Ontario Court of Appeal Overturns Arbitration Stay of Proposed Class Action

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Author: Robert Jones, Law Works P.C.
Editor: Ben Hanuka, Law Works P.C.

In Heller v. Uber Technologies Inc., a January 2, 2019, decision of the Court of Appeal for Ontario, the court set aside a motion judge’s decision that granted to Uber a stay of a proposed class action by its drivers in favour of arbitration.  The Court of Appeal ruled that the proposed class action had to proceed in court, not arbitration. It concluded that the arbitration agreement was invalid as an illegal contracting out of Ontario’s Employment Standards Act, 2000 (“ESA”), and as an unconscionable contract.

(See our blog post about the motion judge’s decision here.)  

Key facts

Mr. Heller, the representative plaintiff, brought the proposed class action on behalf of Uber drivers, claiming ESA benefits.  Mr. Heller signed a services agreement with Uber that was governed by the law of the Netherlands, with an arbitration agreement referring disputes to arbitration in Amsterdam.  

Uber moved to stay the class proceeding in favour of arbitration under Article 8(1) of the International Commercial Arbitration Act, 2017 (“the ICAA”), and s.7(1) of Ontario’s Arbitration Act, 1991 (the “Ontario Act”).   

Mr. Heller argued that the arbitration agreement was invalid under Article 8(1) of the ICAA and under s.7(2) of the Ontario Act, because it amounted to an illegal contracting out of the ESA and was unconscionable.  

Standard of review and applicable legislation

The court held that nothing turned on the applicable legislation being the ICAA or the Ontario Act.  The same reasoning applied equally to both statutes.

The correctness standard of review applied to the motions judge’s decision.  The proper application of the Ontario Act and the ICAA are questions of law, and the interpretation of the arbitration agreement had implications for the legal system beyond the proposed class action.  

The arbitration agreement was an illegal contract

The ESA prevents employees from contracting out of “employment standards”, provisions that obligate employers for the benefit of employees.  The court agreed with Mr. Heller that the complaint and investigation process under s.96(1) of the ESA was an employment standard.

The arbitration agreement removed Mr. Heller’s right to launch a complaint and trigger the investigation process against Uber that is mandated under s.96(1) of the ESA.  This is a provision that applies to an employer for the benefit of an employee, and therefore meets the ESA definition of “employment standard”. The court ruled that the arbitration agreement was an illegal contracting out of an ESA “employment standard”.  As such, it was invalid and unenforceable under s.7(2) of the Ontario Act.

The court reasoned that, although Mr. Heller did not actually use the s.96(1) complaint and investigation process, the arbitration agreement was nevertheless invalid because the legal analysis was independent of Mr. Heller’s choices.  It was concerned not only with the parties in this case, but with any other persons who might be in the same position.

Mr. Heller was using the proposed class action to benefit Uber drivers collectively.  In the proposed class action, a finding about Mr. Heller’s entitlement to ESA benefits would be binding on all Uber drivers that opted in the class.  Conversely, there was no ability of Uber drivers to obtain a collective remedy under the arbitration agreement. There was also no evidence about what remedies Mr. Heller would receive under the laws of the Netherlands.  

The court held that the motion judge erred in applying the “competence-competence” principle and the decision in Siedel v Telus Communications Inc., to allow the arbitrator to determine the validity of the arbitration agreement.  It found that Mr. Heller’s challenge was not a matter of jurisdiction governed by the competence-competence principle.  Jurisdiction is about the scope, not the validity, of an arbitration agreement.  

The arbitration agreement was unconscionable

The court also concluded that the arbitration agreement was unenforceable because it was unconscionable.  It required Uber drivers to incur $14,500 in administrative and filing fees to pursue small claims against Uber.  The arbitration agreement required Uber drivers to travel to Amsterdam and submit to the laws of the Netherlands. It also removed their ability to obtain collective remedies.

The Uber services agreements were contracts of adhesion, which the drivers had no meaningful opportunity to influence.  As a related point, there was significant inequality in bargaining power in the relationship between Uber and its drivers.

The court held that the motion judge erred in finding that most disputes between Uber and its drivers could be resolved in Ontario through the in-app customer service platform, and that only substantial disputes would be referred to arbitration in the Netherlands.  All disputes required arbitration in the Netherlands unless the complaint is resolved voluntarily with Uber. The reason that only substantial disputes would be referred to arbitration was because of financial barriers. A driver needed to pay $14,500 in administrative and filings fees to initiate the arbitration process.  

The motion judge also erred in comparing these up-front costs against the amount claimed in Mr. Heller’s proposed class action.  The class action had not yet been certified, and the appropriate comparator was an individual driver with a claim against Uber.

The court also found that the arbitration agreement was a choice of law and forum clause, which are subject to a more rigorous validity analysis, following the Supreme Court decision in Douez v. Facebook.  Uber drivers are like consumers in terms of bargaining power.  The arbitration agreement was unconscionable because it required Uber drivers to commence arbitration in the Netherlands to have their rights determined individually.    

Conclusion

This decision is consistent with the trend of interpreting standard form contracts restrictively to avoid defeating collective rights.  The Court of Appeal extended the Supreme Court of Canada’s reasoning about the choice of law and forum clauses in Douez v. Facebook to an arbitration agreement that had the same practical effect.  The Uber drivers could not bring a class action under the arbitration agreement.  Pursuing the ESA claims individually through arbitration was not feasible.

The Court of Appeal also drew an important distinction between the scope and validity of arbitration agreements for the purpose of a jurisdiction analysis.  While under the “competence-competence” principle, it is for the arbitrator to determine if the dispute is covered by the arbitration agreement, the courts retain the power to determine if the arbitration agreement itself is an invalid contract.

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