Written by Ranjan Agarwal, Andrew Little and Charlotte Harman

The intersection of mandatory arbitration clauses and class proceedings continues to be a vexing problem for the courts. In Heller v. Uber Technologies Inc., the first decision of 2019, the Ontario Court of Appeal decided that a mandatory arbitration clause in an Uber Eats services agreement constitutes an impermissible contracting out of the Employment Standards Act, 2000, and is unconscionable, and therefore invalid.

The plaintiff is an Uber Eats driver in Toronto. He entered into a services agreement with Uber that required mandatory arbitration in Amsterdam under the International Chamber of Commerce Rules of Arbitration. The plaintiff commenced a class action seeking a declaration that he and other class members are employees of Uber, not independent contractors (and thus, entitled to benefits such as minimum wages, vacation pay, and overtime pay). The motion judge stayed the claim under the Ontario Arbitration Act, 1991, finding that the plaintiff voluntarily entered into the arbitration clause.

The Court of Appeal unanimously reversed the stay. Under the Arbitration Act, 1991, the court may refuse a stay of court proceedings if, among other things, the arbitration agreement is invalid. Here, the Court, relying on the presumption that the plaintiff can prove what he pleads (i.e., that he is an employee of Uber), held that the arbitration clause constituted an impermissible contracting out of the ESA because it eliminates the plaintiff’s statutory right to make a complaint to the Ministry of Labour about Uber’s actions and other alleged violations.

The Court also held that the arbitration clause was unconscionable at common law. The Court was troubled by several facts: the dispute resolution mechanism provides for arbitration of an Ontario employment issue in Amsterdam; the grievance and adjudication process accessible from Ontario is run by Uber personnel and controlled by Uber, suggesting it is not independent; and merely commencing the arbitration process costs US$14,500 (compared to Uber drivers’ weekly salaries of C$400-C$600).

Unless the Supreme Court of Canada agrees to hear an appeal, Uber drivers can proceed with an employment class action in Ontario.

This case offers several instructive takeaways for employers, employment lawyers, class action lawyers, and arbitration lawyers:

• The court will determine whether stays should be granted under the Arbitration Act, 1991, using a presumption that the pleaded facts are true.
• Forcing gig economy workers to start a costly arbitration in Europe surely raised the hackles of the Court and likely informed its ultimate decision to lift the stay.
• Canadian courts seem reluctant to enforce arbitration clauses in cases involving consumer or employee rights—potential defendant companies need to consider whether to revise their agreements to account for some of the recent guidance from the courts (including considering whether to add “saving” language to ensure compliance with applicable minimum employment standards legislation) or to abandon reliance on them in class actions.
• An arbitration clause should not be drafted, in the Court’s words, to “defeat the very claims it purports to resolve.”

If you would like further information about the matters discussed in this post, please contact one of Ranjan Agarwal, Andrew Little, Carl Cunningham, or Sara Parchello.