Ride-sharing firm's employment contract illegal, unconscionable: OCA
In this case, the Ontario Court of Appeal found that the arbitration clause in a ride-sharing company’s driver services agreement and food delivery services agreement (the arbitration clause) amounted to both an illegal contracting out of a statutory employment standard; and an unconscionable imposition at common law.
This case is a preliminary motion in a proposed class action. In the proposed class action, the plaintiff seeks a declaration that the ride-sharing company’s drivers in Ontario are employees of the company and governed by the provisions of the Employment Standards Act, 2000, S.O. 2000, c. 41 (the ESA). The claim seeks declarations that the company has violated the provisions of the ESA and that the arbitration provisions of the services agreements entered into between the parties are void and unenforceable. The action also claims damages of $400 million.
In this case, the plaintiff-appellant appealed from the lower court’s decision to stay the proposed class action in favour of arbitration, as provided for in the company’s arbitration clause.
The arbitration clause in question, agreed to by the plaintiff-appellant, reads as follows:
Governing Law; Arbitration. Except as otherwise set forth in this Agreement, this Agreement shall be exclusively governed by and construed in accordance with the laws of The Netherlands, excluding its rules on conflicts of laws. . . . Any dispute, conflict or controversy howsoever arising out of or broadly in connection with or relating to this Agreement, including those relating to its validity, its construction or its enforceability, shall be first mandatorily submitted to mediation proceedings under the International Chamber of Commerce Mediation Rules (“ICC Mediation Rules”). If such dispute has not been settled within sixty (60) days after a request for mediation has been submitted under such ICC Mediation Rules, such dispute can be referred to and shall be exclusively and finally resolved by arbitration under the Rules of Arbitration of the International Chamber of Commerce (“ICC Arbitration Rules”). . . . The dispute shall be resolved by one (1) arbitrator appointed in accordance with ICC Rules. The place of arbitration shall be Amsterdam, The Netherlands. . . .
Nordheimer J.A., for a three-judge panel, stated that the 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 a food delivery driver for the company, the plaintiff-appellant earns about $20,800 to $31,200 per year, before taxes and expenses.
The issues of the case were defined and decided as follows:
- Did the arbitration clause amount to an illegal contracting out of the ESA and, therefore, invalid? Yes.
- Is the arbitration clause unconscionable and, therefore, invalid on that separate basis? Yes.
Below, I set out the court’s reasoning on each issue.
Section 7(1) of the Arbitration Act, 1991, provides that if a party to an arbitration agreement commences an action in respect of a matter to be submitted to arbitration under the agreement, the court shall stay the proceeding. The ride-sharing company’s motion leaned on this section. However, there are a number of exceptions found in s. 7(2). One of those exceptions is where the arbitration agreement is invalid, as it would be if it purported to contract out of the ESA. Contracting out of the ESA is prohibited by s. 5(1) of that Act.
Nordheimer J.A. did not decide the question of whether or not the plaintiff-appellant (and others like him) were employees rather than independent contractors. He stated that that question is the core issue that is to be decided in the action proper – and not on a preliminary motion. He stated at paras. 27-28:
This is a preliminary motion in a proceeding and, like many other preliminary challenges to the court’s jurisdiction to entertain a claim, the court normally proceeds on the basis that the plaintiff’s allegations are true or, at least, capable of being proven.
 The question then becomes, if the appellant (and those like him) is an employee of [the ride-sharing company], does the Arbitration Clause constitute a prohibited contracting out of the ESA? If it does, then the Arbitration Clause is invalid, the mandatory stay under s. 7(1) does not apply, and the court may then deny a stay under s. 7(2).
Starting from the presumption that the ESA applied to the plaintiff-appellant as pleaded, the court went on to set out the ESA rights infringed by the arbitration clause. Namely, the right of an employee pursuant to s. 96(1) of the ESA to make a complaint to the Ministry of Labour that his/her employer has contravened the ESA and to have that complaint investigated. The court determined that restrictions on that right (found at ss. 98 and 99(2)) did not apply on the facts of this case (see paras. 33-34). The court further found that this right was an employment standard protected by s. 5(1) of the ESA. Unfortunately for the ride-sharing company, the arbitration clause in question eliminated the right for drivers to complain to the Ministry regarding the actions of the company and their possible violation of the ESA and also eliminated, therefore, their right to an investigation of their complaint.
Nordheimer J.A. found that the arbitration clause is invalid for contravening the ESA notwithstanding that the plaintiff-appellant did not choose to make a complaint under the ESA, and instead commenced a proposed class action. He laid out at several reasons for this conclusion, including that the company’s arbitration clause contravened statute established to protect vulnerable workers and this contravention is true irrespective of what the plaintiff-appellant chooses to do or not do. Surely, this is a reasonable conclusion.
Independent of contravening the ESA, the court found, in any event, that the arbitration clause was invalid because of unconscionability. In coming to that conclusion, Nordheimer J.A. applied the following four-part unconscionability test, which determines whether a contractual provision is unconscionable:
- A grossly unfair and improvident transaction;
- A victim’s lack of independent legal advice or other suitable advice;
- An overwhelming imbalance in bargaining power caused by the victim’s ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility, or similar disability; and
- The other party’s knowingly taking advantage of this vulnerability.
In deciding that the test was met, Nordheimer J.A. enumerated the following points:
- The arbitration clause is a substantially unfair bargain for several reasons. It requires an individual with a small claim to incur significant up-front arbitration costs under the provisions of the ICC Rules, the fees for which are out of all proportion to the amount that may be involved. Further, the ride-sharing company is much better positioned to incur these costs, which are associated with an arbitration procedure that it chose and imposed on its drivers. Additionally, the arbitration clause requires each claimant to individually arbitrate his/her claim in the Netherlands and in accordance with Dutch law that drivers are given no information on.
- There is no evidence that the appellant had any legal or other advice prior to entering into the services agreement.
- Even the ride-sharing company acknowledges the significant inequality of bargaining power.
- The ride-sharing company chose this arbitration clause in order to favour itself and thus take advantage of its drivers, vulnerable people, and did so knowingly and intentionally.
This case is an important step in protecting worker rights in the age of the “gig economy.” That is, an economy increasingly based on freelance work, work for one or more employers and/or work for several employers over one’s lifetime.
The gig economy is distinct from the traditional style of working for decades for one employer and receiving benefits, vacation pay, a pension and the like. This style of employment relationship is often favored by millennials drawn to the freedom this style of work provides. Employers like the ride-sharing company also hope to benefit by not having to provide the traditional rights and benefits that come with traditional work and by being able to define the employment relationship on their own terms.
As the Court of Appeal has pronounced in this case, the burgeoning gig economy must contemplate the long-standing legal duty of the courts to protect vulnerable workers. This duty is demonstrated by the ESA, and also by landmark employment law cases like this case and this case, in which the Supreme Court of Canada has recognized how fundamental work is in a person’s life and how essential it is to personhood.