Heller v Uber Technologies Inc: Arbitration Clause Stops a $400 million Class Action in its Tracks

Around the world, there is fierce debate about whether Uber drivers should be characterized as customers, independent contractors, or employees.  In January 2018, the ONSC released its ruling in the closely watched case Heller v Uber Technologies Inc, 2018 ONSC 718 [Heller].

At issue was whether or not the Plaintiff, David Heller, could commence a proposed $400 million class action on behalf of all Uber drivers in Ontario. In particular, the class members argued that they should be classified as Uber employees instead of independent contractors in order to be entitled to the benefits under Ontario’s Employment Standards Act, 2000, SO 2000, c. 41.

With similar legal skirmishes occurring in California, New York, Florida and the United Kingdom, the Heller action represents the first instance where Uber’s legal relationship with its drivers has been tested in Ontario. Below, I will explain how Uber’s Service Agreement allowed it to stay the class action. I will also examine the policy considerations underpinning the case and how I think future legislative amendments may alter the status quo.

So Where Should We Argue – My Place or Yours?

In order to use Uber, any prospective driver must agree to the company’s Service Agreement. The applicant is required to scroll through an entire 14-page page agreement before confirming their acceptance. Once a driver has clicked “YES, I AGREE”, he or she is able to access the Uber App.

Uber’s Service Agreement contained two important provisions:

1. A Driver Acknowledgment that the two parties are not in an employment relationship; and

2. An Arbitration Clause that stipulates that disputes, conflicts, or controversies arising out of or broadly in connection with the agreements shall be resolved by arbitration in Amsterdam under the Rules of Arbitration of the International Chamber of Commerce.

In Heller, what has transpired is a legal tug-of-war to either certify class proceedings through Ontario Courts or else proceed with arbitration in the Netherlands. As per their Service Agreement, Uber has argued that the proposed class action should be stayed in favour of arbitration in the Netherlands (where Uber is incorporated) under the terms of the International Commercial Arbitration Act, 2017, SO 2017, c 2, Sched 5. Conversely, the plaintiff seeks action in Ontario.

In order for the International Commercial Arbitration Act to apply, an arbitration agreement must be “commercial” in nature. On this point, the plaintiff argued that his contractual relationship with the Uber entities is an employment relationship, and thus outside the ambit of the arbitration clause.

Judge Perell did not find the plaintiff’s argument persuasive. Turning to an interpretative report issued by the Commission on International Trade Law, he highlighted the definition of commercial relationships in an arbitration setting:

“Relationships of a commercial nature include, but are not limited to, the following transactions: any trade transaction for the supply or exchange of goods; distribution agreement; commercial representation or agency; factoring; leasing; construction of works; consulting; engineering; licensing; investment; financing; banking; insurance; exploitation agreement or concession; joint venture and other forms of industrial or business co-operation; carriage of goods or passengers by air, sea, rail or road.” (Heller, Para 40, emphasis my own)

Accordingly, Judge Perell characterized the relationship between Uber and its drivers as “the sale for the use of intellectual property, a software program, for a fee” (Heller, para 46). As such, he determined that the relationship was of a commercial nature that fell squarely within the scope of the arbitration clause.

The Competence-Competence Principle

The Plaintiff’s second line of argument was that whether a worker was defined as an employee or a contractor depended upon on a variety of factors and, notwithstanding the parties’ contractual characterization of their relationship, may not be determinative of how a court might classify the relationship. As such, the class action should be certified and allowed to proceed on its merits.

In disposing of this argument, Judge Perell followed the Supreme Court’s ruling in Seidel v TELUS Communications Inc., 2011 SCC 15 [Seidel], which held that that absent legislative language to the contrary, courts must enforce arbitration agreements (Seidel, para 7). Moreover, it held that a court should only refuse a reference to arbitration if it is clear that the matter falls outside the arbitration agreement based solely on a question of law (as opposed to fact, or mixed fact and law) (Seidel, para 86).

With this in mind, Judge Perell deferred to a foundational principle of modern arbitration law – the “competence-competence” principle. According to this principle, an arbitral tribunal is competent to decide its own competence.  In other words, a tribunal has the jurisdiction to decide its own jurisdiction. As a result, the arbitral tribunal itself should make the determination of how the relationship should be classified, and indeed, if would allow the dispute to proceed as an arbitration.

An Unconscionable Contract?

Lastly, the plaintiff argued that the contract was illegal and void on the grounds of unconscionability. The grounds for an unconscionable contract were laid out in Kanitz v Rogers Cable Inc, 58 OR (3d) 299 as:

(1) pronounced inequality of bargaining power;

(2) a substantially improvident or unfair bargain; and

(3) the defendant knowingly taking advantage of the vulnerable plaintiff.

While Justice Perell found that there was certainly an inequality of bargaining power, there was no evidence that the inclusion of an arbitration clause constituted a substantially unfair bargain or an instance of knowingly taking advantage of a vulnerable plaintiff. Relying on the facts, Justice Perell found that most driver grievances between drivers and Uber could be dealt with by the dispute resolution mechanisms readily available from Ontario and through the App itself.

The ONSC stayed the class proceeding, and referred it to arbitration.

Final Thoughts

At a practical level, the decision in Heller upholds the general rule that arbitration agreements will be enforced. With this new ruling, sophisticated employers will continue to insert arbitration clauses with confidence that they will be upheld. Unlike litigation, arbitration holds several advantages for corporations. First, arbitrations are confidential and resolutions are private. This allows for matters to be dealt with discretely and free from public or competitive scrutiny. Second, arbitration does away with potentially costly class proceedings, and forces the plaintiff party to make their case on a one-on-one basis with the contracting company.

At a higher level however, I think Heller ruling has highlighted the underlying policy tensions between freedom to contract, commercial efficiency and access to justice. In the United States, increasing attention is being paid to so-called “forced arbitrations” that compel individuals to forfeit their right to sue companies in the financial sector, Silicon Valley, and publicly-traded entities.

Most individuals can see the improbability (and absurdity) of requiring an Ontario-based Uber driver to pursue commercial arbitration in Amsterdam in their spare time. It is likewise true that, irrespective of how the relationship is contractually defined, an increasing number of people are driving Uber on a full-time basis and as their standalone job. The Supreme Court of Canada stated in Macthtinger v HOJ Industries, [1992] 1 SCR 986 that work is fundamental to a worker’s life and should be treated differently than other contracts. Contractors, the “gig” economy and cases like Heller increasingly prod us to rethink how employer-worker relationships should be defined and disputed. Stay tuned—this case is likely to be appealed.

While originally envisioned as a conduit to facilitate efficient commerce between sophisticated international parties, I think this is one example where the black letter of the International Commercial Arbitration Act was followed—but not its intention. I can see a future government legislating a statutory carve-out exception for arbitration where a dispute is employment related. Such a law may better balance the public policy goals of arbitration, which is efficiency, against the public policy rationale for class actions, which is access to justice.

Scott Lin

Scott is currently a JD/MBA student at Osgoode Hall Law School and the Schulich School of Business. Prior to law school, he worked a lecturer at the University of Western Ontario, where he taught first-year Introduction to Business. He will be completing his articles at a firm in Toronto, with interests in the areas of corporate/commercial and competition law.

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