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Recent Uber Decision Revisits The Use of Arbitration Clauses
Author Milosevic Fiske LLP
Date Posted on January 17, 2019
Home » Complex Corporate Commercial Litigation » Contract Disputes » Recent Uber Decision Revisits The Use of Arbitration Clauses
With Heller v. Uber Technologies Inc., the Ontario Court of Appeal (ONCA) kicked 2019 off with a decision that will likely have long-lasting implications beyond the parties involved. The case scrutinized an arbitration clause included in all agreements that Uber has with its drivers (who the company also claims are independent contractors, not employees). The ONCA ruled that the Uber arbitration clause was invalid for two reasons.
Arbitration in Ontario
Arbitration is a form of Alternative Dispute Resolution or ADR.
In arbitration, the parties retain and submit their issues to be decided by an arbitrator. The arbitrator controls the process much like a judge. The advantage of doing so is a quicker route to a decision and the ability to better control the expenses of litigation. As a result, it is not uncommon for commercial parties to insert an arbitration clause into their contracts. Thereafter if a dispute arises, the issues between the parties can most likely be dealt with through arbitration. This is known as an arbitration agreement.
In Ontario such matters are regulated by the Arbitration Act. The Act can apply to any dispute and is not limited to just commercial parties. The Act applies to all arbitration agreements unless the application of the Act is excluded by law or the International Commercial Arbitration Act (ICAA) applies.
Staying Litigation
If a party to an arbitration agreement commences litigation, the other party can apply to have the action stayed. The Court to which the stay motion is brought may refuse to order a stay where:
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.
Heller v. Uber Technologies Inc.
In the Heller decision, the plaintiff was an Ontario resident and a licensed Uber driver. He was thirty-five and had a high school education. He earned approximately $400 to $600 a week from delivering food through the UberEATS app. His action was proposed to be on behalf of all Ontario Uber drivers and sought a declaration that they were employees of Uber making the Employment Standards Act (ESA) applicable.
The claim further alleged that Uber had violated the provisions of the ESA and that its driver agreements were void. It requested damages of 400 million dollars.
The Arbitration Clause
In the process of becoming a registered Uber driver, the plaintiff was required to agree to all the terms of the relationship. One of those terms was an arbitration clause which specified that all disputes arising from or out of the agreement were to be governed by the law of the Netherlands. Further, all such disputes were to be first submitted for mandatory mediation under the International Chamber of Commerce Mediation Rules (ICC). Thereafter, if not settled, the issues were to be resolved by arbitration under the ICC Arbitration Rules. The place of arbitration was specified as being the city of Amsterdam, in the Netherlands.
Collectively, this all meant that if any issues arose during the plaintiff's relationship with Uber, in order for him to participate in the dispute resolution process, he would need to pay up front the sum of $14,500 in US funds (while he was earning somewhere between $20,800 and $31,200 a year in Canadian funds).
The original judge held that the dispute was both commercial and international, making the ICCA applicable over Ontario's Arbitration Act. The judge further found that the plaintiff had not establish any of the exceptions under either Act, and also rejected the unconscionability exception raised by the plaintiff.
The plaintiff appealed.
The Appeal Decision
Standard of Review
On appeal, the ONCA decided that the standard of review was correctness both because of the question of which Act applied and because it had to interpret a standard form contract, a contract of adhesion, that had widespread ramifications beyond the case at hand.
Issues on Appeal
The issues on appeal were:
Whether the Arbitration Clause amounts to an illegal contracting out of the ESA and is thus invalid; and
Whether the Arbitration Clause is unconscionable and thus invalid.
Contracting out of the Employment Standards Act
One of the exceptions to the automatic stay provisions in the Arbitration Act is where it is found that the clause itself is invalid. That was the argument of the plaintiff stating that it amounts to a contracting out of the ESA which that Act prohibits. The Court is not deciding whether the class are employees or independent contractors but rather whether the clause is valid or not.
The structure of the Arbitration Act is such that a stay is mandatory unless one of the exceptions is established. If an exception is found then the Court has a discretion whether to stay the action.
The ONCA started with the assumption that the plaintiff can prove the allegations in his pleading – namely that he is an employee of Uber. If he is an employee, does the arbitration clause then amount to a prohibited contracting out of the ESA? If it does, then the arbitration clause would be invalid and the decision to stay would be discretionary.
One of the rights of employees under the ESA is the right to complain to the Ministry of Labour that an employer has contravened the ESA. The only applicable restriction on that right in the ESA is that you cannot make a complaint following the commencement of a civil proceeding relating to the same issue. An arbitration is not a civil proceeding.
A complaint leads to an investigation, which amounts to an employee standard. As such, an arbitration clause purporting a different dispute resolution method, constitutes a contracting out of the ESA, making the arbitration clause, therefore, invalid.
Unconscionability
The ONCA also found the arbitration clause to be unconscionable. The tests to determine unconscionability are as follows:
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 onus to establish unconscionability was the responsibility of the party seeking to avoid an automatic stay. The onus was met by the plaintiff as found by the ONCA as follows:
The Arbitration Clause represents a substantially improvident or unfair bargain. It requires an individual with a small claim to incur the significant costs of arbitrating that claim under the provisions of the ICC Rules, the fees for which are out of all proportion to the amount that may be involved. And the individual has to incur those costs up-front. Uber's submission that the individual might recover those costs, if successful, does not change the impact that flows from the fact that these costs must be paid up-front. Further, it should be self-evident that Uber is much better positioned to incur the costs associated with the arbitration procedure that it has chosen and imposed on its drivers. Additionally, the Arbitration Clause requires each claimant to individually arbitrate his/her claim and to do so in Uber's home jurisdiction, which is otherwise completely unconnected to where the drivers live, and to where they perform their duties. Still further, it requires the rights of the drivers to be determined in accordance with the laws of the Netherlands, not the laws of Ontario, and the drivers are given no information as to what the laws of the Netherlands are.
There is no evidence that the appellant had any legal or other advice prior to entering into the services agreement nor is it realistic to expect that he would have. In addition, there is the reality that the appellant has no reasonable prospect of being able to negotiate any of the terms of the services agreement.
There is a significant inequality of bargaining power between the appellant and Uber – a fact that Uber acknowledges.
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. Indeed, Uber appears to admit as much, at least on the point of favouring itself when drafting the Arbitration Clause. Its rationale in support of that favouring, i.e. that it chose this particular arbitration process in order to provide consistency of results, is an unpersuasive one.
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