On June 26th, the Supreme Court of Canada took a great step in favour of worker rights in the tech-driven gig-economy by striking down an arbitration clause in Uber’s standard form employment agreement. This could lead to a proposed $400 million lawsuit of Uber through the Ontario Courts.
The question at hand: Who has the authority to determine whether an Uber driver is or is not an employee within the meaning of Ontario’s Employment Standards Act (ESA)? The courts of Ontario, or an arbitrator in the Netherlands?
In Short: The decision is another blow to companies such as Uber, Foodora and Lyft who practice unequal, or exploitative business practices. It also reaffirms the principle of access to justice for employees who have legitimate grievances against their employer.
Facts of the case:
David Heller is an uber eats delivery driver in Toronto. To do so, like with several smart phone application-based side hustles like Uber, Lyft, Skip the Dishes, or Foodora, David had to accept the terms of Uber’s standard form services agreement. This agreement is 14 pages long and is read on a cell phone screen.
- As an Uber driver, Mr Heller earns between $400-600 a week. Or $20,800-31,200 a year.
As part of this agreement, Mr. Heller was required to resolve any dispute he had with Uber through mediation and arbitration in the Netherlands. This mediation and arbitration process require up-front administrative and filing fees of $14,500 USD, plus any legal fees and other incidental costs. Importantly, the agreement provides no information about the cost of mediation and arbitration.
- Typically, the Ontario Labour Board, a small claims court or in more serious cases, an Ontario Superior Court justice would be able to decide such issues. However, due to the arbitration clause, these options were not available to Mr. Heller.
What Happened Next?
Back in 2017 Mr Heller began a class action suit against Uber based on four issues;
- Breach of the ESA,
- Breach of contract based on either implied terms of the duty of good faith,
- Unjust enrichment,
For any of these claims to be considered though, Mr Heller needs to be considered an employee under the ESA. Similar to the claim brought against Foodora by is couriers in 2019, to a recent decision made by the California Public Utilities Commission in June of 2020 ordering that Uber and Lyft drivers are employees under a recent California law aimed to categorize many “independent contractors” as employees.
Uber responded by requesting the action be struck down (or stayed), in favour of arbitration in the Netherlands as per the employee contract. Arguing that Mr Heller had agreed to their arbitration clause. Uber wanted the arbitrator in the Netherlands (Amsterdam specifically) to decide on Mr Heller’s lawsuit, and in doing so, decide if he was an employee or an independent contractor.
Clauses that set the venue and form of arbitration are fairly standard in contracts. However, as a mechanism they are ripe for abuse, as well, the use of a standard form contract means that the terms are not negotiated. It is black and white, yes or no.
Either play ball or get off the team: Mr. Heller argued that the arbitration clause in the contract should be deemed invalid because it is “unconscionable.” Uber moved to strike down this motion as well.
The Ontario Superior Court said that they didn’t have the jurisdiction to strike down such a provision, but the Ontario Court of Appeals (ONCA) did not hesitate.
- The ONCA decided that the agreement was unconscionable based on the inequality of bargaining power between the parties and the improvident cost of arbitration.
- It intentionally chose the arbitrations clause in order to favour itself and “thus take advantage of its drivers, who are clearly vulnerable to the market strength of Uber.”
This decision was appealed by Uber to the Supreme Court of Canada, and the court struck down Uber’s appeal. The Court held that the clause was in fact unconscionable and decided to strike out the section from the contract.
Two Big Takeaways
First: The Supreme Court began by deciding if it was appropriate for the Court to decide on the validity of the clause. Arbitration clauses, due to their function (compelling parties to settle issues in certain ways), do not operate like other components of contracts and are inherently difficult to strike down.
- The Court determined that if the arbitration agreement is upheld, there would exist a legitimate chance that the challenge (I.E Mr Heller’s class-action suit) will never be resolved by the method of arbitration, the court is able to question the validity of the clause.
- In this case, the Court found that the fees imposed by the arbitration clause impose a “brick wall” between Mr Heller and the resolution of any claims he brings against Uber.
- This is a powerful move to promote access to justice in Canada between employees and employers, and potentially sets a precedent that any arbitration clause must be accessible.
- This evens out the playing field between mega-corporations and minimum wage workers.
Second: The Court held that the clause, found in the standard form contract was unconscionable, and struck it down.
- The two-step test to determine if a contract, or a clause of a contract is unconscionable requires a court to find out if the contract contains an inequality of bargaining power, and that it results in an “improvident bargain”.
- Essentially, was the contract fairly negotiated? If not, was that inequality in bargaining used to benefit the side with greater bargaining power?
When applied to Mr. Heller’s case the court found the following:
- That Mr Heller was powerless to accept or reject the standard form contract. His only option was to accept it or reject it.
- That the power gap between Mr Heller, a food deliveryman in Toronto, and Uber, a multi-national corporation, is extreme.
- That the arbitration agreement in the contract contains no information about the $14,500 USD cost of arbitration in the Netherlands.
- That it is also unrealistic for a person in Mr Heller’s position to be aware of the existence of these inferred rules, and that they would result in such extreme costs, both for arbitration, and the additional costs such as a plane ticket to the Netherlands.
The Court also recognized that this contract has the effect of modifying every other substantive right in the contract.
- This means that all the rights enjoyed by Mr Heller are subject to the condition that he travel to Amsterdam, initiate in arbitration by paying $14,500 USD, and then receive damages for the violation of the right.
It renders the driver’s rights unenforceable. This benefits Uber as they are not harmed, and it inherently permanently protects them from any challenges presented by employees. Mr Heller and only Mr Heller would experience hardship by attempting to advance a claim against Uber, regardless of the merit of the claim. The clause is the only way that Mr Heller would be able to vindicate his rights under the contract.
- In applying this standard to a standard form contract the court is encouraging reasonable, and equitable standard form contracts.
- This is a win for potential gig economy employees and consumers alike.
The Bottom Line: With the proliferation of the “side-hustle gig-economy” through being a Uber driver or an Instacart grocery shopper, concerns over worker rights have become palatable. With the recognition of the potential and actual exploitation of these workers, the Court is taking real steps to protect workers in these emergent sectors.
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