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Date:
2020.06.30

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THE EMPLOYERS' EDGE

Supreme Court Finds Uber Arbitration Agreement Invalid due to Unconscionability; Declines to Consider whether Agreement also Invalid as it Contracts out of ESA Protections

On June 26, 2020, the Supreme Court of Canada (the “SCC”) released its much-anticipated decision in Uber Technologies Inc. v Heller. This case considers the enforceability of a mandatory arbitration clause in Uber’s standard service agreement with its drivers. The arbitration clause provided that any complaints by a driver against the company were to be heard by a private arbitrator in Amsterdam, rather than through the standard dispute resolution mechanisms available to workers – for example, in Ontario either the Ministry of Labour, Training and Skills Development complaint process or the court system.

In 2017, a class action was filed in Ontario Superior Court alleging that Uber drivers are employees and not independent contractors as all documentation between Uber and its drivers purports them to be, meaning that they would be afforded all the usual protections under the Employment Standards Act, 2000 (“ESA”).  In 2018, the class action was stayed by a motion judge who held that the arbitration clause was binding, thus precluding access to the Ontario courts; however, the Court of Appeal for Ontario overturned the stay, ruling that the arbitration clause is not binding because it has the effect of illegally outsourcing an employment standard. As we know, employers cannot contract out of minimum employment standards and requiring drivers to access an arbitration process in the Netherlands would plainly do so as it removes the jurisdiction of the Ministry of Labour, Training and Skills Development and the Ontario courts.

In differentiating between Uber’s services agreements and commercial contracts where arbitration clauses are commonplace, the Court of Appeal noted that the arbitration clause seeks to take advantage of the significant disparity in bargaining power and financial means between Uber and its drivers who would be forced to shell out over $14,000 USD (not including travel expenses or legal fees) just to file for arbitration under this process. 

Ultimately, the SCC dismissed Uber’s appeal, finding that the arbitration clause was unconscionable and therefore invalid, allowing the class action to proceed in Ontario Superior Court.  

The SCC found that the circumstances amounted to “a classic case of unconscionability.” Central to this finding was the reality that the legal question at issue would likely never be resolved if the driver was required to pay the exorbitant arbitration fee up front. Writing for the majority, Justices Abella and Rowe commented as follows:

“Respect for arbitration is based on it being a cost-effective and efficient method of resolving disputes. When arbitration is realistically unattainable, it amounts to no dispute resolution mechanism at all. As our colleague Justice Brown notes, under the arbitration clause, “Mr. Heller, and only Mr. Heller, would experience undue hardship in attempting to advance a claim against Uber, regardless of the claim’s legal merit” (para. 136). The arbitration clause is the only way Mr. Heller can vindicate his rights under the contract, but arbitration is out of reach for him and other drivers in his position. His contractual rights are, as a result, illusory. Based on both the disadvantages faced by Mr. Heller in his ability to protect his bargaining interests and on the unfair terms that resulted, the arbitration clause is unconscionable and therefore invalid.”

Given this finding of invalidity, the SCC did not continue on to consider whether the agreement is also invalid because it has the effect of contracting out of mandatory protections in the ESA.

Although the decision is being hailed as a victory for workers in the gig economy, employment law practitioners on both sides of the aisle have been left disappointed by the SCC’s failure to engage with the issue of the agreement contracting out of the mandatory protections in the ESA. Despite this lack of a definitive ruling from the SCC, we at CCPartners will take the opportunity to emphasize that courts will rarely hesitate to uphold the minimum legislative standards for employees – particularly when it comes to employment agreements. CCPartners can assist in reviewing, updating and drafting employment contracts. Click HERE for a list of our team members who can help you with your employment needs.

Click HERE to access CCPartners’ “Lawyers for Employers” podcasts on important workplace issues and developments in labour and employment law.

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