Recently, the Ontario Court of Appeal issued a decision in Heller v Uber Technologies Inc (“Heller”), invalidating a mandatory arbitration clause that would have required the putative class members to arbitrate their employment standards claims in the Netherlands, rather than pursue them in Ontario courts. The Court of Appeal determined that the arbitration clause violated the Employment Standards Act (“ESA”) because it precluded the drivers from pursuing their employment claims under the Act pursuant to the procedures provided under the Act.
The Court also held that the arbitration clause, which required drivers to arbitrate their claims in the Netherlands under the law of the Netherlands and to pay approximately $14,500 USD in administrative costs to initiate that process, was unconscionable. This post focuses on the Court’s analysis of the arbitration clause’s enforceability under the ESA.
Mandatory Arbitration Clauses
In most cases, contract disputes are resolved through negotiation, and when that fails, civil litigation in court. However, the parties to a contract can also agree in advance to resolve any disputes through private arbitration, without going to court. This is called mandatory arbitration.
Mandatory arbitration clauses in individual employment contracts can be controversial. Arbitration clauses with confidentiality provisions can prevent public scrutiny of harmful employment practices. Moreover, where the employee does not have the opportunity to negotiate the terms, employees might be forced to navigate the laws and arbitration processes of other provinces and even other countries. These kinds of arbitration clauses may also preclude "group" claims, making it harder for individual non-unionized employees with small claims to vindicate their rights.
What the Heller Decision Says About Mandatory Arbitration of Employment Claims
The Heller decision limits the enforceability of mandatory arbitration clauses in the employment context. The proposed representative plaintiff, Mr. Heller, is pursuing a class action against Uber on behalf of all Uber drivers in Ontario. Uber moved to have Mr. Heller's claim dismissed in favour of arbitration in the Netherlands, as required by the mandatory arbitration clause contained in the Uber service agreement.
The Supreme Court of Canada has held that mandatory arbitration clauses are enforceable even when contained in adhesion contracts. A contract of adhesion is one in which the materials terms are drafted by one party and imposed without any negotiation. Mr. Heller’s contract with Uber was a contract of adhesion.
However, Mr. Heller argued that Uber’s mandatory arbitration clause in the employment context violates the ESA. Under s 5(1) of the ESA, any employment agreement or part thereof that purports to waive or circumvent benefits provided by the ESA is void. At the first instance, the Ontario Superior Court of Justice rejected this argument and found for Uber. That decision was overturned in Heller, where the Court of Appeal held that mandatory arbitration clauses in employment agreements violate the ESA if they deprive the employee of a right or benefit guaranteed under the ESA.
First, the Court considered whether the validity of the arbitration agreement should be considered based on the pleadings or left to the arbitrator to determine. Under the Arbitration Act, if a party commences a civil proceeding in violation of an arbitration agreement, the Court must stay the proceeding. However, there are a number of exceptions, including if the arbitration agreement is itself invalid. In Heller, the Court determined that it could decide based on the pleadings whether the arbitration clause was void in the context of employment standards claims.
An employee whose ESA rights have been violated has three options under the ESA: 1) a civil proceeding, 2) a complaint to the Ministry of Labour, and 3) a union grievance and arbitration under the applicable collective agreement. Mr. Heller argued that enforcing the mandatory arbitration clause would leave him without access to any of the remedies enshrined the ESA. Uber, for its part, argued that arbitration is a type of civil proceeding, so mandatory arbitration is consistent with the ESA.
The Court of Appeal held that there is "no reason" to read "civil proceeding" as including private arbitrations. The Court noted that the Courts of Justice Act ("the CJA"), which governs civil proceedings in Ontario, distinguishes between only two types of civil proceedings: actions and applications. Furthermore, if an employee commences a civil proceeding pursuant to the ESA, they must notify to the Director of Employment Standards when the matter is set down for trial. The Court questioned how this requirement could be reconciled with the arbitration process, which was private and confidential in this case.
Uber contended that option 2), wherein the employee complains to the Ministry of Labour under s 96 of the ESA, is not an "employment standard" as defined by the ESA. The ESA defines an "employment standard" as any "requirement or prohibition…that applies to an employer for the benefit of an employee." The Court rejected Uber's argument as inconsistent with the purpose of the ESA, which is to protect the interests of employees. Uber's argument would also, if accepted, allow an employee to waive their right to complain to the Ministry. This would frustrate the Ministry's ability to ensure compliance with employment standards, again undermining the purpose of the ESA.
The Court in Heller was not asked to resolve the question at the core of Mr. Heller's claim, which is whether Uber drivers should be classified as employees under the ESA. Still, Heller leaves little room for mandatory arbitration in the employment context. The right to commence a civil proceeding has now been recognized to apply to workers seeking to be recognized as employees.
The Heller decision is good news for workers in Ontario. It limits the ability of employers to divide and conquer and ensures that workers will be able to vindicate their ESA rights in a public forum under the laws of Ontario.
*Thanks to Robert Boissonneault, law student at the University of Ottawa Faculty of Law, for his work on this post.