Ontario Court of Appeal refuses to accept Uber’s terms of service

ANALYSIS: The court recently ruled that the company’s arbitration clause was “unconscionable” — and that could have far-reaching consequences for the gig economy, writes John Michael McGrath
By John Michael McGrath - Published on January 8, 2019
an Uber Passanger getting into a car
Uber maintains that its drivers are independent contractors, not employees, and thus not covered by Ontario’s Employment Standards Act. (Seth Wenig/CP)

Thanks to a recent decision from Ontario’s highest court, Uber drivers are heading into 2019 with more power.

The decision, which the Ontario Court of Appeal released January 2, came in answer to a class-action lawsuit launched by David Heller, a driver for the ride-hailing app. Heller was seeking to have drivers declared “employees” under Ontario law, meaning that the U.S.-based tech company would have to abide by the province’s Employment Standards Act. Uber maintains that its drivers are independent contractors, not employees, and thus not covered by the ESA.

The court didn’t settle the core question of the class-action suit. But it did do something that could fundamentally alter the balance of power between so-called gig-economy companies and the people who work for them: it invalidated the section of Uber’s terms of service that forces drivers to take any legal claims to third-party arbitration instead of to a court of law. The move allows the class-action suit to proceed, but it could also have significant impacts well beyond this case.

“The court has given a direct message to companies who try and work with people in this way that you can’t have everything your own way,” says Hilary Page, an employment lawyer at SpringLaw in Toronto.

The court unanimously found that Uber’s arbitration clause was both illegal under the ESA and also “unconscionable” in common law because it was unfair, unequal, and imposed huge obligations on any driver who wanted to pursue arbitration. How huge? Well, any driver who wanted to head to arbitration also had to be willing to head to the International Chamber of Commerce, in the Netherlands. Heller’s lawyers estimate the up-front cost of launching an appeal to be $14,500.

“It’s crazy, but we all just click through those contracts on our phones,” says Page.

But the court didn’t accept Uber’s terms of service, so to speak.

“I believe that it can be safely concluded that Uber chose this Arbitration Clause in order to favour itself and thus take advantage of its drivers, who are clearly vulnerable to the market strength of Uber. It is a reasonable inference that Uber did so knowingly and intentionally. Indeed, Uber appears to admit as much,” writes Justice Ian Nordheimer.

In a statement emailed to TVO.org, Uber said that it was “reviewing the decision” and would not confirm whether it intends to appeal the case to the Supreme Court of Canada.

Uber isn’t the only company that includes such arbitration clauses in its terms of service. Lyft and Airbnb do, too, for example. But not all clauses are created equal. Some companies are at least nominally more accommodating. Airbnb states in its terms that it will agree to arbitration “in the county where you reside” or “in any other location to which you and Airbnb both agree.” Those kinds of details could matter in future cases involving arbitration clauses in Ontario.

The court’s finding that Uber’s arbitration clause is illegal under the Employment Standards Act could also have far-reaching effects — and not just for tech companies looking to “disrupt” established industries.

“This decision calls into question all mandatory arbitration clauses that purport to apply to employees in Ontario, not just to so-called gig employees,” David Doorey, a professor of labour and employment law at York University, told TVO.org in an email. “The gist of the decision is that the right in employment-standards legislation to file a complaint and to have that complaint investigated by the state — in other words, the enforcement machinery in the legislation — is itself an employment standard that cannot be avoided by an arbitration clause.”

That means that a company won’t be able to use a contract to sidestep provincial law. (Ontario law does provide for some exceptions to the ESA. Unionized employees, for example, are generally prevented from making complaints under that law, because the union is expected to act on their behalf.)

If the decision stands, it could have far-reaching effects for employers and employees alike in this province. But the core question at issue in Heller v. Uber — whether drivers are employees or contractors — is one Page still wants to see answered, since it could radically change the relationship between tech companies and their users.

“We’re seeing such a rise in independent contractors with the rise of the gig economy, and I’ll be very curious to see how that decision ends up,” she says. “That could have an even bigger impact than the question of the arbitration clause, if they shouldn’t have been independent contractors in the first place.”

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