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January 2019

Uber Class Action Gets Green Light, Proceeds to Certification

Karonline Iron
Karolina Iron,
Law Student

By Karolina R. Iron

The past decade has given rise to the ‘sharing economy', which has since become ubiquitous and has raised an assortment of legal issues for stakeholders and policymakers as a result.

In Heller v Uber Technologies Inc. the Ontario Court of Appeal reversed a decision to uphold an arbitration (and effectively, forum selection and choice of law) clause in an Uber services agreement, finding it both unenforceable and unconscionable.

Highlights

  • Uber's services agreement contains a clause mandating arbitration for all disputes between Uber and its drivers. The process requires hefty upfront costs, travel to the Netherlands, and denies relief pursuant to Ontario law;

  • The clause was found unenforceable because it illegally contracts out of an employment standard, contrary to s 5(1) of the Employment Standards Act (“ESA”);

  • The clause was also found to be unconscionable as a substantially unfair bargain between parties with a considerable power imbalance, where the vulnerable party did not obtain legal advice nor negotiate its terms, and the stronger party knew and used these facts to its advantage;

  • Ontario Uber drivers are not prohibited from pursuing disputes against Uber pursuant to Ontario law, and;

  • A proposed class action against Uber regarding the classification of its Ontario drivers will proceed to certification, and if certified, will require courts to determine whether Uber drivers are independent contractors or employees.

Background

David Heller is an Ontario resident, Uber driver, and proposed representative plaintiff for a class action against a series of Uber companies. The action alleges Mr. Heller and other proposed class members were improperly classified as “independent contractors” rather than “employees” by Uber, and are thereby deprived of statutory benefits and protections under the ESA.

In the Superior Court of Justice decision, Uber successfully stayed the proposed class action, arguing Mr. Heller was contractually obligated to submit any disputes arising under his agreements with Uber to an arbitration process in the Netherlands. The issue on appeal was the validity of the arbitration clause, which effectively prohibited Mr. Heller (and the proposed class members) from pursuing the proposed class action, in addition to any other form of relief against Uber under Canadian or Ontario law.

The Arbitration Clause

Uber drivers are required to enter into a services agreement containing approximately 15 pages of set terms...

Uber drivers are required to enter into a services agreement containing approximately 15 pages of set terms, by clicking “Yes, I agree” and confirming they have reviewed Uber's documents. They are not able to negotiate the terms or accept fares without agreeing to the services agreement. The terms include the following:

  1. The agreement shall be exclusively governed and interpreted according to the laws of the Netherlands;
  2. Disputes shall be first submitted to mediation pursuant to the International Chamber of Commerce (“ICC”) Mediation Rules; and,
  3. Failing resolution at mediation within 60 days, the dispute shall be referred to and exclusively resolved by arbitration under the ICC Rules of Arbitration—in the Netherlands (“the Arbitration Clause”).

The Arbitration Clause has several implications. First and foremost, it is cost-prohibitive, as pursuing a dispute requires upfront costs exclusive of travel, legal, and mediator fees. The Court of Appeal calculated this amount as USD $14,500. Additionally, it prevents drivers resident in Ontario from relying upon Ontario law to enforce their rights, whatever they may be (note: this remains a live issue in the proposed class action and is yet to be determined).

Decision

1. The Arbitration Clause amounts to contracting out of the ESA and is unenforceable

The Arbitration Clause was found invalid as it amounts to a contracting out of the ESA, which is prohibited by section 5(1) of the ESA. Normally, employees are entitled to make complaints to the Ministry of Labour regarding possible violations of the ESA, thereby triggering an investigation. Some employees pursue civil proceedings instead, which would bar them from the ESA complaints process. However, the Arbitration Clause forces Uber drivers out of the ESA complaints process while also depriving them of the right to pursue civil proceedings.

The Court of Appeal's finding was based on the presumption that drivers are employees of Uber, as pleaded, and is supported by public policy considerations. It noted the benefits and protections of Ontario employees should not be dictated by the laws of another country. On a broader scale, it indicated the issue of the employment classification of Uber drivers is an important issue for Ontarians and ought to be determined in this forum and pursuant to Ontario law.

2. The Arbitration Clause is unconscionable at common law

...there is a significant inequality in bargaining power...

The Court of Appeal also found the Arbitration Clause unconscionable, as it is a substantially unfair bargain (i.e. Uber is much better positioned to incur the costs associated with the arbitration procedure, whereas drivers with small claims are discouraged from doing so), the appellant did not obtain legal advice nor did it negotiate the agreement's terms, there is a significant inequality in bargaining power, and Uber knowingly took advantage of these facts in entering this agreement.

The Arbitration Clause was also found untenable from a public policy standpoint, as it effectively forces potential claimants to pursue their claims individually, in Uber's home jurisdiction (which is otherwise unconnected to where the drivers live and perform their duties), and without the benefit of knowing what laws would govern their claims in the Netherlands.

Implications Going Forward

This decision has resulted in less commercial certainty for multinational organizations, as courts are willing to set aside their agreements, even when freely entered into by both parties. As Ontario Uber drivers are no longer prohibited from pursuing relief in Ontario, drivers outside of the proposed class may do so and potentially contribute to a judicial backlog. Yet, the most notable implications of this decision remain to be seen.

As a result of this decision, the stay against the proposed class action is lifted and the action will proceed to certification. In addition to seeking damages of $400,000,000, the proposed class action seeks a declaration that Uber drivers in Ontario, irrespective of the type of service provided, are employees and therefore governed by the provisions of the ESA. If certified, the action will require courts to interpret current laws in the context of the sharing economy—arguably an important legal issue to address in the 21st century.


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