Uber drivers in Ontario have won the right to seek statutory employment benefits.

An Ontario Uber driver filed a class action on behalf of all Uber drivers in the province seeking $400 million in damages and a declaration that the drivers are “employees” entitled to the protections in the Ontario Employments Standards Act, 2004.[1]  That legislation mandates a system for filing complaints against employers and provides for minimum wages and overtime pay.   Uber sought a stay of the court proceedings, asserting that any dispute by a driver must be determined by arbitration in the Netherlands.

Uber drivers must enter into a “Service Agreement” that creates a contractual relationship granting the driver a licence to use Uber’s ‘Driver App’.  The driver agrees to pay a service fee.  The terms of the 14-page the Agreement includes an acknowledgment that the parties have created a legal and direct business relationship and that is not an employment relationship. It takes only two clicks on an “I agree” hyperlink to accept the Agreement’s terms.   Uber revises the Agreement periodically.  Drivers must continue to “agree” in order to retain access to their driver app.

The Service Agreement contains an arbitration clause, specifying that it’s terms are governed by the law of the Netherlands.  It also provides;

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 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 of the International Chamber of Commerce (“ICC Arbitration Rules”) …. The place of the arbitration shall be Amsterdam, The Netherlands.

If a dispute is required be arbitrated under an arbitration agreement in Ontario, the court will stay the proceedings in favour of arbitration.[2]

Initially, Uber succeeded in staying the class action in the trial division of the Ontario Superior Court by arguing that the arbitration clause should be enforced.  However, s. 7(2) of Arbitration Act createa exceptions to arbitral jurisdiction when an arbitration provision is invalid or unconscionable.  On that basis, the plaintiff appealed to the Ontario Court of Appeal.

While the essence of the Uber driver’s claim was that the drivers are employees of Uber, it is important to note that the Court of Appeal was only dealing with the preliminary issue of the court’s jurisdiction to hear this claim. Accordingly, to decide the jurisdictional issue, the Court had to presume, without deciding, that the appellant could prove that he is an employee of Uber.

In that context, the Appellate Court’s first concluded that the arbitration clause was invalid because it violated the statutory prohibition against contracting out of minimum employment protections in the Employment Standards Act (ESA). The Court focused on s. 5 of the Employment Standards Act:

(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.

S. 1(1) The Employment Standards Act s. 1(1) defines an “employment standard” as a “a requirement or prohibition under this Act that applies to an employer for the benefit of an employee”.

The Employment Standards Act provides that employees are not bound by any contractual term that purports to oust employee benefits.  One of those statutory benefits is the right of an employee to file a complaint with the Ministry of Labour alleging a violation of the Act.  Accordingly, the Court concluded:

. . . . 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 Employment Standards Officer 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.

Uber’s Arbitration Clause was found to be invalid because, based on the presumption that drivers are employees of Uber, it constitutes a contracting out of the provisions of the Employment Standards Act.  As a result, the application of the Arbitration Clause is prohibited by statute and contrary to public policy.

The Court also concluded that whether or not the Uber drivers are employees,  Uber’s Arbitration Clause is unconscionable. Four reasons were given:

1. The Arbitration Clause represents a substantially improvident or unfair bargain. It requires an individual with a small claim to incur the significant costs of arbitrating that claim under the provisions of the ICC Rules, the fees for which are out of all proportion to the amount that may be involved. And the individual has to incur those costs up-front. . . . Further, it should be self-evident that Uber is much better positioned to incur the costs associated with the arbitration procedure that it has chosen and imposed on its drivers. Additionally, the Arbitration Clause requires each claimant to individually arbitrate his/her claim and to do so in Uber’s home jurisdiction, which is otherwise completely unconnected to where the drivers live, and to where they perform their duties. Still further, it requires the rights of the drivers to be determined in accordance with the laws of the Netherlands, not the laws of Ontario, and the drivers are given no information as to what the laws of the Netherlands are.

2. There is no evidence that the appellant had any legal or other advice prior to entering into the services agreement nor is it realistic to expect that he would have. In addition, there is the reality that the appellant has no reasonable prospect of being able to negotiate any of the terms of the services agreement.

3. There is a significant inequality of bargaining power between the appellant and Uber – a fact that Uber acknowledges.

4. Given the answers to the first three elements, I believe that it can be safely concluded that Uber chose this Arbitration Clause in order to favour itself and thus take advantage of its drivers, who are clearly vulnerable to the market strength of Uber. It is a reasonable inference that Uber did so knowingly and intentionally. Indeed, Uber appears to admit as much, at least on the point of favouring itself when drafting the Arbitration Clause. Its rationale in support of that favouring, i.e. that it chose this particular arbitration process in order to provide consistency of results, is an unpersuasive.

The Court emphasized that its conclusion regarding the unconscionable nature of the arbitration clause was “separate and independent” to its conclusion regarding the invalidity of the clause under the Employment Standards Act.  This suggests that even if the claim does not succeed in establishing employment status for Uber drivers, the arbitration clause will not be enforceable in Ontario courts by Uber.

The Court of Appeal’s unanimous decision can be found here.

[1] Employment Standards Act, 2000, S.O. 2000, c. 41  

[2] International Commercial Arbitration Act, 2017, SO 2017, c 2, Sch 5 Arbitration Act, 1991, S.O. 1991, c. 17