Ontario Court of Appeal rules that Uber Arbitration Clause is Unconscionable

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In the recent decision, Heller v. Uber Technologies Inc., [2019] O.J. No. 1, the Court of Appeal decided on whether an arbitration clause in the services agreement provided to Uber drivers is enforceable under Ontario law. The claim in Heller is a proposed class action against Uber alleging that Uber drivers should be categorized as employees and as such, governed by the provisions of the Employment Standards Act, 2000 (the “ESA”). Uber successfully advanced a motion to stay the claim on basis of an arbitration clause, which required any disputes to be resolved by arbitration in the Netherlands.

Uber requires that drivers accept a Services Agreement before being able to offer the service, which contains an “arbitration clause”. Effectively, the clause required that any driver that had any dispute or conflict with the agreement must submit the matter to arbitration in the Netherlands. In doing so, a driver would be required to pay approximately $14,500.00 US dollars in order to participate in the arbitration. The driver argued that the arbitration clause was invalid because it amounted to contracting out of the ESA which is prohibited under section 5(1).

For the purposes of this decision, the Court assumed that the drivers were employees. On this basis, the Court concluded that requiring an employee to go to arbitration creates a contracting out of the provisions of the ESA, and in particular, section 96 which provides an employee with a statutory right to file a complaint with the Ministry of Labour if an “employee” believes that the Act is being contravened. As a result, the Court determined that the paragraph was void as it was contrary to section 5(1) of the ESA.

The Court also considered whether the clause was unconscionable at common law and therefore, void. Typically, the Court will set aside a contractual provision on the basis of unconscionability if the provision is grossly unfair, imposed without the benefit of legal advice, in the context of an overwhelming imbalance of power and where the other party is particularly vulnerable. In this case, the arbitration clause was unconscionable for the following reasons:

  1. It required an individual with a potentially small claim to incur significant costs of arbitrating the claim under the applicable agreement;
  1. Uber was much better positioned to incur the costs associated with the arbitration procedure;
  1. The clause required that each claimant individually arbitrate the claim in Uber’s home jurisdiction completely unconnected to where the drivers live and perform their duties;
  1. It required that the rights of the drivers be determined in accordance with the laws of the Netherlands, not the laws of Ontario, and the drivers were given no information as to what the laws of the Netherlands were;
  1. There was no evidence that the drivers had any legal advice prior to entering into the services agreement, nor is it realistic to expect that they would have, and there is no reasonable prospect of being able to negotiate the terms of a services agreement;
  1. There is a significant inequality of bargaining power; and
  1. The conclusion could be drawn that Uber chose the arbitration clause in order to favour itself and take advantage of its drivers who were clearly vulnerable to the market strength of Uber. They did so knowingly and intentionally.

The Courts have held that there is a power imbalance between employers and employees generally and therefore, employment contracts can be challenged on the basis of unconscionability. Employers often include arbitration clauses in employment contracts as a means of providing a more expedient, cost-effective manner in which to resolve disputes with employees. As can be observed by the reasons provided by the Court, Uber was in a unique position of power vis-à-vis its drivers and failed to provide them with any chance to obtain legal advice. Employers can mitigate the risks of such an unconscionability challenge by taking some simple steps such as providing employees with a reasonable amount of time to consider a contract and allowing an employee the opportunity to seek independent legal advice before the contract is accepted.