Canada: Arbitration Clause Illegal & Unconscionable: Uber Drivers Taken For A Ride

Last Updated: January 10 2019
Article by Paul J. Willetts

On January 2, the Court of Appeal for Ontario released its first decision of 2019: Heller v. Uber Technologies Inc. et al. While the new year is just getting started, this decision is likely to be one of the most significant from an employment law perspective. Its implications are far-reaching and raise novel compliance challenges for Ontario employers that contract to resolve workplace disputes by way of private arbitration.  

The Proposed Uber Class Action

Mr. Heller, the representative plaintiff, brought a proposed class action on behalf of Uber drivers, alleging that he and his fellow putative class members are employees and thus entitled to receive the rights and protections set out in the Employment Standards Act, 2000 ("ESA").

Uber brought a preliminary challenge to the proposed class action on the basis that its drivers, including Mr. Heller, were precluded from proceeding through the courts as they had instead agreed to resolve any disputes through private arbitration in the Netherlands. This preliminary challenge was successful and the proposed class action was stayed in favour of arbitration.

Mr. Heller appealed the stay decision to the Court of Appeal, asserting that:

  1. the arbitration clause in Uber's driver services agreement represented an unlawful contracting out of the ESA; and
  2. the arbitration clause is unconscionable, and thus invalid at law.

In a unanimous decision, the Court of Appeal accepted both of Mr. Heller's arguments and overturned the decision of the motion judge.

a)    Arbitration Clause Illegally Contracts Out of the ESA

The Ontario Arbitration Act states that a court may refuse to stay a civil proceeding where the arbitration agreement in question is invalid. Mr. Heller successfully argued that the arbitration agreement to which he was subject as an Uber driver met this requirement. Specifically, he asserted that the arbitration clause unlawfully contracted out of the ESA by precluding his right to make a complaint to the Ministry of Labour. Rather, the arbitration clause mandated that all disputes must be resolved by way of private arbitration in the Netherlands.

Section 98 of the ESA only allows an employee to make a complaint to the Ministry where the individual in question is not a union member and has not commenced a concurrent civil proceeding addressing the same issue. The Court found that Mr. Heller fell into neither of these exceptions and thus concluded that:

the Arbitration Clause is invalid because, based on the presumption that drivers are employees of Uber, as pleaded, it constitutes a contracting out of the provisions of the ESA, a result that is prohibited by that statute. I am reinforced in that conclusion when public policy considerations are taken into account.

b)    The Arbitration Clause is Unconscionable

The Court of Appeal then determined that independent of the fact that the arbitration agreement unlawfully contracts out of the minimum requirements of the ESA, it is invalid on the basis of unconscionability.

A finding of unconscionability requires evidence of a grossly unfair and improvident transaction, a victim's lack of independent legal advice, an overwhelming imbalance in bargaining power, and the other party knowingly taking advantage of this vulnerability.

In finding that the arbitration agreement between Uber and its drivers met this standard, the Court noted that the arbitration agreement requires an individual with a small claim to incur significant up-front costs ($14,500 USD) not taking into account costs of travel, accommodation and, most importantly, legal counsel to participate in the arbitration and then attend an arbitration in the Netherlands under Dutch law (of which drivers likely have no knowledge).

The Court then concluded that: can be safely concluded that Uber chose this Arbitration Clause in order to favour itself and thus take advantage of its drivers, who are clearly vulnerable to the market strength of Uber. It is a reasonable inference that Uber did so knowingly and intentionally.

Implications for Ontario Businesses

It is not unusual for Ontario employers to include arbitration clauses in their written contracts with both employees and independent contractors. The Court of Appeal's decision, however, raises new concerns in this regard.

In particular, Ontario businesses that make use of arbitration agreements should now review their contractual language to ensure that their arbitration clause does not, in any way, offend statutory minimum standards. If it does, it will likely be found invalid. In which case, the business may find itself subject to unexpected court proceedings, in the event of a subsequent dispute.

In addition, Ontario businesses should exercise caution in implementing arbitration agreements, ensuring that the terms of arbitration are fair and the contracting individual has an opportunity to reasonably review and consider the terms before signing.   

So, are Uber Drivers now Employees?

The Ontario courts have yet to answer this question. That said, the present dispute is not unique. Similar challenges to Uber have occurred in the UK and USA, and in these jurisdictions, Uber drivers have been found to be employees.

Most recently, the UK Court of Appeal upheld a 2016 decision of the UK Employment Tribunal which found Uber drivers to be employees. While such decisions do not bind Canadian courts, their persuasive value cannot be underestimated.

This Court of Appeal's recent decision, however, is unlikely to be the last word on this issue in Ontario. It instead likely represents a battle won for the would-be class, while the war continues. Uber are expected to seek leave to appeal to the Supreme Court of Canada - a strategy it has repeatedly deployed (with some success) in other jurisdictions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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