On June 26, 2020, the Supreme Court of Canada released its decision in the highly publicized case of Heller v Uber Technologies Inc. The case arises from a Toronto-based UberEATS driver’s effort to bring a $400-million class action against Uber, on behalf of Uber and UberEATS drivers in Ontario. Mr. Heller alleged that Uber violated the Employment Standards Act, 2000 by treating Uber and UberEATS drivers as independent contractors and failing to provide them with employment-related entitlements like minimum wage, vacation, and overtime pay.

The issue before the Court was the validity of an arbitration clause in a standard form service agreement. The agreement was governed by the law of the Netherlands and required drivers to litigate their disputes with Uber in the Netherlands. Uber required all of its prospective drivers to enter into this agreement by having them accept the terms through their app. The Court ruled in favor of the drivers, finding that the arbitration clause was unconscionable because its terms effectively made it effectively impossible for the drivers to arbitrate their claims.

As a result of the decision, the class action can proceed to a certification motion.

Key Takeaways

Employers with arbitration clauses in their employment contracts or independent contractor agreements must revisit their agreements to determine whether they continue to be valid in Canada. Based on the Court’s decision, employers should not have arbitration clauses that require employees to pay substantial upfront fees to initiate the process. Employers should also consider whether they should pay the administration fees required for private arbitration, subject to the company’s right to a refund of those fees if it is successful in arbitration. If employers choose to keep arbitration clauses, they should ensure that in-person hearings remain local.

The Supreme Court did not address the Ontario Court of Appeal’s finding that the arbitration clause in the Uber service agreement was also invalid because it contracted out of the ESA. This means that the Ontario Court of Appeal’s decision that an arbitration agreement that prevents an employee from using the ESA’s enforcement mechanisms is unlawful, at least in Ontario. As a result, employers must also review the arbitration clauses in their employment contracts to ensure they do not contract out of the enforcement mechanisms of the ESA. Since the Court of Appeal allowed Mr. Heller to challenge the arbitration clause on the basis of the ESA, even though Uber viewed him as an independent contractor, employers should review the arbitration clauses in their independent contractor agreements as well.

Employers who use standard form or boilerplate employment contracts or individual independent contractor agreements, even without arbitration clauses, must take particular note of the Supreme Court’s finding that the arbitration clause was unconscionable because a) there was bargaining power inequity between the parties; b) the arbitration clause was part of a standard form contract that could not be negotiated; and c) the substantive terms of the clause were harsh and unfair. The Court also commented that even independent legal advice may not be a valid defence if someone makes an unconscionability claim — such advice must be effective advice.

The Court’s findings and reasoning will result in more litigation about whether the terms of employment contracts, particularly clauses that limit post-termination entitlements, are valid.

 Background

In early 2018, the Ontario Superior Court of Justice stayed the Uber drivers’ proposed class action in favour of arbitration in the Netherlands under the service agreement.

The Ontario Court of Appeal overturned the lower court’s decision. Based on the presumption that Uber employed the drivers, the Court found that Uber’s arbitration clause contracted out of Ontario’s ESA. The Court found that being forced to arbitrate a complaint against Uber in the Netherlands deprives an employee of the benefit of making a complaint to, and seeking an investigation by, the Ministry of Labour under section 96(1) of the ESA. The Court decided that this benefit was a guaranteed employment standard and the parties could not waive this right. Separately, the Court held that the arbitration clause was invalid because it was unconscionable, in part because Uber drivers have no avenue for resolving disputes in Ontario and are required to incur approximately $15,000.00 USD to initiate an arbitration proceeding in the Netherlands.

The Supreme Court of Canada’s Decision

By a large majority, the Supreme Court accepted Mr. Heller’s claim that Uber’s arbitration clause in Ontario was unconscionable because there was an inequality of bargaining power between Uber and its drivers, resulting in an “improvident bargain” for the drivers. While courts are normally expected to defer to arbitrators on the question of whether or not an arbitration clause is valid, the majority of the Court found that courts can depart from this general rule in limited circumstances, including where doing so may raise accessibility issues. For example, if the cost of starting arbitration is significant or if the contract includes a choice of law clause that circumvents mandatory local policy, a court may justified in deciding the validity issue on its own. The majority of the Court declined to consider whether the agreement was also invalid because Uber had contracted out of the ESA.

In concurring reasons, Justice Brown concluded that the arbitration clause was invalid because it undermined the rule of law and was contrary to public policy, not because it was unconscionable. In Justice Brown’s view, the majority of the Court vastly expanded the scope of the doctrine of unconscionability, without providing any meaningful guidance as to its application. Justice Brown warned that charting such a course will serve only to compound the uncertainty that already plagues the doctrine, and introduce uncertainty to the enforcement of contracts generally.

In dissenting reasons, Justice Côté found that consensual agreements should be binding, but also said Uber’s agreement with drivers should be amended and that Uber should advance the filing fees to enable Uber drivers to initiate arbitration proceedings. Justice Côté was the only justice to address the ESA issue, finding that it was neither inconsistent with the ESA nor contrary to public policy.