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Arbitration Clause unenforceable: Heller vs Uber

Ref: Heller v. Uber Technologies Inc., 2019 ONCA 1

In one of its first decisions of this year, the Ontario Court of Appeal grappled with the enforceability of a arbitration clause in the contract of adhesion formed between Uber drivers and Uber Technologies Inc through the Uber Driver App.

Facts: The plaintiff sought to bring a class action claim against Uber on behalf of all Uber drivers or “Partners” in Ontario seeking a declaration that they were employees protected by the minimum provisions of the Employment Standards Act, 2000 (ESA) , not independent contractors, and further that the arbitration provisions of the services agreements entered into between the parties were void and unenforceable. Uber sought to have the claim stayed in favour of International arbitration under ICC rules in the Netherlands, as required by those agreements.

Decision Below: The Court below held that arbitration agreements freely entered into are enforceable, even when entered through contracts of adhesion: Seidel v. TELUS Communications Inc.[2011] 1 S.C.R. 531;  Wellman v. TELUS Communications Company,  2017 ONCA 433. Any exception to this principal must come from the relevant legislation (either the International Commercial Arbitration Act, 2017, or the Arbitration Act, no important issue turning on which Act was relevant). The Arbitration Act sets out exceptions to the enforcability of arbitration agreements at s.7(2):

  • A party entered into the arbitration agreement while under a legal incapacity.
  • The arbitration agreement is invalid.
  • The subject-matter of the dispute is not capable of being the subject of arbitration under Ontario law.
  • The motion was brought with undue delay.
  • The matter is a proper one for default or summary judgment

As the plaintiff’s claim did not fall into any of the statutory exceptions, the motions judge held that the arbitration provisions were enforceable and accordingly stayed the action in favour of international arbitration. The plaintiff appealed.

Decision – Illegal Contracting Out: On preliminary motions the Court begins with the assumption that the plaintiff’s claim may be established; the pleadings are taken at their face value. The question for the Court of Appeal was not whether the plaintiff was in fact an employee or an independent contractor; that is the issue proposed for trial. The question on preliminary motion is whether, if the plaintiff’s claims are accepted, the arbitration clause would be prohibited by the ESA.

The ESA provides at s.96 the right for any employee to make a complaint to the Ministry of Labour in respect of any alleged breach of the ESA by their employer. Such a complaint results in an investigation by an Employment Standards Officer and ultimately a decision on the substance of the complaint. An employee may not make such a complaint if they have brought a civil proceeding relating to the same matter. An arbitration is not a civil proceeding, and therefore a mandatory arbitration clause purports to oust the right of redress provided under the ESA, which is unlawful and invalid within the meaning of s.7(2) of the Arbitration Act.

Decision – Unconscionability: The Court further held that, independent of its conclusion on the application of the ESA, it would find the arbitration provision unconscionable and therefore also invalid within the meaning of s.7(2) of the Arbitration Act. There are four elements to establishing contractual unconscionability, as set out in Titus v. William F. Cooke Enterprises Inc., 2007 ONCA 573, at para. 38; see also Phoenix Interactive Design Inc. v. Alterinvest II Fund L.P., 2018 ONCA 98:

  • a grossly unfair and improvident transaction;
  • a victim’s lack of independent legal advice or other suitable advice;
  • 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
  • the other party’s knowingly taking advantage of this vulnerability.

The Motions judge had incorrectly determined that only “significant” disputes would be determined by arbitration in the Netherlands; on the contrary, however, the Court of Appeal found that there was no scope whatsoever within the arbitration provision for disputes to be resolved in Ontario. The only reason that foreign arbitration would be restricted to significant disputes is that the ICC rules require payment in advance by the parties of arbitrators fees and the costs of arbitration, which the Court found as a matter of fact would require up front payment by the plaintiff of USD$14,500, before costs of travel, accommodation, and counsel. The plaintiff’s income amounted to $400-$600 weekly.

While the motions judge had apparently considered the contractual agreement (including arbitration clause) to be a normal commercial agreement; the Court of Appeal, by contrast, noted the gross inequality of bargaining power between the parties and concluded that the Arbitration Clause was in fact designed to defeat the very kinds of claims it purported to exist to resolve.

This was, accordingly, a grossly unfair bargain, in respect of which the plaintiff had no legal advice, made in the context of an overwhelming imbalance of bargaining power, and crafted by Uber to take advantage of that bargaining power to defeat potential claims rather than to resolve them.

For both reasons, the Court found in favour of the appealing plaintiff, finding the arbitration clause invalid and overturning the granted stay.

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