agreements. The Court of Appeal confirmed that where an employee’s equity participation is governed by an agreement distinct from the employment agreement, disputes concerning that equity may fall outside the scope of the dispute resolution clause in the employment agreement, even where the equity was granted because of the employment relationship.
The Court dismissed the appellant’s appeal, upholding the motion judge’s determination that the mediation-arbitration clause in the appellant’s employment agreement—which required disputes arising under that agreement to be resolved by mediation-arbitration (the ADR Clause)—did not extend to a dispute over his entitlement to exercise vested Class B share options in a company related to his employer. Rather, the proper forum was Delaware, as prescribed by the forum selection clause in the Equityholders Agreement incorporated into the Share Option Agreement governing the Class B share options.
Background
The dispute involved three agreements: (1) an Employment Agreement under which the appellant commenced employment with HUB International HKMB Limited (HUB Ontario) in 2012, governed by Ontario law and containing the ADR Clause; (2) a Share Option Agreement that the appellant entered into in 2014 with HUB International and Hockey Parent Inc. (HPI), a company related to HUB Ontario, granting him an option to purchase HPI’s Class B shares, vesting in 2021; and (3) an Equityholders Agreement incorporated into the Share Option Agreement, which contained a forum selection clause designating the courts of Delaware as the exclusive forum for disputes involving the Class B share options.
The appellant resigned in December 2021 to join a competitor one day after his Class B share options vested. The respondents took the position that his competitive employment constituted “misconduct” under the Equityholders Agreement, entitling them to repurchase any shares with any additional value forfeited. The appellant commenced proceedings in Ontario seeking declarations that the ADR Clause governed the dispute and that the Equityholders Agreement’s forum selection clause was unconscionable, together with an order appointing an arbitrator.
Decision of the Motion Judge
The motion judge held that the ADR Clause did not apply and that the Equityholders Agreement’s forum selection clause was valid and enforceable, conferring exclusive jurisdiction on the Delaware courts.
Decision of the Court of Appeal
The Court of Appeal dismissed the appeal, affirming the motion judge’s conclusion, making three findings.
The competence-competence principle is not absolute – an exception applied allowing a court to resolve the jurisdiction issue
The Court rejected the appellant’s invocation of the competence-competence principle. While acknowledging that this principle ordinarily requires challenges to an arbitrator’s jurisdiction to be resolved by the arbitrator, the Court held that it is not absolute. A recognized exception permits a court to determine the jurisdictional question where it can be resolved as a pure question of law, or as a question of mixed fact and law requiring only a superficial examination of the evidentiary record. The Court found that threshold satisfied here, as the jurisdictional question turned entirely on the interpretation of the three agreements and required no deeper factual inquiry.
The forum selection clause in the Equityholders Agreement, not the ADR Clause, governed the dispute
The Court rejected the appellant’s contention that the ADR Clause governed the dispute. Central to the Court’s analysis was the structural and substantive separation between the employment relationship and the equity arrangements. The employment agreement made no reference to the Class B share options, and the Share Option Agreement and Equityholders Agreement were independent contracts to which HUB Ontario was not a party. The Court endorsed the motion judge’s conclusion that the grant of options was not part of the appellant’s employment with HUB Ontario and, accordingly, the dispute was neither “contemplated by” nor “in connection with” the employment agreement. The Court underscored that: “The Option Agreement unambiguously stated that the grant of options did not constitute employment compensation, was not a term or condition of employment and did not form part of the Employment Agreement” and further provided that if the optionee ceased to be an employee, it “shall not be interpreted to form an employment contract or relationship with [HPI] or any of its Affiliates.” On the strength of these provisions, the Court held that the forum selection clause in the Equityholders Agreement, not the ADR Clause, governed the dispute.
Despite an inequality of bargaining power, the forum selection clause in the Equityholders Agreement was not unconscionable
The Court declined to find the forum selection clause in the Equityholders Agreement unconscionable. While acknowledging that the respondents had conceded an inequality of bargaining power between its parties, the Court held that no evidence established that the terms of the agreement were improvident or that the forum selection clause would place a remedy beyond the appellant’s practical reach.
Key Takeaways
- The competence-competence principle will not prevent a court from determining jurisdictional questions that can be resolved on the face of contracts without a deep factual inquiry.
- Where an employee’s equity participation is governed by agreements that are separate from their employment agreement, disputes over that equity may fall outside the scope of a dispute resolution clause in their employment agreement.
- Even when there is unequal bargaining power between parties to an agreement granting equity, its forum selection clause will not be found unconscionable and it will be enforced, provided the “bargain was not improvident” and does not deny a remedy.
If you have any questions about the interaction between any of your employment agreements and separate equity participation agreements, or require more information, please contact your Hicks Morley lawyer.
The article in this client update provides general information and should not be relied on as legal advice or opinion. This publication is copyrighted by Hicks Morley Hamilton Stewart Storie LLP and may not be photocopied or reproduced in any form, in whole or in part, without the express permission of Hicks Morley Hamilton Stewart Storie LLP. ©