In its first reported decision of the year, the Ontario Court of Appeal has allowed a proposed class action against Uber to proceed in Ontario court.
The Appellant commenced a proposed class action in January 2017. They sought, among other things, a declaration that Uber drivers are employees of Uber and governed by Ontario’s Employment Standards Act [“ESA”], as well as $400 million in damages payable to the class for alleged Uber violations of ESA provisions. Prior to certification, Uber brought a motion to stay the proceeding, requesting the court to enforce a clause in the agreement that requires all disputes to be arbitrated in Amsterdam according to the law of the Netherlands.
Ontario Superior Court of Justice
The motion judge held that the arbitration clause was enforceable and stayed the action. Applying the Supreme Court of Canada’s Seidel decision and the Ontario Court of Appeal’s TELUS ruling, the motion judge held that – subject to restriction from legislation – courts must enforce arbitration clauses which the parties freely enter.
Concluding that the ESA did not restrict the parties from arbitrating, the motion judge also held that the potential arbitrator should decide the arbitrability of employment agreements under the competence-competence principle. Finally, the motion judge rejected that an unconscionable exception applied to the arbitration clause.
Ontario Court of Appeal
The Ontario Court of Appeal reversed the motion judge’s decision and held that the arbitration clause was unenforceable for two reasons:
- The arbitration clause invalidly contracted out of the provisions of the ESA, including the Appellant’s right to a complaint process;
Although the Court acknowledged that an arbitrator generally should determine the arbitrator’s jurisdiction under the competence-competence principle, the Court distinguished the validity of an arbitration clause from a pure jurisdictional question about the scope of the arbitration clause – even though an invalid arbitration clause will necessarily negate any jurisdictional authority of an arbitrator. The Court held that Section 7(1) of the Arbitration Act provides that it is for the court to determine whether an exception under Section 7(2) – which includes an exception for invalid arbitration clauses – is applicable.
- The arbitration clause was unconscionable.
The Court determined that the arbitration clause was unconscionable by applying the test set out in its earlier decision of Titus v William F. Cooke Enterprises Inc., which provides that unconscionability will be found if the following four elements are established:
- There is a grossly unfair and improvident transaction;
- There is a victim lacking independent legal advice or other suitable advice;
- There is an overwhelming imbalance in bargaining power caused by the victim’s ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility, or similar disability; and
- The other party knowingly took advantage of this vulnerability.
(The Court noted, without deciding, that the Supreme Court of Canada’s decision in Douez v Facebook may have modified the test for unconscionability to two elements – inequality of bargaining power and unfairness – but the Court stated that a finding of unconscionability would follow under either test.)
In respect to the four requirements of Titus, the Court found:
- There is a substantially unfair bargain, especially considering that an individual Uber driver with a small claim must incur significant costs – all up-front with only the possibility of recovery – of arbitrating that claim in Amsterdam according to the law of the Netherlands.
- There was no evidence of legal or other advice prior to agreement, and in any event Uber drivers have no reasonable prospect of negotiating the terms of the agreement.
- There is a significant inequality of bargaining power between Uber and its drivers.
- It is reasonable to conclude that Uber chose its arbitration clause in order to favour itself and disadvantage its drivers. The Court rejected Uber’s rationale stating that it chose the location of Amsterdam and the laws of Netherlands for all its agreements to obtain consistency of results.
Accordingly, the Ontario Court of Appeal allowed the appeal and set aside the stay of proceedings.