Uber Decision Calls into Question Arbitration Clauses in Commercial Agreements
The news media has widely reported the Ontario Court of Appeal’s January 3, 2019 decision allowing a class-action by Uber drivers to proceed. The decision does not answer the question of whether Uber (and UberEATS) drivers should be considered employees or independent contractors (a conclusion that could have wide-ranging implications for employers that rely on independent contractor agreements). However, one aspect of the decision may have an immediate impact on employers in Ontario – the Court of Appeal’s finding that Uber’s arbitration clause amounted to an unlawful “contracting out” of Ontario’s Employment Standards Act, 2000 (the “ESA”).
Under section 5(1) of the ESA, any clause in an employment agreement that contracts out of or waives an “employment standard” is unenforceable. The ESA defines “Employment standards” as being “a requirement or prohibition […] that applies to an employer for the benefit of an employee”.
This section is often used to call into question termination clauses in employment agreements where a clause may arguably allow an employer to terminate an employee by providing the employee with less notice, pay in lieu of notice, and other entitlements than the employee would be entitled to under the ESA.
It is easy to see how termination entitlements are requirements that apply to an employment for the benefit of an employee. The Court of Appeal, however, went further, finding that Uber’s arbitration clause would prevent employees from complaining to Ontario’s Ministry of Labour about alleged violations of the ESA. It found that this, in turn, would prevent the Ministry of Labour from investigating such complaints (a process established by sections 96 and 98 of the ESA). The Court of Appeal ruled that this process of complaint investigation and adjudication amounted to an “employment standard”, despite the fact that neither is a “requirement or prohibition” that “applies to an employer”.
Because Uber’s arbitration clause purported to remove drivers’ ability to lodge a complaint with the Ministry of Labour, the Court of Appeal held that it was an attempt to contract out of the ESA. As a result, the entire arbitration clause was unenforceable.
This outcome means that future litigants may, as a matter of course, challenge arbitration clauses on the basis that they violate the ESA. This risk exists even where, as was the case with Uber, the contract is styled as a commercial independent contractor agreement.
Going forward, we suggest carefully reviewing arbitration clauses in any agreements that could arguably be subject to the ESA in order to ensure that those clauses are tailored to resist challenges in the wake of this decent decision.