Written by Michael Wright and Danielle Stampley, Wright Henry LLP. The authors are co-counsel to the Plaintiff in Heller v. Uber.
In Heller v. Uber,[1] the Supreme Court of Canada distills the case into a single issue:
who has authority to decide whether an Uber driver is or is not an “employee” within the meaning of Ontario’s Employment Standards Act, 2000, S.O. 2000, c. 41 (“ESA”): the courts of Ontario or an arbitrator in the Netherlands, as provided for in the contracts of adhesion between Uber and its drivers?
Although this summary is technically accurate, the Court decides so much more than that. In holding that Uber’s arbitration agreement is unconscionable and therefore unenforceable, the Court has allowed Ontario Uber drivers an opportunity to collectively challenge their misclassification as independent contractors in Ontario courts and under Ontario law. Thousands of Uber drivers have fought for this kind of right in many jurisdictions without success.
The Facts
By now, the key facts of this case are well known to many people. The plaintiff, David Heller, was an UberEats driver when he filed a class action claim in 2017 alleging that Uber had misclassified him and other similarly situated UberEats and Uber drivers in Ontario as independent contractors. His claim seeks the protection of the ESA’s minimum wage, overtime, and other employment standards.
Uber moved to stay the claim in favour of an arbitration clause in a 14-page service agreement Mr. Heller had accepted on his phone. The agreement required him to resolve any dispute with Uber through mediation and arbitration in the Netherlands under Dutch law. Under the applicable rules, Mr. Heller’s up-front mediation and arbitration administrative and filing fees would have totalled US$14,500, plus legal fees and other costs of participation. As an UberEats driver working 40-50 hours a week, Mr. Heller earned between $400-$600 a week, or $20,800-$31,200 per year, before taxes and expenses.
The Court’s Approach to Unconscionability
Seven of the Court’s nine justices described this as a “classic case of unconscionability”, though meeting the test for unconscionability has always been a nuanced and thorny endeavour. Indeed, Justice Brown wrote in his concurrence that applying the doctrine of unconscionability involves “forcing a square peg into a round hole”,[2] arguing that the majority had to expand the doctrine to apply to these facts.
We see it differently. In holding that the agreement was unconscionable, the Court’s majority recognized Mr. Heller’s reality: Uber is vastly more powerful and had drafted an agreement that would ultimately prevent him from ever vindicating his rights under the agreement. Uber, however, would have no such difficulty. The Court’s unconscionability analysis re-affirms that it is an equitable doctrine, rather than a technical and formulaic test that would enforce a deeply one-sided agreement masquerading as a dispute resolution mechanism.
Despite some lawyers sounding the alarm to the contrary, freedom of contract remains intact. Freedom of contract, the Court explains, derives from a “freely negotiated exchange between autonomous and self-interested parties” and “presumes equality” between them.[3] The Court re-iterated that under such circumstances the contracting parties are presumed to know what is in their best interest, and therefore courts will enforce their agreements.
However, to our relief, the Court declined Uber’s invitation to presume that, as a rule and without exception, acceptance of a contract of adhesion is evidence of a freely negotiated, self-interested, exchange between co-equal bargaining parties. Instead, the Court acknowledged that not all contracting parties are equal; their respective social and economic context (among other things) may render their agreement involuntary and so unfair as to be unenforceable.
This is not new. Unconscionability has intervened to relieve parties of their so-called bargains for hundreds of years. The hue and cry here is a reaction to applying this doctrine in the context of modern contractual relations. Such a reaction is unfounded: the Court’s decision simply recognizes that the proliferation of contracts of adhesion in our daily lives is not a justification for ignoring traditional contract principles, including unconscionability.[4]
Against this backdrop, the Court reiterated that unconscionability is a two-part inquiry that requires: (i) an inequality of bargaining power and (ii) a resulting improvident bargain.[5] By allowing for the possibility that our “ordinary assumptions about the bargaining process” are not true in every case, this test strives to balance commercial certainty and fairness.[6]
Importantly, in striking this balance, the Court rejected the four-part test applied by the Ontario Court of Appeal (which Mr. Heller still managed to satisfy), which requires evidence that the stronger party knowingly took advantage of the weaker party’s vulnerability. The Court reasoned that this requirement of intent is inconsistent with the doctrine’s fundamental purpose—protecting vulnerable parties. “[A] weaker party, after all, is as disadvantaged by inadvertent exploitation as by deliberate exploitation”.[7]
Justice Brown’s Concurrence
In certain respects, and though he says that he would decide the case on narrower grounds, Justice Brown goes further than the majority—he says that Uber’s arbitration clause is antithetical to the rule of law. Justice Brown objects to what he describes as a decision “vastly expanding the scope” of unconscionability.[8]
Instead, Justice Brown would have held that the clause is void as contrary to public policy. Invoking this rarely-used common law remedy, which precludes the enforcement of private agreements that conflict with an overriding public policy concern, Justice Brown concluded that enforcing Uber’s agreement would undermine the administration of justice by making it practically impossible for Mr. Heller to vindicate his rights under the law.[9]
According to Justice Brown:
Access to civil justice is a precondition not only to a functioning democracy but also to a vibrant economy, in part because access to justice allows contracting parties to enforce their agreements. A contract that denies one party the right to enforce its terms undermines both the rule of law and commercial certainty. That such an agreement is contrary to public policy is not a manifestation of judicial idiosyncrasies, but rather an instance of the self‑evident proposition that there is no value in a contract that cannot be enforced. Thus, the harm to the public that would result from holding contracting parties to a bargain they cannot enforce is “substantially incontestable” . . . .
Justice Brown, Supreme Court of Canada, concurring judgment
We could not say it better than that.
Challenging Arbitration Agreements
Although the commentary on Heller has been primarily focused on the Court’s articulation of the test for unconscionability, the decision’s impact on arbitration law cannot be ignored.
On appeal, Uber argued that Mr. Heller’s claim was subject to a stay pursuant to Ontario’s International Commercial Arbitration Act, (“ICAA”),[10] rather than its domestic Arbitration Act (“AA”),[11] as Mr. Heller urged. Although both legislative schemes allow courts to deny a party’s motion for a stay, they are not identical. Applying the correct legislation could be determinative in some cases, though we argued it was not here.
First, the Court clarified that to determine which act applies courts should examine the pleadings to ascertain the nature of the parties’ dispute, not their relationship. Mr. Heller’s claims assert violations of the ESA arising from misclassification as an independent contractor. The Court emphasized that “the question of whether someone is an employee is the most fundamental of employment disputes”, which is not “commercial” as that term is interpreted under the ICAA, and therefore the AA applies.[12]
Second, the Court addressed whether competence-competence (the principle that an arbitrator has the jurisdiction to determine her jurisdiction) precluded it from deciding the arbitration agreement’s validity. The Court established in Dell Computer Corp v Union des consommateurs,[13] that courts should refer questions of validity to the arbitrator unless: (i) the issue can be decided as a question of law; or (ii) if the issue is one of mixed fact and law, it can be resolved based on a superficial review of documentary evidence in the record.[14] Uber argued that neither exception applied in this case.
The Court held that, though validity could be decided based on a superficial review of the record in this case, the concerns about accessibility to arbitration raised by Uber’s arbitration agreement warranted a further exception to the general rule. Rather than deferring to an arbitrator, courts should resolve a dispute about an arbitration agreement’s validity where “there is a real prospect, in the circumstances, that the arbitrator may never decide the merits of the jurisdictional challenge.”[15] To determine whether a party has met this threshold, court should consider whether: (i) assuming the facts pleaded to be true, there is a genuine challenge to arbitral jurisdiction; and (ii) whether there is a real prospect that, if the stay is granted, the challenge may never be resolved by the arbitrator.[16]
This is a significant change. The approach enhances access to justice by ensuring that competence-competence is not a trap for individuals like Mr. Heller, who are stuck in an unenforceable arbitration agreement because they cannot access the arbitration process to challenge the agreement’s validity, and a court has declined to consider the issue.
The Impact on Gig Workers in Canada
Many Gig workers are subject to arbitration agreements like Uber’s. The terms may vary, but the essential premise is that they preclude workers from seeking to enforce their rights in court, and in particular, in class actions. The Court’s decision guarantees these workers access to justice, rather than an illusory promise of dispute resolution.
Further, the Court declined to consider whether the ESA precludes the mandatory arbitration of employment standards claims, leaving the Ontario Court of Appeal’s holding on this issue undisturbed. For now, Ontario workers’ right to bring their employment standards claims in court and as a class is preserved. Given that these are usually relatively small claims with high risk, class procedures are the often only way workers even have a chance to vindicate these rights.
Finally, the Court’s decision in Heller rejects, though not explicitly, the disturbing trend of United States Supreme Court decisions upholding arbitration agreements that obviously deny vulnerable parties any chance of vindicating their rights. Instead, the Court has affirmed that, while arbitration agreements are enforceable and even encouraged, Canadians must have the ability to vindicate their rights. To that end, our courts may consider not only whether two parties have signed or accepted an arbitration agreement, but also whether that agreement in reality allows both parties access to justice.
Michael Wright & Danielle Stampley, “Heller v. Uber: Ensuring the Vindication of Rights in Canada” Canadian Law of Work Forum (June 30 2020): https://lawofwork.ca/?p=12794
[1] Heller v Uber, 2020 SCC 16 (“Heller”).
[2] Heller at para 103.
[3] Heller at para 56 (internal quotations and citations omitted).
[4] Heller at paras 85-89.
[5] Heller at paras 65-79.
[6] Heller at para 86.
[7] Heller at para 85.
[8] Heller at para 103.
[9] Heller at paras 111-114.
[10] 2017, S.O. 2017, c. 2, Sch. 5.
[11] 1991, S.O. 1991, c. 17
[12] Heller at paras 19-28.
[13] 2007 SCC 34 (“Dell”).
[14] Heller at para 32 (citing Dell).
[15] Heller at para 45.
[16] Heller at paras 44-46.