Written By Nathan J. Shaheen, Joseph N. Blinick and Tyler W. Henderson
Will an arbitration provision in a services agreement between Uber and its drivers prevent the drivers from bringing a class action for being misclassified as contractors? The Ontario Superior Court recently addressed this question in Heller v Uber Technologies Inc.. The answer, in short, is “yes”.
David Heller commenced a proposed class action against Uber Technologies Inc. on behalf of Uber drivers in Ontario. He alleged that Uber failed to correctly classify him and his fellow drivers as employees. Consequently, he argued, Uber had deprived all class members of their mandatory entitlements under Ontario’s Employment Standards Act, 2000 (ESA). Mr. Heller sought $400 million in damages on behalf of the class.
Prior to the certification motion, Uber brought a motion to stay the potential class proceeding, based on an arbitration clause in the contracts between Uber and the class members. The arbitration clause required all disputes to be resolved by way of arbitration in the Netherlands.
The Arbitration Clause
In addition to expressly providing that the relationship between Uber and the class members was not an employee-employer relationship, the relevant agreement between Uber and its drivers stated that: (i) the “Agreement shall be exclusively governed by and construed in accordance with the laws of the Netherlands, excluding its rules on the conflict of laws”, and (ii) “[a]ny dispute, conflict or controversy, howsoever arising out of or broadly in connection with or relating to this Agreement, including relating to its validity, its construction or its enforceability, shall be first mandatorily submitted to mediation proceedings under the International Chamber of Commerce Mediation Rules (“ICC Mediation Rules”)... If such a dispute has not been settled within sixty (60) days after a request for mediation has been submitted under such ICC Mediation Rules, such dispute can be referred to and shall be exclusively and finally resolved by arbitration under the Rules of Arbitration in the International Chamber of Commerce”.
On the stay motion, the question was whether the class members could circumvent the arbitration clause to bring a class proceeding. Mr. Heller argued that he could. Uber disagreed.
Justice Perell agreed with Uber and stayed the proposed class action in favour of arbitration. His reasons included resort to the “competence-competence” principle:
The general rule is that a challenge to the arbitrator’s jurisdiction should be first resolved by the arbitrator. The exceptions to the general rule are where the challenge is based solely on question of law. If, however, the challenges raised are questions of mixed fact and law, the court should refer the challenge to the arbitrator unless the questions of fact require only superficial consideration of the documentary evidence in the record.
Mr. Heller argued it was within the court’s jurisdiction to decide whether the matter is arbitrable because it required an interpretation of the ESA. He further argued that the present case was an exception to the general rule of allowing arbitrators to determine their own jurisdiction.
Justice Perell found “several weaknesses” in these arguments. First, they were premised on Mr. Heller being an employee, which remained a live issue to be determined in the proposed class action. Second, absent express legislative language to the contrary, courts must enforce arbitration agreements. In particular, Justice Perell held that the ESA does not preclude “resort to arbitration”. Moreover, the arbitrability of employment claims “is a complex issue of mixed fact and law to be determined in the first instance by the arbitrator; it is not a simple matter of statutory interpretation to be resolved by the court.”
Justice Perell also rejected Mr. Heller’s argument that the arbitration clause was unconscionable. He noted the classic elements of contractual unconscionability as: (i) pronounced inequality of bargaining power; (ii) a substantially improvident or unfair bargain; and (iii) the defendant knowingly taking advantage of the vulnerable plaintiff.
However, despite acknowledging the undoubted inequality of bargaining power between Uber and its drivers, Justice Perell did not find that Uber used the arbitration clause to take advantage of, or extract “an improvident agreement” from, the class members.
Justice Perell’s decision in Heller follows the modern paradigm of arbitration clauses being presumptively enforceable. It aligns closely with the general principles recently distilled by the Ontario Court of Appeal in Wellman v TELUS Communications Company whereby “arbitration agreements will generally be enforced”.
Although Heller hinges on Ontario-specific legislation, it results in a similar outcome as two 2007 Supreme Court decisions concerning the Civil Code of Québec and Québec’s Code of Civil Procedure. In Dell Computer Corp v Union des consommateurs and Rogers Wireless Inc. v Muroff , the Supreme Court found that arbitration clauses conferring substantive rights to contracting parties will not be affected by one party’s procedural right to bring a class action. The arbitrator’s jurisdiction to determine the validity of an arbitration clause will also remain.
Later, in Seidel v. TELUS Communications Inc., the Supreme Court dealt with a motion to stay a class action proceeding brought under the British Columbia Business Practices and Consumer Protection Act. The Court determined that an arbitration clause in a consumer agreement will hold, absent any legislative provisions otherwise relieving consumers of their arbitration agreements. The declaratory and injunctive relief claims by the representative plaintiff in that case, which were specifically addressed in the BPCPA, were allowed to proceed by way of class action. Claims not covered in the BPCPA (e.g., common law claims) remained under the purview of the arbitration clause. Similarly, with no specific statutory carve-out for employment-related claims in Heller, the plaintiffs were subject to, and bound by, the arbitration clause.
Heller is likely to be appealed. In the meantime, Justice Perell’s decision provides defendants with some comfort that mandatory arbitration clauses (that are not expressly ousted by applicable legislation) may still protect them from potential class actions.