The Story of Uber and the Arbitration Clause

Paula Krawus

By Paula Krawus.

It’s no secret that that Uber is an innovator. Their simple business model – connecting drivers with riders through an online platform – has spread to every corner of the globe in just a decade.

But the company’s success hasn’t come without some major problems.

The latest of these is a class action lawsuit started in Ontario (Heller v Uber Technologies). The key plaintiff in the suit, David Heller, claims that although Uber treated him as an independent contractor during his time working for them, he was actually an employee. Because of this, Heller says that Uber owes him benefits such as vacation pay and overtime which are guaranteed to employees under the Ontario Employment Standards Act (the “Ontario Act”).

As of the writing of this post, the Ontario courts haven’t yet decided the ultimate issue of whether Uber drivers are independent contractors or employees. Instead, they have been grappling with the preliminary question of whether the class action lawsuit ought to be stayed – in other words, put on pause – while Heller and Uber deal with their dispute through arbitration.

A little background on this issue of arbitration…

Back in 2016, when Heller signed up to be an Uber driver, he filled out an application on his smartphone, provided Uber with some documents, and pressed “I Agree” to a service agreement. There is a clause (the “Arbitration Clause”) in that service agreement that requires Heller to take any dispute he may have with Uber under their agreement to an arbitrator… in the Netherlands.

When Heller started his lawsuit, Uber applied to the court to have the litigation stayed. The company’s application was successful and the court of first instance stayed the proceedings. However, Heller asked the Ontario Court of Appeal to reverse that decision – and it did so earlier this year.

In its decision*, the Court of Appeal considered whether the Arbitration Clause would be valid if Heller and his fellow drivers are able to establish that they are in fact employees. This question of validity is important because if Uber’s drivers are employees, then the Ontario Act definitely applies to them.

The Ontario Act sets out employment standards – in other words, the bare minimum rights and obligations for employees and employers. As the Court of Appeal in Heller explained, an employment standard is a requirement or prohibition that applies to an employer for the benefit of an employee. Neither an employee nor an employer can contract out of or waive an employment standard.

The Court of Appeal also confirmed that the complaint process provided for in the Ontario Act is an “employment standard”. Ontario employees have a legal right to make a complaint to the Ministry of Labour and have an employment standards officer investigate that complaint. Once the investigation process under the Ontario Act is triggered, both the employee and the employer are required to participate.

Ultimately, the Court of Appeal concluded that Uber’s Arbitration Clause is invalid for two main reasons:

1. First, the Clause amounts to “contracting out” of the Ontario Act’s employment standards. This is because it prohibits Heller and other Ontario Uber drivers from using the complaint process guaranteed to them in the Act. It doesn’t matter that Heller had not yet made a complaint with Ontario’s Ministry of Labour. Whether or not he makes such a complaint, the Arbitration Clause is invalid on its face.

2. Second, and perhaps more importantly, the Clause is unconscionable regardless of whether Heller is an independent contractor or employee. The Court of Appeal found the Arbitration Clause to be unconscionable because

• it a grossly improvident and unfair bargain;
• Heller did not receive legal or other advice before agreeing to it;
• there is a significant imbalance of bargaining power between the parties; and
• Uber knowingly and intentionally took advantage of Heller’s vulnerability.

For these reasons, the Court of Appeal lifted the stay of proceedings, with the result that the class of Uber driver plaintiffs may continue their lawsuit.

Takeaways for Workplaces in BC

Although British Columbia courts are not required to follow or apply Ontario court decisions, such decisions definitely have persuasive value in BC. The BC Employment Standards Act (the “BC Act”) and the Ontario Act have similar provisions and similar purposes. Importantly, as in Ontario, BC employers and employees cannot waive or contract out of the BC Act or any of its provisions. Therefore, it is likely that a BC court would look to the analysis in the Heller decision if faced with the same question, i.e. whether or not an arbitration clause in an employment contract is valid.

Just like in Ontario, the BC Act (under section 74) provides employees with the right to make a complaint. Applying the decision in Heller, a clause in an employment contract that prohibits or somehow limits an employee’s right to do so would violate our provincial legislation and therefore be invalid. Notably, in certain cases, one invalid clause in an employment contract can render the entire contract invalid.

The Heller decision offers an important reminder to employers to ensure that the contracts they ask (or require) their employees to sign are fair and in line with BC’s employment standards laws. For their part, employees should seek legal advice if they believe their employer might be restricting or preventing them from enforcing their rights under employment standards laws.

*The Ontario Court of Appeal’s decision also included a discussion of relevant public policy considerations which was beyond the scope of this blog.

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NOT LEGAL ADVICE. Information made available on the Kent Employment Law website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action, based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. One of our lawyers would be pleased to discuss any specific legal concerns you may have.

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