The SCC’s decision in Uber signals modernization of Canadian workers’ rights

On June 26, 2020 the Supreme Court of Canada released its decision in Uber Technologies Inc. v. Heller 2020 SCC 16. In an eight-one majority, the SCC held that the plaintiff Uber driver could proceed with his class action against Uber, despite the mandatory arbitration clause contained in a standard form contract he had signed prior to joining Uber as a driver. Developing new law, the SCC held that mandatory arbitration clauses denying access to justice are unenforceable. Writing for the majority, Justices Abella and Rowe stated:

[97] Respect for arbitration is based on it being a cost-effective and efficient method of resolving disputes. When arbitration is realistically unattainable, it amounts to no dispute resolution mechanism at all. […] The arbitration clause is the only way Mr. Heller can vindicate his rights under the contract, but arbitration is out of reach for him and other drivers in his position. His contractual rights are, as a result, illusory.¹

This divergence from the Court’s historical preference for deference to arbitrators serves as a caution for corporations operating in Canada, namely: in drafting contracts—particularly with respect to dispute resolution clauses—employees should ensure they are not placing barriers to access to justice. The SCC has signaled that the outdated ‘take it or leave it’ contract favouring the drafter is no longer acceptable. Drafters of such contracts should take care to ensure they are not so “lopsided”.²

The Uber decision is particularly significant given the rise of the gig economy over the last decade. The class action, which may now proceed, will determine whether gig workers may be classified as “employees,” and thereby entitled to the minimum protections provided under Ontario’s Employment Standards Act (“ESA”).

Background  

The plaintiff was an Ontario resident and an Uber driver. The defendant, Uber, is a ridesharing and food delivery company. In order to become an Uber driver, the plaintiff was forced to review and accept an online standard form contract; the contract contained a clause that required disputes be submitted to arbitration in the Netherlands, pursuant to the International Chamber of Commerce’s (“ICC”) Rules. The administrative fee alone associated with commencing such an arbitration would amount to US$14,500. As an Uber driver, the plaintiff earned CAN$20,800-$31,200 per year, before taxes and expenses.

In 2017, the plaintiff brought a proposed class action alleging Uber misclassified him, and other proposed class members, as an “independent contractor” instead of an “employee”; the plaintiff argued this distinction was in order to avoid compliance with the ESA. The proposed class action alleges breach of the ESA, breach of contract, negligence, and unjust enrichment; it seeks $400 million in damages. In response, Uber successfully brought a motion before Justice Perell to stay the proceedings, arguing that the plaintiff was contractually required to submit any disputes to arbitration, in the Netherlands. The plaintiff appealed.

In 2019 the Ontario Court of Appeal unanimously overturned Justice Perell’s decision, finding the arbitration clause was invalid for two reasons: (1) it represented a contracting out of mandatory protections in the ESA; and (2) it was unconscionable. The Court of Appeal held the lawsuit could proceed in Ontario. Uber appealed to the SCC.

Issue on Appeal

Does the court have the jurisdiction to determine whether an Uber driver is an employee within the meaning of ESA, or does the mandatory arbitration clause govern?

Held

The mandatory arbitration clause is invalid and unconscionable. The issue of whether an Uber driver is an employee may proceed in a court in Ontario.

Analysis

Question of Employment Status, Not a “Commercial” Matter

As a preliminary matter, the SCC had to decide which arbitration statute governed. At first instance, Justice Perell had found that the plaintiff’s contract with Uber was a commercial contract, subject to the International Commercial Arbitration Act, 2017, S.O. 2017, c. 2, Sch. 5 (“ICAA”). The Court of Appeal overturned Justice Perell’s decision in favour of the Arbitration Act, 1991, S.O. 1991, c. 17 (the “Act”). The SCC agreed with the Court of Appeal and noted the ICAA applies to arbitration agreements that are both “international” and “commercial” in nature. The majority held while the agreement here was certainly “international” it could not be considered “commercial” since the question of whether someone is an employee is the most fundamental of employment disputes.³

Having determined that the Act governs, the SCC noted s. 7(2)(2) directs courts to stay judicial proceedings when there is an applicable arbitration agreement, unless any of five enumerated exceptions in the Act are met. One such exception is when the arbitration agreement is invalid.

New Exceptions to “Competence-Competence”: Access to Justice

Before the SCC could determine the validity of the arbitration clause, it had to grapple with a second preliminary matter: the competence-competence principle. Competence-competence holds that the issue of an arbitrator’s jurisdiction is within the arbitrator’s jurisdiction at first instance. In other words, the first person to decide whether an arbitrator is allowed to decide on a particular issue is the arbitrator!

The SCC had previously set two exceptions to competence-competence in Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34 (“Dell”) and Seidel v. TELUS Communications Inc., 2011 SCC 15 (“Seidel”):

1. where the issue raises pure questions of law; and
2. where the issue raises questions of mixed fact and law that require only superficial consideration of the evidence in the record.⁴

The Uber plaintiff submitted his issue fell within the Dell/Seidel exceptions because it required, at most, a superficial review of the record. The majority not only agreed with the plaintiff, but went further, noting the case at hand raised an issue of accessibility that was not present in Dell.⁵ The majority took this opportunity to provide a non-exhaustive list of ways in which an arbitration agreement may be invalidated:

• where the arbitration is too costly;
• where the arbitration is inaccessible; and
• where the arbitration agreement contains a foreign choice of law clause that circumvents mandatory local policies (i.e. protection under the ESA).

The SCC noted a court’s deference to the arbitrator under the abovementioned circumstances would be tantamount to denying relief for the claim.⁶ Accordingly, the majority took the opportunity to add a third exception to competence-competence, being:

• where there is a real prospect that referring a bona fide challenge to an arbitrator’s jurisdiction to the arbitrator would result in the challenge never being resolved.⁷

The majority noted that the issue of whether a deferral to the arbitrator would result “in a challenge never being resolved” does not need to turn into a mini-trial, as it could (generally) be resolved by a single affidavit.⁸ The majority further noted that the risk of spurious plaintiff arguments seeking to obstruct an arbitration can be mitigated by requiring security for costs and other suitable awards of costs.⁹

Uber’s Arbitration Clause is Invalid

Having added a new exception to competence-competence, eight of the Justices held that the case at hand fell within this new exception since the issue might never be resolved if a stay was granted. The eight-one majority held that the mandatory arbitration in Uber is too costly and inaccessible.¹⁰

The majority’s decision signifies a departure from the Court’s tendency to favour deference to arbitrators in cases involving mandatory arbitration.

Test re Unconscionability

In reviewing the doctrine of unconscionability, a seven-two majority clarified a two-part test for unconscionability in the context of standard form contracts, requiring: (1) an inequality of bargaining power that (2) results in an improvident bargain.¹¹

Applying the first part of the test to the case at hand, the majority found inequality of bargaining power existed since:

• the arbitration agreement was part of a standard form contract that could only be accepted or rejected—it provided no opportunity for negotiations;
• there was a gulf in sophistication between the multinational corporate defendant and the food delivering plaintiff;
• the agreement provided no information about the costs of mediation and arbitration in the Netherlands; and,
• the agreement failed to attach the ICC Arbitration Rules that would govern the arbitration.¹²

With respect to the second part of the unconscionability test, the majority found the mandatory arbitration clause resulted in an improvident bargain since the mandatory arbitration processes required US$14,500 in up-front administrative fees—essentially the plaintiff’s annual income—not including cost of travel, accommodation, legal representation or lost wages. The majority found such costs to be disproportionate to the size of an arbitration award that could reasonably have been foreseen when the plaintiff entered into the contract.

Having met both parts of the unconscionability test, seven of the Justices at the SCC found Uber’s mandatory arbitration clause to be a “classic case of unconscionability.”¹³ Given the majority’s finding that the arbitration clause was invalid and unconscionable, it held there was no need to decide its validity with respect to its alleged lack of compliance with the ESA. The SCC has left the determination of Uber drivers’ employment status in the hands of the trial courts as the plaintiff is now permitted to proceed with his class action in Ontario.

While Justice Brown concurred with the majority’s finding that the arbitration clause was invalid by virtue of it denying the plaintiff access to justice, His Honour did not find the clause to be unconscionable.

Justice Brown’s Concurring Opinion

Justice Brown’s concurring analysis noted that by enacting the Act, legislature could not have intended for arbitration clauses whose effect precludes access to justice to be untouchable.¹⁴ While His Honour shared Justice Côté’s concern about the need for freedom of contract, outlined in her dissent, he noted such freedom is not absolute.¹⁵ His Honour held Uber’s standard form contract placed undue hardship on the plaintiff that effectively barred him from accessing legally determined dispute resolution.¹⁶ Accordingly, Justice Brown held the contract undermines the rule of law, is contrary to public policy, and is therefore unenforceable.¹⁷

Where Justice Brown’s opinion diverged from that of the majority’s was on the question of unconscionability. His Honour was of the view that the majority’s finding drastically expanded the scope of the doctrine of unconscionability and removed any meaningful constraint.¹⁸ His Honour held that such expansion will complicate and delay proceedings, moving forward,¹⁹ and was not necessary in coming to a just disposition of the case at hand.²⁰

Justice Côté’s Dissent

In a lengthy dissent, Justice Côté emphasized the need for freedom of contract, noting: “the simple fact is that the parties in this case have agreed to settle any disputes through arbitration; this Court should not hesitate to give effect to that arrangement.”²¹ Her Honour held the nature of the dispute in this case to be “commercial” since the contract expressly states “it was an agreement to license software and that it does not create an employment relationship”.²² Accordingly, Justice Côté would have reversed the Court of Appeal’s finding and applied the ICAA, and not the Arbitration Act, as the governing statute.

With respect to the majority’s assessment of the exceptions to competence-competence, Justice Côté held that a review is not “superficial” if the court is required to review testimonial evidence as would be required in the case at hand.²³ Justice Côté strongly opposed the majority’s expansion of the exceptions to the rule of systemic referral, holding, inter alia, such expansion defied legislative intent and the Court’s precedents as well as increases the risk of spurious arguments being advanced against the validity of an arbitration agreement as a delay tactic.²⁴

On unconscionability, Justice Côté was in agreement with Justice Brown that the majority had taken far too expansive an approach on the doctrine. Specifically, Her Honour noted the majority’s new threshold for a finding of an inequality of bargaining power has been set so low as to be practically meaningless in the case of standard form contracts.²⁵ Justice Côté stated the decision to restrict standard form contracts containing arbitration clauses in a matter for the legislature, not the courts.²⁶

Finally, Justice Côté viewed the majority’s approach in this case as being premised on the false dichotomy that the Court has only two choices when it comes to what it perceives to be one-sided arbitration agreements: rigid enforcement or complete invalidation of the entire agreement.²⁷ Justice Côté was of the view that the appropriate remedy was for the Court to apply blue-pencil severance and strike the offending provisions, instead of invalidating the entire agreement.²⁸ Her Honour noted she would have granted Uber’s motion for a stay of proceedings on the condition that Uber advances the funds needed to initiate the arbitration.²⁹

¹ Uber Technologies Inc. v. Heller 2020 SCC 16 at para 97.

² Ibid., at para 91.

³ Ibid., at para 26.

⁴ Ibid., at para 33.

⁵ Ibid., at para 37.

⁶ Ibid., at para 39.

⁷ Ibid., at para 46.

⁸ Ibid., at para 45.

⁹ Ibid., at para 42.

¹⁰ Ibid., at para 38.

¹¹ Ibid., at para 65.

¹² Ibid., at para 93.

¹³ Ibid., at para 4.

¹⁴ Ibid., at para 119.

¹⁵ Ibid., at para 108.

¹⁶ Ibid., at para 136.

¹⁷ Ibid., at para 176.

¹⁸ Ibid., at para 103.

¹⁹ Ibid., at para 128.

²⁰ Ibid., at para 174.

²¹ Ibid., at para 237.

²² Ibid., at para 304.

²³ Ibid., at para 231.

²⁴ Ibid., at paras 241-246.

²⁵ Ibid., at para 257.

²⁶ Ibid., at para 268.

²⁷ Ibid., at para 203.

²⁸ Ibid., at para 333.

²⁹ Ibid., at para 199.