Court of Appeal invalidates Uber’s arbitration clause

The Ontario Court of Appeal has ruled that an arbitration clause used by Uber in a delivery driver’s contract is unenforceable.

Court of Appeal invalidates Uber’s arbitration clause
Michael Wright says the Court of Appeal for Ontario concluded Uber ‘overreached fairly dramatically’ in the arbitration clause governing drivers’ contracts. Photo: Laura Pedersen

The Ontario Court of Appeal has ruled that an arbitration clause used by Uber in a delivery driver’s contract is unenforceable.

The clause, raised in the class action certification process, is both “unconscionable” and amounts to “illegal contracting out of an employment standard,” Justice Ian Nordheimer wrote, with Justices Kathryn Feldman and Gladys Pardu concurring in allowing the appeal. 

Michael Wright, managing partner at Cavalluzzo LLP in Toronto, says the decision shows that if arbitration provisions are too onerous for one party, they may be set aside.

“What the court concluded was that Uber overreached fairly dramatically here,” says Wright, one of the lawyers who represented appellant David Heller in the case, Heller v. Uber Technologies Inc., 2019 ONCA 1.

The decision overturned that of the lower court and dealt a blow to the ride-hailing technology company, which now faces the prospect of a class action lawsuit in Ontario.

Wright says it’s not yet clear if Uber will seek leave to appeal this decision before the Supreme Court of Canada, now that the case has standing to go through the process to be certified as a class action suit.

Heller started as a delivery driver for the UberEATS app in 2016, a process which involved a “driver services agreement” with Uber-affiliated company Rasier Operations BV, the decision said. A clause in the agreement stated it was “exclusively governed by and construed in accordance with the laws of The Netherlands,” and said any dispute “shall be first mandatorily submitted to mediation proceedings under the International Chamber of Commerce Mediation Rules.”

After 60 days, the dispute would be resolved by arbitration where the “place of arbitration shall be Amsterdam, The Netherlands,” according to the agreement detailed in the decision.

The decision said the evidence shows that “the cost of initiating the arbitration process alone is US$14,500. This does not include the costs of travel, accommodation and, most importantly, counsel to participate in the arbitration.”

Heller earns $400 to $600 per week working full time, the decision said.

“We do not know how the laws of the Netherlands deal with the issues that the appellant has raised. We do not know if the laws of the Netherlands would provide greater, lesser, or equal benefits to the appellant, if it is determined that he is an employee,” wrote Nordheimer in the decision.

“[A]s an Ontario resident he is statutorily entitled to the minimum benefits and protections of Ontario’s laws. He should not be left in a situation where those benefits and protections are set by the laws of another country.”

Wright highlights two issues at play in the judges’ decision that Uber’s clause was unenforceable. The first issue, Wright says, was whether the arbitration clause in the user agreement between the driver and Uber “contracted out” of the Employment Standards Act, 2000. The second argument, which Wright says required the appellant to meet a high threshold but which was successful on appeal, was whether the clause was unconscionable under the common law.

Lior Samfiru, a partner at Samfiru Tumarkin LLP and another lawyer on Heller’s team, says the arguments boiled down to whether the contractual provisions take away workers’ rights to seek recourse through the Ontario courts and government, and whether there was an imbalance of bargaining power between Uber and the workers.

“I can give you all the rights in the world, but if you don’t have the mechanism to pursue those rights, they are completely meaningless,” says Samfiru, who splits his practice between Ottawa, Toronto and Vancouver.

Samfiru says he thinks the decision will “have significant impact in this province and beyond.”

“I think it sends a clear message to companies, especially those companies that come from other jurisdictions, that if they are going to operate in here — in Ontario — they have to abide by Ontario laws.

They have to play by the same rules as everyone else [and] cannot deprive those in this province of their established legal rights.”

The respondent companies affiliated with Uber will pay Heller $20,000 in costs, the decision said.

An Uber spokesman says the company is reviewing the decision.

“We are proud to offer a flexible earning opportunity to tens of thousands of drivers throughout Ontario,” he said in an e-mail on the company’s behalf. Torys LLP lawyers Lisa Talbot and Sarah Whitmore, who represented defendants Uber Technologies Inc., Uber Canada, Inc., Uber BV and Rasier Operations BV, declined to comment.

Sean Bawden, a partner at Kelly Santini LLP in Ottawa who was not involved in the case, says that the decision may create tension as employment lawyers aim to frame arbitration clauses for workers that might allege that they are employees, rather than independent contractors, which is how Uber classifies drivers in some areas.

“The interesting part for employment lawyers is, if we want arbitration clauses in the agreement, how do we draft the arbitration clause in such a way that it doesn’t offend the ESA? I think we are going to see fights over that,” says Bawden.

Arbitration can be an expeditious way to solve employment disputes but it is also important that courts give unconscionability some “teeth,” says Alyssa Tomkins, a partner at Caza Saikaley LLP in Ottawa who was not involved in the case.

“The fact that the court is applying the doctrine of unconscionability in a situation like this is a very good development in the jurisprudence,” says Tomkins. “But [at] the same time, it needs to be recognized that the decision really did turn on some specific facts. So, I don’t think it means that arbitration clauses largely are unconscionable.”

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