In a recent Ontario case, the Court of Appeal released a decision which may have significant repercussions for employers who use private arbitration clauses in employment contracts to resolve workplace disputes.

The case is part of an ongoing proposed class action suit launched by a group of Uber drivers in Ontario who claim that they are employees under the Employment Standards Act (“ESA”) and are therefore entitled to rights and protections set out in the ESA.

The Facts

The appellant is the representative plaintiff in the proposed class action. The class action was commenced on behalf of any person who worked or continues to work for Uber as a partner or independent contractor in Ontario since 2012. The Uber drivers represented in the class action seek a declaration that they are, in fact and in law, not partners or independent contractors, but rather Uber employees, and are therefore governed by the provision of the ESA. Their claim seeks declarations that Uber violated the provisions of the ESA and that the arbitration provision of the services agreements they entered into are void and unenforceable. The class action claims damages of $400 million.

Uber brought a motion to stay the action in favour of arbitration. It argued that the drivers had signed agreements with Uber that include an agreement to resolve disputes through private arbitration in the Netherlands.

The motion judge determined that the dispute was both international and commercial, so that the International Commercial Arbitration Act and not the Ontario Arbitration Act applied. The motion judge held that courts must enforce arbitration agreements freely entered into, even in contracts of adhesion, and that any restriction on the parties’ freedom to arbitrate must be found in the legislation.

The motion judge concluded that the ESA does not restrict the parties from arbitrating and rejected the unconscionability exception raised by the appellant. The motion judge granted Uber’s motion and the appellant brought an appeal.

Issues

The appellant raised two issues on appeal, in which he argued that:

  • the arbitration clause in the agreements with Uber amounted to an illegal contracting out of the ESA and was invalid; and
  • the arbitration clause was unconscionable and invalid on a separate basis.

The Decision

At the outset, the court stated that, at this stage in the proceedings, it was not necessary to determine whether the appellant and other drivers were employees rather than independent contractors. That issue would be decided if the class action proceeded to trial. Rather, the issue at hand centred solely on the arbitration clause.

Contracting Out

With regards to the first argument, the court stated that under the Ontario Arbitration Act, a court will stay a proceeding that is subject to arbitration under an agreement. However, there are a number of exceptions to this rule, including where the arbitration agreement is invalid. The arbitration agreement with Uber provided that all disputes must be submitted to private arbitration in the Netherlands, but the appellant successfully argued that the arbitration clause was invalid because it amounted to contracting out of the ESA, which is, itself, prohibited by the ESA.

After reviewing the law, the court accepted the appellant’s argument and stated:

“I conclude, therefore, 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.”

 Unconscionability

The court began its analysis of the second argument by stating plainly that “[i]ndependent of that first conclusion, I would, in any event, find the Arbitration Clause to be invalid on the basis of unconscionability.”

The court set out the proper test to be applied in determining whether a contractual provision is unconscionable, as set out in Ontario case law. The elements in determining unconscionability are:

  1. a grossly unfair and improvident transaction;
  2. a victim’s lack of independent legal advice or other suitable advice;
  3. an overwhelming imbalance in bargaining power caused by the victim’s ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility, or similar disability; and
  4. the other party’s knowingly taking advantage of this vulnerability.

The court found that all four elements of the test had been met in this case. It found that the costs associated with arbitration in the Netherlands and the lack of knowledge of the laws in the Netherlands by the drivers was grossly unfair and improvident. There was no evidence that the appellant or the drivers had received any independent legal advice. The court also found that there was a significant inequality of bargaining power between the appellant and Uber. As a result, the court stated:

“Given the answers to the first three elements, I believe that it 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.”

The court concluded that the arbitration clause was unconscionable and therefore invalid.

Having found that the arbitration clause both amounted to an illegal contracting out of an employment standard as well as being unconscionable, the appeal was allowed and Uber’s motion to stay was set aside.

Get Advice

Contact the employment lawyers at Mallins Law in Toronto for more information on this matter and other employment law questions. We regularly advise employers as well as unionized and non-unionized employees on a wide range of legal matters related to labour and employment law. Contact us online or by phone at 647-792-0310 to schedule a consultation.