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Heller v. Uber: Some Thoughts from Ontario on Uber’s Arbitration Clause

 January 7 2019

By now, you have no doubt heard about the big Ontario Court of Appeal decision in Heller v. Uber Technologies, released as the first decision of the Court in 2019.  Another great year for work law is upon us!  There are lots of write ups already on the case all over the web, so I will keep my summary brief for my students, and then comment quickly on some interesting aspects of the case for discussion purposes.

Facts in Brief

Heller is a representative plaintiff in a proposed class action lawsuit brought on behalf of uberUber drivers alleging wide spread violations of the Ontario Employment Standards Act.  Heller earns between $400-$600 per week working 40 to 50 hours delivery food through the UberEats platform.  The central issue in the ESA complaint is whether Uber drivers are Uber “employees”, since the ESA only protects employees. Uber argues that it does not employ drivers, but rather simply provides a technology platform that links the drivers to potential customers.

This key employment status issue is being argued around the world, and it will eventually be decided in Canada.  But it does not arise directly in the Heller v. Uber decision.   The issue in this decision is whether the class action lawsuit should be stayed (prevented from proceeding)  on the basis that the Uber contract with Heller includes a mandatory arbitration clause requiring all disputes be referred to private arbitration IN AMSTERDAM and subject to the laws of the Netherlands.

On top of having to travel to Amsterdam, in order to commence an arbitration, the driver must pay US$14,500 up front, even if the ESA claim is for a few hundred bucks.  No rational person would ever proceed with such a goofy claim, which presumably is the reason why Uber included the arbitration clause.  Uber argued that when Heller ‘clicked’ on the Uber APP, he agreed to the standard Uber contract terms including the arbitration clause and by doing so he forfeited the right to file a lawsuit in Ontario alleging violations of the ESA.

For the purposes of Uber’s application to stay the Ontario lawsuit, the court assumes that Heller will be able to prove he is an Uber “employee” within the meaning of the ESA.  That is why the main issue of whether Uber drivers are “employees” was not addressed.  Justice Perell of the lower court sided with Uber, but his decision was overturned last week by the Court of Appeal.

The Court of Appeal Decision

The Court of Appeal looked first to the Arbitration Act, which in section 7 requires that any proceeding filed by a “party to an arbitration agreement” be stayed unless one of 5 exceptions apply.   One of the exceptions is that the “arbitration agreement is invalid“. The Court of Appeal ruled that the Uber arbitration clause was invalid for two reasons, both of which are very important to Canadian employment law.

Unlawful Contracting Out of the ESA

Firstly, it ruled that the arbitration clause amounts to an unlawful contracting out of the ESA.  The Court finds that the enforcement machinery in the ESA, including the right to file a complaint and have it investigated by an employment standards officer, constitutes a “benefit” for employees.  Since the ESA prohibits the contracting out or waiving of a statutory benefit, the Uber arbitration clause is unlawful.

This relatively straightforward finding has huge potential implications for the so-called ‘gig’ economy, where arbitration clauses are standard fare.  However, the decision also applies to more standard form employment arrangements in which arbitration clauses are found in employment contracts.  Arbitration clauses must not block access to the statutory enforcement machinery in employment standards legislation and insofar as they do so they are unenforceable.

Unconscionability

Secondly, the Court ruled that the Uber arbitration clause was unconscionable at common law. I find this part of the ruling the most interesting.  I discuss unconscionable contracts in Chapter 11 of The Law of Work.  The Court described the four elements of the test for unconscionability as follows in Heller: 

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 Uber arbitration clause satisfied all four elements of the test.  The Court found the clause is grossly unfair.  It requires a driver with a small claim to front thousands of dollars just to begin the arbitration process, which then would take place in Europe and be subject to Dutch law about which drivers have no knowledge.

[Interestingly, in U.S. cases raising similar issues, the Uber arbitration clause required Uber to pay the arbitration costs (and also permitted drivers to opt out of the arbitration clause).  There appears to be different standard contracts.  The Ontario Court of Appeal notes that, "it should be self-evident that Uber is much better positioned to incur the costs association with the arbitration procedure".  However, a requirement for Uber to pay has created different problems for Uber as thousands of drivers in the U.S. have now filed individual arbitration claims, imposing huge costs on Uber.]

There was no evidence that the drivers had received professional advice, and they had no power to bargain amendments anyways because of the vast inequality of bargaining power that defines the gig economy.  It was clear to the Court of Appeal that Uber chose this arbitration clause “in order to favour itself and take advantage of drivers”.  Since the clause is unconscionable, it is unenforceable and cannot block driver access to courts or tribunals.

Parallel Between Vulnerable Workers and Consumers?

I’m still thinking about this decision, but my early take is that the unconscionability finding is arguably more significant than the finding of an unlawful contracting out of the ESA.   Lawyers should be able to come up with ways to draft arbitration clauses that protect the right of employees to enforce ESA claims through the ESA enforcement machinery.  However, if arbitration clauses are unconscionable at common law due to inequality of bargaining power between giant multinationals and individual workers who simply click or sign a standard form ‘adhesion contract’ of service, then arbitration clauses as applied to work are vulnerable to attack on a wider scale.

Uber’s arbitration clause was particularly harsh and unfair.  If the entry cost of arbitration was nominal or paid for by Uber (as in California), and if the arbitration hearing was held in Ontario and was subject to Ontario law and not controlled by Uber, for example, it may have withstood the unconscionability challenge.

However, I am intrigued by the Court’s comparison of Uber drivers to consumers, who are regularly presented with lengthy standard form “contracts of adhesion”  drafted by and for the benefit of the vendor, manufacturer, or service provider.  Think about the contract you are required to sign when you buy a new phone.  Check out this passage from Justice Nordheimer:

I would add that, for the purposes of this analysis, I do not see any reasonable distinction to be drawn between consumers, on the one hand, and individuals such as the appellant, on the other. Indeed, I would note that, if Uber is correct and their drivers are not employees, then they are very much akin to consumers in terms of their relative bargaining position. Alternatively, if Uber is wrong, and their drivers are employees, we are not speaking of employees who are members of a large union with similar bargaining power and resources available to protect its members. Rather, the drivers are individuals who are at the mercy of the terms, conditions and rates of service set by Uber, just as are consumers. If they wish to avail themselves of Uber’s services, they have only one choice and that is to click “I agree” with the terms of the contractual relationship that are presented to them.

Very interesting indeed.  This reminds me of Professor Harry Arthurs’ observation in his paper “Labour Law as the Law of Economic Subordination and Resistance: A Counterfactual?”.  Harry observes how workers, consumers, tenants, and other groups in our society have in common their status as economically subordinate actors subject to the will of a more powerful party.  He imagines what law might look like if it were organized around this concept of economic subordination and resistance to it.  He argues that we could learn a lot by breaking down silos of “labour law” and “consumer law” to recognize patterns that confront similarly situated vulnerable actors across society.

A practical implication of Harry’s argument is that labour law could learn from consumer law, and vice versa.  This is a point that Justice Nordheimer seems to be getting at. Consumer laws in Canada forbid the use of arbitration clauses inserted into a consumer agreement to block consumer access to the courts (see for example section 7(2) of the Ontario Consumer Protection Act).  These laws recognize the vulnerability and lack of bargaining power possessed by consumers and restrict the right of large corporations to insist on mandatory arbitration clauses.

Justice Nordheimer draws attention to the parallels between the vulnerable situation of gig workers such as UberEats drivers and nonunion employees who lack any power to bargain improvements from standard form employment contracts,  and consumers more generally. He leaves hanging the intriguing policy question of whether the law should treat the two in a similar manner.  I think this makes good sense.  Therefore, when I am Minister of Labour, look for an amendment to the ESA similar in language to Section 7(2) of the Consumer Protection Act, which would deem an arbitration clause in an employment contract or ‘gig worker’ contract (however we want to label it) invalid insofar as it purports to prevent a worker from bringing a complaint or action in court alleging violations of worker protection statutes.

Issues for Discussion

Do you believe that Heller v. Uber Technologies will have a dramatic effect on Ontario employment practices?

Why do you think some employers like arbitration clauses?  What benefit is there to employers in using them? Do mandatory arbitration clauses benefit employees?

What do you think of Justice Nordheimer’s assertion that gig workers and many nonunion workers are in a similar position to consumers who agree to standard form consumer contracts?

 

 

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