Wednesday, 2 January 2019

ONCA says Uber's Arbitration Clause is both Illegal and Unconscionable

Can a company, which ostensibly deems all of its workers to be “independent contractors”, require those workers to arbitrate their issues, including the issue of whether or not they are, in fact, “employees”? Or, is such an agreement an attempt to contract out of the protections afforded to employees by virtue of the Employment Standards Act, 2000? In addition to, or in the alternative to, such a question, is such a clause “unconscionable”?

In the fist decision issued by the Court of Appeal for Ontario in 2019, Heller v. Uber Technologies Inc., 2019 ONCA 1, Ontario’s top court found that: (a) Uber’s arbitration clause amounts to an illegal contracting out of an employment standard; and (b) such clause is also unconscionable at common law.

Why does one think this ride isn’t over yet?

Facts

The case concerned an appeal of the decision of the Honourable Justice Paul M. Perell of the Superior Court of Justice (the “motion judge”), dated January 30, 2018, with reasons reported at 2018 ONSC 718. That decision stayed the plaintiff’s / appellant’s action in favour of arbitration.

The appellant, David Heller, resides in Ontario. He has been licenced to use the Uber Driver App since February 2016. He has used the Driver App to provide food delivery services to people in Toronto. He has never used the Driver App to provide personal transportation services. He is 35 years old and has a high school education. He earns approximately $400 to $600 per week based on 40 to 50 hours of work delivering food for UberEATS driving his own vehicle.

Mr. Heller commenced this proposed class action on behalf of “any person, since 2012, who worked or continues to work for Uber in Ontario as a Partner and/or independent contractor, providing any of the services outlined in Paragraph 4 of the Statement of Claim pursuant to a Partner and/or independent contractor agreement” (the “Class” or “Class Members”). The Class Members provide food delivery services and/or personal transportation services using various Uber Apps.

In his proposed class action, Mr. Heller seeks a declaration that drivers in Ontario, who have used the Driver App to provide food delivery and/or personal transportation services to customers, are employees of Uber and governed by the provisions of the Employment Standards Act, 2000, S.O. 2000, c. 41 (the “ESA”). The claim seeks declarations that Uber has violated the provisions of the ESA and that the arbitration provisions of the services agreements entered into between the parties are void and unenforceable. The action also claims damages of $400 million.

Uber App users (drivers and customers) download the Uber Apps to their smartphones. Uber uses GPS to connect customers seeking personal transportation using an App for riders (the “Rider App”) with drivers using an App developed for drivers (the “Driver App”). The Rider App allows riders to request rides at their location, track the driver on the way to the location and then rate the driver after the ride is completed.

The UberEATS App allows customers seeking food delivery to order food from restaurants and have it delivered by a nearby driver. The App displays each restaurant’s menu, collects each customer’s order and transmits the orders to the restaurants. The restaurant updates the App as the food is prepared. Then the App signals to a nearby driver that a delivery is available. Drivers willing to deliver the order accept through the App, which provides his or her identifying information to the restaurant and the customer. After delivering the food, the driver confirms the delivery in the App, which collects the customer’s payment and remits payment to the restaurant.

Uber requires drivers to create an account online to access the Apps. After downloading the Driver App, Uber requires drivers in Ontario (performing services by car) to provide copies of the following documents: (i) a valid driver’s license; (ii) a valid vehicle registration; (iii) proof of eligibility to work in Canada; and (iv) valid insurance. After reviewing and verifying the drivers’ documentation and screening results, Uber activates their account.

The first time a driver logs into the Uber App, he or she must accept a services agreement, which appears on the smartphone screen. Drivers accept by clicking “YES, I AGREE”, and confirming acceptance by again clicking “YES, I AGREE” after reading the following: “PLEASE CONFIRM THAT YOU HAVE REVIEWED ALL THE DOCUMENTS AND AGREE TO ALL THE NEW CONTRACTS.” Uber’s January 4, 2016 Driver service agreement with the appellant is 14 pages. The November 29, 2016 UberEATS service agreement with the appellant is 15 pages.

Uber determines the maximum fares drivers receive for their work according to a base fare amount plus distance (based on GPS data obtained through the App), plus applicable time amounts. Uber collects the fares from customers, provides customers with a receipt, and remits payment periodically to drivers, less Uber’s fees.

Drivers can report complaints to Uber through the Apps. Customer Service Representatives (“CSRs”) in the Philippines first receive the complaints. If unresolved, they escalate the complaints to CSRs in Chicago, then to Uber’s legal team. Drivers may also attend in Ontario at an Uber “Greenlight Hub”, which is a support centre staffed with Uber employees, to ask for assistance, although Mr. Heller says that the staff there will likely only refer the driver back to the App for assistance.

The appellant entered into a Driver services agreement with Rasier Operations B.V. on June 7, 2016, and an UberEATS services agreement on December 15, 2016. Each agreement contains the following arbitration clause (the “Arbitration Clause”):

Governing Law; Arbitration. Except as otherwise set forth in this Agreement, this Agreement shall be exclusively governed by and construed in accordance with the laws of The Netherlands, excluding its rules on conflicts of laws. . . . Any dispute, conflict or controversy howsoever arising out of or broadly in connection with or relating to this Agreement, including those 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 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 of the International Chamber of Commerce (“ICC Arbitration Rules”). . . . The dispute shall be resolved by one (1) arbitrator appointed in accordance with ICC Rules. The place of arbitration shall be Amsterdam, The Netherlands. . . .

Under the ICC Mediation Rules, drivers must pay a US$2,000 non-refundable filing fee to initiate mediation proceedings against Uber. For disputes valued under US$200,000, drivers must pay an additional administrative fee, which may be as much as US$5,000. These fees do not cover the mediator’s fees or legal fees.

If the parties are unable to resolve their dispute through mediation within 60 days, they must proceed to arbitration under the ICC Arbitration Rules. A driver, and any party wishing to join the arbitration, must each pay a US$5,000 filing fee.

Article 37 of the ICC Arbitration Rules requires the parties to pay an advance on costs “in an amount likely to cover the fees and expenses of the arbitrators and the ICC administrative expenses for the claims which have been referred to it by the parties”. The payment must be in cash, unless a party’s share of the fees and expenses is greater than US$500,000, in which case the party may post a bank guarantee. The initial US$5,000 filing fee is credited against the claimant’s portion of this advance but is non-refundable. The administrative fee component of this advance is at least US$2,500 per party for disputes valued at under US$200,000. These fees do not cover counsel fees, travel or other expenses related to participating in the arbitration.

Accordingly, the up-front administrative/filing-related costs for a driver to participate in the mediation-arbitration process in the Netherlands prescribed in the Arbitration Clause is US$14,500. As an UberEATS driver, the appellant earns about $20,800-$31,200 per year, before taxes and expenses.

Decision of the Ontario Superior Court

Justice Perell granted Uber's motion to stay the action in favour of arbitration.

Applying the Supreme Court of Canada's decision in Seidel v. TELUS Communications Inc., 2011 SCC 15, and the Court of Appeal for Ontario's decision in Wellman v. TELUS Communications Company, 2017 ONCA 433, Justice Perell held that courts must enforce arbitration agreements freely entered into, even in contracts of adhesion. Any restriction on the parties' freedom to arbitrate must be found in the legislation.

Justice Perell then concluded that the plain language of the ESA does not restrict the parties from arbitrating. He also concluded that the arbitrability of employment agreements was not a question of pure statutory interpretation but instead raised a "complex issue of mixed fact and law," one for the arbitrator to decide at first instance under the competence-competence principle. Finally, the motion judge rejected the unconscionability exception that the appellant advanced under both the Arbitration Act, 1991 and the ICAA.

Issues on Appeal

As set out in paragraph 22 of the Court of Appeal’s reasons for decision, there were two issues that fell to be determined:

  1. whether the Arbitration Clause amounted to an illegal contracting out of the ESA and was thus invalid; and
  2. whether the Arbitration Clause is unconscionable and thus invalid on that separate basis.

Decision of the Court of Appeal for Ontario

With respect to the first issue, i.e. whether the Arbitration Clause amounted to an illegal contracting out of the ESA, the Honourable Justice Ian V.B. Nordheimer wrote the following on behalf of the court:

[23] Section 7(1) of the Arbitration Act, 1991, provides that, if a party to an arbitration agreement commences a proceeding in respect of a matter to be submitted to arbitration under the agreement, the court shall stay the proceeding. However, there are a number of exceptions to that mandatory requirement that are found in s. 7(2). One of those exceptions is where the arbitration agreement is invalid. Here the appellant says that the Arbitration Clause is invalid because it amounts to a contracting out of the ESA that is, itself, prohibited by the ESA.

[24] It is not necessary, in deciding the issues raised, to determine whether the appellant (and others like him) are employees rather than independent contractors. That is the core issue that is to be decided in the action, if it proceeds. Rather, what must be decided is whether the Arbitration Clause is invalid such that the mandatory stay under s. 7(1) of the Arbitration Act, 1991 does not apply.

[27] … it seems to me that one must start with the presumption that the appellant can prove that which he pleads, that is, that he is an employee of Uber. This is a preliminary motion in a proceeding and, like many other preliminary challenges to the court’s jurisdiction to entertain a claim, the court normally proceeds on the basis that the plaintiff’s allegations are true or, at least, capable of being proven. …

[28] The question then becomes, if the appellant (and those like him) is an employee of Uber, does the Arbitration Clause constitute a prohibited contracting out of the ESA? If it does, then the Arbitration Clause is invalid, the mandatory stay under s. 7(1) does not apply, and the court may then deny a stay under s. 7(2).

[29] In determining that question, heed must be taken of s. 5 of the ESA:

(1) Subject to subsection (2), no employer or agent of an employer and no employee or agent of an employee shall contract out of or waive an employment standard and any such contracting out or waiver is void.

(2) If one or more provisions in an employment contract or in another Act that directly relate to the same subject matter as an employment standard provide a greater benefit to an employee than the employment standard, the provision or provisions in the contract or Act apply and the employment standard does not apply.

[30] Under s. 1(1) of the ESA, an employment standard is defined as follows:

“employment standard” means a requirement or prohibition under this Act that applies to an employer for the benefit of an employee.

[31] As earlier noted, in his proposed class action, the appellant contends that he and his fellow drivers are employees of Uber. If they are employees, then they are covered by the ESA and are entitled to the benefits provided by the ESA. Most importantly, for the purposes of this matter, if they are employees, then they are not bound by any contractual term that purports to oust those benefits.

[32] Included in the benefits provided by the ESA is the right of an employee to make a complaint to the Ministry of Labour that his/her employer has contravened the ESA, pursuant to s. 96(1) of the ESA:

A person alleging that this Act has been or is being contravened may file a complaint with the Ministry in a written or electronic form approved by the Director.

[33] Only two restrictions on that right appear in the ESA. One is in s. 98, which provides that an employee who commences a civil proceeding may not concurrently make a complaint that raises the same issue as the civil proceeding. The other is in s. 99(2), which precludes an employee who is a member of a trade union from making a complaint. The latter, of course, does not apply to the appellant. With respect to the former, I do not accept the submission of Uber that a civil proceeding includes an arbitration. There is no reason to interpret the term “civil proceeding” in that fashion. …

[35] If an employee makes a s. 96 complaint, then an Employment Standards Officer (“ESO”) must investigate the complaint. The ESO has certain rights and authorities when doing so. By way of example, under s. 102(1) of the ESA, the ESO may require the employee and the employer to attend a meeting with the ESO. The ESO may also require persons to produce documents under s. 102(4). And, in the end result, the ESO may, pursuant to s. 103, issue an order to pay wages against the employer if a contravention of the ESA has occurred.

[36] In my view, this investigative process constitutes an employment standard as that term is defined in the ESA. The investigative process, once triggered, is mandated by the ESA and both the employee and, more importantly the employer, are required to participate in that process. The process is thus a “requirement” that “applies to an employer for the benefit of an employee” and, accordingly, meets the definition of an employment standard. In reaching this conclusion, I read the words, used in the definition of employment standard, in their grammatical and ordinary sense: Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27, at para. 21.

[37] Uber argued, at the hearing, that s. 96 is not an “employment standard” because, in allowing employees to make a complaint to the Ministry of Labour, it does not establish a “requirement or prohibition…that applies to an employer”. There are two problems with this submission. First, it extracts s. 96 from the relevant statutory context and treats it as a stand-alone provision, contrary to the modern approach to statutory interpretation adopted by the Supreme Court of Canada in Rizzo. Second, it invites an unduly narrow interpretation of s. 96 which would, if accepted, authorize employers to contract their employees out of s. 96, and thus out of the entire investigative process, without offending s. 5(1). That outcome would undermine the protective purpose of the ESA. It would also run afoul of the Supreme Court of Canada’s directive regarding the interpretative approach to be taken to the ESA. …

[41] Given my conclusion regarding the meaning of “employment standard”, it follows that the Arbitration Clause constitutes a contracting out of the ESA. It eliminates the right of the appellant (or any other driver) to make a complaint to the Ministry of Labour regarding the actions of Uber and their possible violation of the requirements of the ESA. In doing so, it deprives the appellant of the right to have an ESO investigate his complaint. This is of some importance for, among other reasons, if a complaint is made then the Ministry of Labour bears the burden of investigating the complaint. That burden does not fall on the appellant. Under the Arbitration Clause, of course, the appellant would bear the entire burden of proving his claim.

[49] I conclude, therefore, that the Arbitration Clause is invalid because, based on the presumption that drivers are employees of Uber, as pleaded, it constitutes a contracting out of the provisions of the ESA, a result that is prohibited by that statute. I am reinforced in that conclusion when public policy considerations are taken into account.

[50] The issue of whether persons, in the position of the appellant, are properly considered independent contractors or employees is an important issue for all persons in Ontario. The issue of whether such persons are entitled to the protections of the ESA is equally important. … the characterization of these persons as independent contractors or employees for the purposes of Ontario law is an issue that ought to be determined by a court in Ontario. …

[51] It follows from my conclusion on this issue that the mandatory stay provided for in s. 7(1) does not apply. Once the Arbitration Clause is found to be invalid under s. 7(2), the remedy of a mandatory stay no longer has any application.

On the separate issue of whether the Arbitration Clause is “unconscionable”, Justice Nordheimer, with whom Justices Feldman and Pardu concurred, wrote the following:

[58] … What makes the Arbitration Clause clearly improvident is the fact that any driver with a claim, that might ordinarily amount to nothing more than a few hundred dollars, must undertake an arbitration in the Netherlands in order to have their rights determined independently. That arbitration must be held in Amsterdam, under the law of the Netherlands, and must be conducted in accordance with the ICC Rules.

[59] It must be remembered, in this regard, that the evidence shows that the cost of initiating the arbitration process alone is US$14,500. This does not include the costs of travel, accommodation and, most importantly, counsel to participate in the arbitration. These costs are to be contrasted with the appellant’s claim for minimum wage, overtime, vacation pay and the like brought by a person earning $400-$600 per week.

[70] It seems to me that the fundamental flaw in the approach adopted by the motion judge to this issue is to proceed on the basis that the Arbitration Clause is of the type involved in normal commercial contracts where the parties are of relatively equal sophistication and strength. That is not this case. As the majority in Douez noted, “forum selection clauses often operate to defeat consumer claims” (para. 62). The same can be said of the Arbitration Clause here – it operates to defeat the very claims it purports to resolve. And I reiterate that this Arbitration Clause is much more than just a simple arbitration provision.

[71] I would add that, for the purposes of this analysis, I do not see any reasonable distinction to be drawn between consumers, on the one hand, and individuals such as the appellant, on the other. Indeed, I would note that, if Uber is correct and their drivers are not employees, then they are very much akin to consumers in terms of their relative bargaining position. Alternatively, if Uber is wrong, and their drivers are employees, we are not speaking of employees who are members of a large union with similar bargaining power and resources available to protect its members. Rather, the drivers are individuals who are at the mercy of the terms, conditions and rates of service set by Uber, just as are consumers. If they wish to avail themselves of Uber’s services, they have only one choice and that is to click “I agree” with the terms of the contractual relationship that are presented to them.

[73] In the end result, for the reasons I have given, I conclude that the Arbitration Clause is unconscionable and therefore invalid. The invalidity exception in s. 7(2) of the Arbitration Act, 1991 again applies to the Arbitration Clause.

In the result, Justice Nordheimer concluded that the Arbitration Clause amounted to an illegal contracting out of an employment standard, contrary to s. 5(1) of the ESA, if the drivers are found to be employees as alleged by the appellant. He reached the separate and independent conclusion that the Arbitration Clause is unconscionable at common law. On the basis of each finding, the Arbitration Clause was deemed invalid under s. 7(2) of the Arbitration Act, 1991. The remedy of a mandatory stay therefore was deemed of no application.

The appeal was therefore allowed and the stay set aside.

Commentary

I will start by noting that I am not an expert in class actions, nor am I the most fluent when it comes to the Arbitration Act, 1991. For those looking for insight into those issues, have a look at the article by Paul-Erik Veel of Lenczner Slaght: Court of Appeal rates arbitration clause one star in proposed employment class action against Uber.

My commentary will focus on my area of focus: employment law. Specifically, let’s discuss whether Justice Nordheimer’s decision that the arbitration clause is an attempt to contract out of the ESA.

Of course it is. Section 96 of the ESA provides an inexpensive and effective means of resolving simple employment disputes. In some, but certainly not all cases, it is the appropriate method for resolving disputes. As Justice Nordheimer observes, it makes zero sense to require someone to post $14,500 USD and travel to Amsterdam to litigate a claim worth perhaps no more than $100. (Although, one most observe that Amsterdam truly is a lovely place to visit.)

Justice Nordheimer’s interpretation of section 96 as an “employment standard” and his reading of section 5 of the ESA is right on the money. As an employment lawyer it is hard not to love the analysis in this decision on this point.

The bigger question that is raised by this decision however is whether a company can ever have an arbitration clause in respect of an “independent contractor”. A plain reading of this decision would suggest that all the worker would have to do is allege that he or she was actually an employee and the clause would have to be voided. Such a reading creates real uncertainty, which the law typically seeks to avoid.

Takeaways for Employees with Labour Pains

The takeaway for employees with labour pains is that you may not be stuck with the agreements that you have “accepted”. While this case is likely not yet done, it demonstrates that Ontario’s courts will likely not give a warm welcome to the idea of arbitration clauses being used to contract out of the ESA.

If you are an individual looking for assistance with respect to the interpretation or enforceability of the terms of your employment contract, contact the professional, experienced and cost-effective employment lawyers for employees at Ottawa's Kelly Santini LLP; we would be happy to be of service to you.

Takeaways for Employers with Labour Pains

The key takeaway for employers is to be mindful of exactly how your contractual clauses are likely to be received by the court. Requiring someone, who may or may not make minimum wage, to post $14,500 and travel across the Atlantic in order to find redress for a minor amount is likely not going to sit well with most judges. Also, be mindful of attempts to contract out of the ESA. Those attempts have not worked in other scenarios and clearly did not work here.

More to the point, while you can “Skip the Dishes” you can’t “skip the law”.

If you are an employer and you need to make changes to the terms of your employee’s employment, or if you want to introduce written employment agreements with your staff, then contact the professional, experienced and cost-effective employment lawyers for employers at Ottawa's Kelly Santini LLP; we would be happy to be of service to your business or organization.

Contact Me

To reach the author of this blog, Sean Bawden, email sbawden@kellysantini.com or call 613.238.6321 x260.

Sean P. Bawden is a partner with Kelly Santini LLP, located in Ottawa, Ontario, Canada. He practices in the areas of employment law and civil litigation. He has also taught Trial Advocacy for Paralegals and Small Claims Court Practice at Algonquin College in Ottawa.

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As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation. It is always prudent to seek professional legal advice before making any decisions with respect to your own case.

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