Mandatory arbitration ruled invalid for Uber contractors

There's a lesson here for employers when it comes to using arbitration clauses and the risk of inequalities in bargaining power

Mandatory arbitration ruled invalid for Uber contractors

Global delivery service giant Uber recently found itself on the wrong end of a decision by the Supreme Court of Canada that will affect its contractors in this country.

In the ruling, Heller v. Uber Technologies Inc., the court found that a $400-million class-action lawsuit should be heard in Ontario and not in a Netherlands court of arbitration, which was the solution Uber had imposed upon all its contractors when they first signed up to become part of the service.

An alternative decision could have had serious implications, according to Lior Samfiru, a partner at Samfiru Tumarkin in Toronto.

“If the court found that that the arbitrary clause in Uber’s contract was enforceable, the net effect of that would have been the death of employment law. There would no longer be any employment laws, because that would have allowed any employer to have a similar clause, which would render employees unable to enforce rights,” he says.

“All the rights in the world don’t matter if you don’t have a mechanism to enforce them, and if Uber was right here, then every employee could be told: ‘Well, to enforce rights, you have to file for an arbitration in name your country,’ and that would have been completely unworkable.”

Employers have 'upper hand' but can't deny employee rights
The law firm first launched the suit in 2017 on behalf of Uber drivers. It argued that the drivers should be classified as employees, not independent contractors, and they should be covered by both Canadian and Ontario employment laws.

The suit was initiated by David Heller, an Uber Eats food delivery driver in Ontario, who alleged that the company didn’t allow him to access minimum labour standards under the Employment Standards Act when he signed a service agreement in June 2016.

But this decision shows that companies “can’t take advantage of employees that are clearly weaker in terms of their negotiating power, sophistication or resources,” says Samfiru.

“An employer’s often going to have the upper hand in those areas, and you can’t use those advantages to deprive employees of their rights. If you’re going to operate in Canada, you have to be prepared to abide by Canadian laws. You can’t avoid that.

“As the economy becomes more global, more companies coming into Canada must understand that it doesn’t take away the ability to take advantage of the good employment laws that we have in this country,” he says.

Mandatory arbitration clause ‘ridiculous’
The technology company’s method of forcing workers to abide by mandatory arbitration instead of accessing labour laws should show other organizations that this imposition cannot be maintained, according to an Ottawa lawyer.

“Employers need to be careful and cautious in determining when they’re going to use arbitration clauses. I think that the court has drawn a pretty clear line as to when arbitration clauses can and cannot be used in employment agreements. There’s some grey area there, but the court has made quite clear that arbitration clauses will not have a blanket applicability in the employment context,” says Kyle Lambert, a partner in the advocacy and litigation group at McMillan.

“They should bear the decision in mind in determining when to include an arbitration clause in an employment contract, where there is a risk that a court would find that there’s too much inequality of bargaining power between the employee and employer or where the court will look at the cost of proceeding to arbitration and find that that cost would be something that would prevent the employee from pursuing dispute resolution for or enforcing something in the contract,” he says.

The use of the mandatory arbitration clauses is employed by a lot of “app-based” employers, according to Pablo Godoy, national coordinator of gig and platform-employer initiatives at United Food and Commercial Workers Union (UFCW) Canada in Calgary, but none have been “as ridiculous as this one.”

The Uber clause required the contractor to pay a US$14,500 fee to file for arbitration.

“In other cases, they might have you pay a smaller fee, and the hearing or arbitration may take place in at least more of a local or accessible city. [Uber’s use] is one of the more extreme cases we’ve seen, but most of the app-based employers that exist in Canada are similar ones and they all use different levels of arbitration clauses,” says Godoy.

The practice is also employed by a lot of American companies, according to Samfiru, but “the Supreme Court of Canada sent a clear message saying, ‘No, you can’t do that if you choose to operate here. We have our laws here, and we have our legal system here. And that’s going to be what you’re going to be dealing with when you’re here.’”

A victory for gig workers?
For the UFCW, the ruling delivers a victory for gig workers.

“The ultimate finding was exactly that the arbitration clause that they’re said to provide to drivers is unconscionable and, in so claiming, the court has indicated that it’s near impossible for low-wage workers to ever be able to access any real, meaningful due process,” says Godoy. “It’s a big decision and that illustrates that Uber has purposefully tried to remove workers from accessing their rights.

“It’s significant in that I think Uber across the world has been taken to task in terms of their MO [modus operandi], which is really to set up shop and then retroactively change their operations depending on what jurisdiction, what municipality or provincial state government dictates,” he says.

However, the ruling won’t provide complete protection for gig workers, says Lambert.

“Simply put, requiring private arbitration where a worker isn’t earning very much money from the job or from the gig is going to be extremely hard, based on the test that the majority set out in Heller.”

The UFCW continues to sign up Uber contractors, having locked up more than 300 Uber Black drivers in Toronto in June 2019.

“The difficulty in the gig economy is that there is no meaningful regulation or legislation that exists currently to regulate these employers and so you almost literally have to take each app to court, to the labour board, to actually start fixing them one by one. We would argue that that’s part of the problem here… that the services and the work that’s being performed are delivered or are identical to services and goods and labour that has been provided for decades. The only thing that has changed is how you access that labour, which is at the push of a button,” says Godoy.

And deciding who to sign up has also brought challenges for the union, according to Godoy, but it’s becoming easier to do.

“The difficult part isn’t necessarily inviting them or being able to access and speak to workers because what we found is a lot, not all, but a lot of them are plugged into social networks where they share information and, so, getting access to workers isn’t necessarily the difficult part. We found that the organizing is made difficult because of its legislation or lack of legislation that exists.”

The next step is to certify the lawsuit, says Samfiru, and this means the fight will continue for years to come.

“Given the fact that there’s always the option to appeal decisions, I do think that it’s going to take time. Our courts now, especially, as you can appreciate, are backlogged because of COVID-19; they’re just starting to reopen now. As slow as matters tend to move usually, they’re going to move even slower right now, unfortunately,” he says.

“It’s fair to say that there’s going to be some time before we have this case completely over with.” 

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