Canada: Ontario Court Of Appeal Hits The Brakes On Arbitration Clauses

A recent decision from the Ontario Court of Appeal involving Uber throws into doubt the enforceability of certain arbitration clauses in employment (and independent contractor) agreements — and potentially consumer and other agreements. The Court found the arbitration clause at issue was invalid due to statutory non-compliance and unconscionability, in part because it required Uber drivers to arbitrate even small claims in the Netherlands.

Employers who rely on arbitration agreements to resolve employment-related disputes through a confidential process should review their agreements in light of the Court's decision — some specific suggestions are set out below. In general, arbitration clauses that do not provide accessible and effective processes and remedies may not preclude class actions.

Background

In Heller v. Uber Technologies Inc., 2019 ONCA 1, an Uber driver, Mr. Heller, commenced a proposed class action on behalf of all Uber drivers who have worked on the Uber platform in Ontario since 2012. Mr. Heller sought a declaration that drivers in Ontario are employees of Uber and therefore entitled to the benefits under the Employment Standards Act, 2000 (the ESA).

Uber brought a motion to stay the class action proceeding on the grounds that Mr. Heller was bound by an arbitration clause in the Uber Services Agreement, to which all drivers must agree before performing services on the Uber platform. That clause provides, among other things, that any dispute arising out of the Services Agreement must go through an arbitration hearing to be held in the Netherlands at an up-front cost to the driver of US$14,500 in filing fees. The motions judge upheld the Uber arbitration clause and granted its motion for a stay. The Court of Appeal reversed that decision and found that the arbitration clause is invalid and unenforceable on two grounds: 1) it contracts out of the ESA, and 2) it is unconscionable under common law.

Contracting out of the ESA

Section 5 of the ESA prevents parties from contracting out of employment standards. The Court of Appeal said that a preliminary motion in a proceeding such as this should proceed on the basis that the plaintiff's allegations are true or, at least, capable of being proven. From this premise, the Court of Appeal reasoned that if Uber drivers are in fact employees, they would be covered under the ESA, which gives employees the right to make a complaint to the Ministry of Labour, which in turn must investigate the complaint.

The Court of Appeal concluded that

  • the investigative process under the ESA is a "requirement" that "applies to an employer for the benefit of an employee" and, accordingly, meets the definition of an "employment standard" under the ESA; and
  • the arbitration clause is invalid as it contracts out of this employment standard by denying drivers the right to make a complaint to the Ministry of Labour.

Unconscionability

The Court of Appeal also found that the arbitration clause is invalid because it meets the following four elements of unconscionability: 1) a grossly unfair and improvident transaction; 2) one party's lack of independent legal or other advice; 3) the other party's overwhelming bargaining power; and 4) the other party knowingly taking advantage of the first party's vulnerability. Applying these four criteria, the Court of Appeal found

  1. the arbitration clause is an unfair bargain as it requires a driver with a small claim to incur significant up-front costs of arbitrating in Uber's home jurisdiction of the Netherlands in accordance with the laws of the Netherlands;
  2. there was no evidence that Mr. Heller had any legal or other advice prior to entering into the Services Agreement nor was it reasonable to believe he could have negotiated any of its terms;
  3. there is a significant inequality of bargaining power between Mr. Heller and Uber; and
  4. Uber knowingly and intentionally chose the arbitration clause in order to favour itself and take advantage of drivers who are clearly vulnerable to the market strength of Uber.

What does this mean for parties looking to rely on arbitration clauses?

Based on the Court of Appeal's decision, arbitration clauses in employment agreements that do not permit employees in Ontario to make complaints to the Ministry of Labour with respect to alleged violations of the ESA are potentially unenforceable. Employers should therefore consider moving quickly to amend arbitration clauses so as not to preclude an employee from seeking remedies under applicable employment standards legislation.

To address the Court of Appeal's concerns regarding unconscionability or unfairness with respect to arbitration clauses, companies should consider drafting or revising such clauses to include the following features:

  • The arbitration process should be subject to the local law of the jurisdiction in which the services are provided.
  • Arbitration hearings should be held in the jurisdiction in which the services are provided.
  • The employer should be responsible for paying any initial filing fees.
  • The employee should have a reasonable opportunity to obtain independent legal advice before entering into the agreement.

Finally, the Court's decision to strike Uber's arbitration clause on the grounds of unconscionability has potential implications beyond the context of class actions and independent contractor/employment cases. For an arbitration clause to be enforceable, the Court found there must be a real dispute resolution procedure. An arbitration clause in consumer, service or other agreements that do not provide accessible and effective processes and remedies may therefore be insufficient to preclude class action proceedings.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
 
Email Address
Company Name
Password
Confirm Password
Position
Industry
Mondaq Newsalert
Select Topics
Select Regions
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions