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Does your Arbitration Clause need Retooling? Probably!

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A recent decision of the Court of Appeal for Ontario (the “ONCA”) has created doubt as to the enforceability of certain arbitration clauses in independent contractor agreements – which will likely require all direct selling companies to want to review and retool their own clauses.

In Heller v. Uber Technologies Inc., 2019 ONCA 1 (“Heller”), an Ontario Uber driver commenced a proposed class action against Uber entities.  The Uber driver alleged that Ontario Uber drivers were improperly classified by Uber as independent contractors, when they were lawfully employees entitled to the protections of the Ontario Employment Standards Act, 2000 (the “ESA”). The class action sought a declaration that Uber had violated the provisions of the ESA and asked for $400 million in damages.

Uber took initial steps to defend itself by seeking a stay of proceedings based on contracts entered into between the drivers and the Uber entities that contained arbitration clauses, stipulating that any disputes arising under or relating to the agreements be submitted to arbitration in the Netherlands under International Chamber of Commerce Rules (the “ICC Rules”).  The initial motions judge agreed with Uber and issued a stay of proceedings, without certifying the class action.

Unfortunately for Uber, the Court of Appeal unanimously overturned that decision, allowing the proposed class action to proceed.

The ONCA found that the arbitration clauses in question were invalid because they: (1) constituted an unlawful contracting out of the “employment standard” protections of the ESA, and (2) were unconscionable. 

ESA Contravention Section 5 of the ESA prohibits the contracting out of any “employment standard”.  The term “employment standard” is defined in subsection 1(1) of the ESA as “a requirement or prohibition under this Act that applies to an employer for the benefit of an employee”. The ONCA held that the right of an employee to make a complaint to the Ministry of Labour that his/her employer had contravened the ESA under subsection 96(1) of the Act constituted an “employment standard” (notwithstanding the fact that it is unclear how the ability to make a claim to the Ministry of Labour can be said to be “a requirement or prohibition... that applies to an employer”). This meant that the arbitration clauses were invalid on the basis that they constituted a contracting out of the ESA by eliminating an Uber driver’s ability to make a complaint to the Ministry of Labour regarding the actions of Uber and its possible violation of the requirements of the ESA.  Although the Uber driver commenced a proposed class action instead of making a complaint to the Ministry of Labour, the ONCA deemed this fact to be inconsequential, as it reasoned that if an arbitration clause offended subsection 5(1), this would mean “the provision is invalid, irrespective of what the appellant does or does not do.”

Unconscionability – The OBCA also held that under the four-part test in Titus v. William F. Cooke Enterprises Inc., 2007 ONCA 573, the arbitration clause was also invalid on account of being “unconscionable”, highlighting the fact that requiring those with a small claim to incur the significant costs of arbitrating a claim under the provisions of the ICC Rules (e.g., $14,500 in up-front administrative/filing-related costs, not including legal fees, travel, etc.) and to arbitrate the claims in the Netherlands in accordance with the Dutch laws – not the laws of Canada – was problematic.

Given the potential implications of the Heller decision, companies that utilize arbitration clauses in independent contractor agreements should review these clauses and see if amendments are required.

Do you require assistance in this area? If so, contact us here.

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