In the recent decision of Uber Technologies Inc. v. Heller, 2020 SCC 16 (“Heller”), the Supreme Court of Canada (“SCC”) found that the arbitration clause in Uber’s standard form service agreement with its drivers was invalid.
This decision clears the way for the proposed class action lawsuit brought by David Heller on behalf of Ontario Uber drivers. If that class action proceeds, the Ontario courts will have to decide whether Uber drivers are employees governed by the Ontario Employment Standards Act, 2000 (“ESA”) or whether they are true independent contractors exempt from employment standards legislation.
Heller has important ramifications for many areas of the law, including arbitration of commercial agreements generally. Our colleagues Scott Lucyk and Ben Westerterp have written a detailed blog post which explains Heller’s implications for standard form contracts, the doctrine of unconscionability, and the new exception to the “competence-competence” principle in arbitration. In this blog post, we are focusing on the aspects of the decision most relevant to employers.
Mr. Heller was a Toronto-based UberEATS delivery driver. When a driver logs into any of Uber’s software applications for the first time, they are presented with a standard form services agreement of around 14 pages. To accept the services agreement, drivers must click “I agree” twice. There is no ability to negotiate the terms and conditions of the agreement with Uber. The services agreement includes a mandatory arbitration clause, which states that any dispute arising from the agreement is to be mediated and arbitrated according to the laws of the Netherlands, in accordance with the rules of arbitration of the International Chamber of Commerce (“ICC”).
In 2017, Mr. Heller started a class proceeding against Uber in which he sought declarations that: (1) Uber drivers are employees and not independent contractors, and so are covered by the ESA; (2) that Uber had violated the ESA; and (3) that the arbitration provisions in the service agreement are unenforceable. Mr. Heller sought damages of $400 million.
Uber applied to stay the class action on the basis that the arbitration clause in the service agreement required disputes to be arbitrated in the Netherlands under the ICC rules. While the lower court initially granted Uber’s request for a stay, it was set aside by the Ontario Court of Appeal (“ONCA”) on two separate grounds. Firstly, on the basis that the arbitration clause was invalid because it improperly contracted out of section 96(1) of the ESA in eliminating an Uber driver’s right to make a complaint to the Ontario Ministry of Labour regarding ESA violations. Secondly, even if the arbitration clause was not invalid on this basis, the ONCA held that it was still unenforceable because requiring an Uber driver to travel to the Netherlands to mediate and/or arbitrate any dispute was unconscionable.
The Supreme Court of Canada Decision
The SCC dismissed Uber’s appeal, agreeing with the ONCA that the arbitration clause was unconscionable and therefore invalid. The SCC confirmed that that there is a two-part test for determining whether an agreement is unconscionable: (1) inequality of bargaining power; and (2) an improvident bargain. The SCC held that inequality of bargaining power exists “when one party cannot adequately protect their interests in the contracting process.” A bargain will be improvident if it unduly advantages the stronger party or unduly disadvantages the more vulnerable party.
The majority of the SCC found a clear inequality of bargaining power between Uber and Mr. Heller. Mr. Heller was unable to negotiate any terms of the standard contract, he could either accept it or reject it. There was also a “gulf in sophistication” between Mr. Heller and Uber, and the arbitration agreement included no information about the costs of mediation and arbitration in the Netherlands. It was also not reasonable to expect that a person in Mr. Heller’s position would necessarily appreciate the financial and legal implications of the arbitration clause. The substantial arbitration fees were not set out in the service agreement, nor were the ICC Rules.
The majority also found that the arbitration clause was improvident. Under the ICC rules, the fees associated with initiating an arbitration proceeding are in the range of $14,500. These fees represent around half of Mr. Heller’s annual pre-tax income. According to the SCC, no reasonable person who had understood and appreciated the implications of the arbitration clause would have agreed to it.
Given the majority’s conclusion that the arbitration agreement was invalid on the basis of unconscionability, it did not decide on the issue of whether it was also invalid because it purportedly contracts out of the ESA.
Takeaways for Employers
Heller does not mean that arbitration clauses are inappropriate in employment or independent contractor agreements. That said, arbitration clauses should not be included in agreements on a routine basis without regard to the circumstances of the individual employment or contracting relationship. While certain individuals, such as executive/senior level employees, may have some bargaining power when negotiating the terms of an employment agreement, it is generally accepted that there is a degree of inequality of bargaining power in the relationship between an employer and an employee or contractor. In light of Heller, employers are reminded to consider whether or not such a clause could result in an “improvident bargain” in the circumstances.
Some additional takeaways from Heller include the following:
- Employers may face increased challenges in enforcing clauses in employment or contractor agreements with dense or difficult to understand terms, particularly if the clause heavily favours the employer and the employee or contractor is unsophisticated and/or vulnerable.
- Arbitration clauses should be tailored to the circumstances, and they should provide enough information to make the legal and financial consequences of the clause reasonably clear to the parties. In Justice Brown’s concurring reasons, he noted that arbitration agreements may be tailored to exclude certain claims or to require the party with the stronger bargaining position to pay a higher portion of the upfront costs. Thus, a provision which appears to be designed to act as an unequal barrier to accessing the dispute mechanism may not be enforceable. If there are other reasons the employer wants to use a particular arbitral forum, such as confidentiality of the process, procedural expediency, or consistency, this may mean the employer should be transparent about the forum, and may have to agree to pay a larger portion of certain expenses, such as the arbitration fees. To mitigate against claims that the expenses associated with arbitration are disproportionate to the dispute, parties may also want to consider allowing for virtual/remote arbitration or a cap on the arbitration fees.
- It is good practice to make sure that employees and contractors have time to review and consider an agreement and to obtain independent legal advice. While a clause stipulating that the individual has had an opportunity to receive independent legal advice is still good practice, it does not eliminate the risk of a court finding unconscionability. In Heller, the SCC noted that independent advice is relevant only to the extent that it ameliorates the inequality of bargaining power experienced by the weaker party and that pro forma or ineffective advice may not improve a party’s ability to protect their own interests.
- British Columbia courts have continued to enforce some arbitration provisions and have distinguished the ONCA’s reasons for finding that the Uber arbitration clause contracted out of the ESA, which we wrote about in this earlier blog post. This should not change in light of Heller since the majority of the SCC declined to comment on whether the Uber arbitration clause contracted out of the ESA, and in his dissenting reasons, Justice Côté held that there was insufficient evidence to support a finding that the arbitration clause was inconsistent with the ESA.
If you have any questions about this case or the use of arbitration clauses in employment agreements, please contact any member of Lawson Lundell’s Labour, Employment, and Human Rights Group.
Cory Sully is an associate in both the Labour, Employment and Human Rights Group and the Privacy and Data Management Group in Vancouver. Cory provides practical and strategic advice to clients regarding various issues relating to ...
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