Supreme Court of Canada Refuses to Enforce Uber Contract Requiring Arbitration in Holland

A Canadian Uber driver, Heller, brought a class action against Uber, actually several Uber entities, alleging violations of Canada’s Employment Standards Act. According to the motion judge in the Ontario Superior Court of Justice, Uber “[d]rivers in Ontario do not enter into contracts with Uber Technologies Inc. [incorporated in Delaware] or Uber Canada Inc. The Drivers rather create an internet account and a contractual relationship with Uber B.V. and with Rasier Operations B.V. and, or Uber Portier B.V.” Each of those Uber entities is incorporated under the laws of the Netherlands. Uber’s form contract for drivers says it shall be governed by the laws of the Netherlands, and that any dispute not resolved in mediation:

“shall be exclusively and finally resolved by arbitration under the Rules of Arbitration of the International Chamber of Commerce (“ICC Arbitration Rules”) …. The Place of the arbitration shall be Amsterdam, The Netherlands.” 

The motion judge granted Uber’s motion to stay the class proceedings in favor of arbitration in the Netherlands, relying on Canada’s International Commercial Arbitration Act, which implements the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).  

The Court of Appeal of Ontario set aside the lower court’s order, and allowed Heller to litigate, rather than arbitrate, the class action. The Court of Appeal emphasized that the ICC’s “up-front administrative/filing-related costs for a driver to participate in the mediation-arbitration process in the Netherlands prescribed in the Arbitration Clause is US$14,500. As an UberEATS driver, the appellant earns about $20,800-$31,200 per year, before taxes and expenses.” The Court of Appeal held that the arbitration agreement “constitutes a contracting out of the Employment Standards Act “ which permits a driver to make a complaint the Ministry of Labour regarding the actions of Uber and their possible violation of the requirements of the ESA.” The arbitration agreement “deprives [the driver] of the right to have an ESO investigate his complaint.” The Court of Appeal noted that the driver “has not, in fact, chosen to make a complaint under the ESA but rather has commenced this proposed class action”, but held that this did not under the court’s conclusion that the arbitration agreement impermissibly contracted out of the ESA.

As an independent ground for denying enforcement to the arbitration clause, the Court of Appeal held the clause unconscionable.

The Supreme Court of Canada agreed with the Court of Appeal that the arbitration clause is unenforceable: “This is an arbitration agreement that makes it impossible for one party to arbitrate. It is a classic case of unconscionability.” The Supreme Court’s opinion contains a lengthy discussion of the unconscionability doctrine, featuring some differences of opinion among the justices.

Earlier Canadian cases include Dell Computer Corp. v. Union des consommateurs, [2007] 2 S.C.R. 801, and Seidel v. TELUS Communications Inc., [2011] 1 S.C.R. 531. 

Did Arbitration Save Uber $80 Million?

Did Uber's payout to its drivers fall by $80 million due to an enforceable arbitration clause? That's the impression given by Johana Bhuiyan in the LA Times:

"Uber agreed to pay $20 million to settle lawsuits challenging the classification of drivers as independent contractors, rather than employees owed the benefits of traditional employment.

The payout is a far cry from the $100 million Uber had agreed to pay to settle the suit in 2016, after a San Francisco judge granted 385,000 drivers in California and Massachusetts class-action status. Eventually, a judge determined $100 million was not sufficient given the original class size.

But an appeals court ruling found Uber’s mandatory arbitration agreements — which obligate workers to settle their claims with the company one-on-one — were largely valid and enforceable.

That ruling, and Uber’s decision in May to maintain its policy of upholding its arbitration clause in cases unrelated to sexual misconduct, ultimately reduced the class to about 13,600 drivers, who had either opted not to agree to mandatory arbitration or drove for Uber before the company implemented such a policy."

Shannon Liss-Riordan, the plaintiffs' lawyer representing drivers, is running for U.S. Senate in a primary challenge to Massachusetts Democrat Ed Markey.

Supreme Court Hearing Three Arbitration Cases in October

On October 3rd the Court heard oral arguments in New Prime, Inc. v. Oliveira, asking whether  FAA section 1, which excludes certain transportation “workers” from the FAA’s reach, applies to independent contractors, in addition to the employees, of a transportation company.  Ogletree Deakins writes: “Given the justices’ seeming alignment with Oliveira at the oral argument, it is anticipated that the Supreme Court will ultimately issue a decision allowing truck drivers and others independent contractors in the transportation industry to avoid arbitration.”

In late October the Court will hear Lamps Plus, Inc. v. Varela in which the Ninth Circuit held the agreement permitted class arbitration.

The Court will also hear Henry Schein v. Archer & White Sales, Inc. This contract provided for arbitration of all disputes, except claims for injunctive relief and involving intellectual property rights. Plaintiff sought injunctive relief and argued the case should be litigated, but defendants argued the arbitration agreement sends to the arbitrator any questions about the arbitrability of some or all of the case. The Fifth Circuit ruled that the court should decide arbitrability, and affirmed denial of the motion to compel arbitration.

The National Law Review provides a more detailed discussion of the issues.