Ontario’s Court of Appeal in Heller v. Uber Technologies Inc., 2019 ONCA 1 determined that the arbitration agreements contained in service agreements between drivers and Uber qualified as illegal contracting out of Ontario’s Employment Standards Act, 2000, SO 2000, c 41 (“ESA”), and that the arbitration agreements were unconscionable and invalid. In doing so, the Court provided new guidance for drafting arbitration clauses applicable to non-employment contracts and to their enforceability.
By way of class action, Appellant had sought a declaration that drivers in Ontario who use/used *Uber’s app to provide food delivery services and/or personal transportation services are “employees” of Uber and subject to the provisions of the ESA, that Uber violated provisions of the ESA and that the arbitration agreement contained in the Driver service agreement (“DSA”) or UberEATS service agreement (“UESA”) between drivers and Uber (the “Contracts”) are void and unenforceable. (*The Court referred to the four (4) Respondents – Uber Technologies Inc., Uber Canada, Inc., Uber B.V. and Rasier Operations B.V. – as “Uber”, noting that “it does not appear necessary, for the purposes of these reasons, to differentiate between the various respondents”.)
The arbitration agreement 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. . . .”
The Court was asked to consider the order of Mr. Justice Paul M. Perell in Heller v. Uber Technologies Inc., 2018 ONSC 718. To do so, the Court distilled the nature of Uber’s ride sharing services and food delivery services at paras 5 and 6 and, at paras 7-8, the manner in which drivers create online accounts to qualify to provide services to Uber’s customers including the summary fashion by which drivers would accept the terms of the Contracts which set out the terms and conditions for over 15 pages for the DSA and 16 pages for the UESA.
At paras 16-18, the Court summarized Perell J.’s decision granting Uber’s motion to stay the class action in favour of arbitration. Though Perell J. determined that nothing turned on the distinction given that neither legislation’s exceptions applied, he did identify that the International Commercial Arbitration Act, 2017, SO 2017, c 2, Sch 5 (“ICAA”) applied instead of the Arbitration Act, 1991, SO 1991, c 17 because the dispute qualified as both international and commercial. Perell J. had held that the Supreme Court in Seidel v. TELUS Communications Inc.,  1 SCR 531, 2011 SCC 15 and the Court’s own analysis in Wellman v. TELUS Communications Company, 2017 ONCA 433 required courts to enforce arbitration agreements entered into freely, even if those agreements qualified as adhesion contracts, and any restriction on parties’ ability to agree to arbitration must be found in legislation. Having considered the ESA, Perell J. determined that the ESA did not limit the drivers from agreeing to arbitrate and that the arbitrability of the Contracts as employment agreements was a question of mixed fact and law within the jurisdiction of an arbitrator decide pursuant to the competence-competence principle.
The Court applied the standard of correctness to reviewing Perell J.’s decision for two (2) reasons. First, the proper application of the provisions of Ontario’s ICAA or Arbitration Act are questions of law. Second, the correctness standard applies when a court is called upon to interpret a standard form contract such as a contract of adhesion having an impact beyond the legislation. The Court did agree though with Perell J. that nothing turned on whether the ICAA or the Arbitration Act applied and declined to comment further on that aspect but noted “serious reservations” regarding Perell J.’s conclusion that the drivers’ relationship was “commercial”.
The Court divided its analysis into two (2) parts. First, at paras 23-51, it considered whether the arbitration agreements qualified as illegal contracting out of ESA. Second, at paras 52-73, it considered whether the arbitration agreements were unconscionable and fell within the exception at section 7(2)2 of the Arbitration Act.
The Court in its reasons identifies the arbitration text above as a “clause”, refraining from qualifying it as an “agreement”. By doing so, it underlined the result of the second half of its analysis that the terms of the arbitration text were unconscionable.
Illegal contracting out – The Court’s approach is remarkable in that the Court did not pursue a limited or ‘obvious’ path to deal with the appeal by merely disagreeing with Perell J. that Appellant was not an employee. Instead, the Court identified two (2) key principles which ought to apply in other such applications to stay. First, it stated that section 7(1) of the Arbitration Act obliges a court to stay court litigation unless one of the exceptions in section 7(2) applies. Key to its analysis is the Court’s statement regarding who shall make the determination.
“ What is clear from the structure of the Arbitration Act, 1991 is that it is the court that is charged with making the determination whether one of the exceptions in s. 7(2) applies so that the issue of whether to grant a stay becomes a discretionary decision, not a mandatory one. It is not the arbitrator who makes that call, it is the court – a point that I will discuss in more detail below.”
Second, following Seidel v. TELUS Communications Inc. at para. 8, a court proceeds on preliminary exceptions on the basis that a plaintiff’s allegations are taken as capable of proof, though not proven.
“Turning to the exceptions then, it seems to me that one must start with the presumption that the appellant can prove that which he pleads, that is, that he is an employee of Uber. 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 Court then proceeded under the presumption that Appellant was an employee and the ESA applied. It observed that the ESA at section 96(1) provided employees with a recourse to file a complaint to the Ministry of Labour regarding allegations that the employer violated the ESA. Only two (2) restrictions apply to that complaint process. An employee who is a member of trade union cannot make a complaint. An employee who commences a civil proceeding cannot concurrently make a complaint for the same issue.
The Court rejected Uber’s argument that a civil proceeding included an arbitration.
“There is no reason to interpret the term “civil proceeding” in that fashion. Indeed, the Courts of Justice Act, R.S.O. 1990, c. C.43, which applies to all civil proceedings in Ontario, defines both actions and applications as civil proceedings. Notably it does not mention arbitrations. The definitions of actions and applications in the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 take the same approach.”
The Court explored the ESA’s wording and, in doing so, provided guidance for other arbitration practitioners considering the applicability of other legislation.
“ Further, there is nothing in the ESA that suggests that there was any intention to include arbitrations within the usual meaning of the term “civil proceeding”. Indeed, certain provisions suggest a contrary conclusion. One is s. 8(2) that requires an employee who commences a civil proceeding to give notice of that fact to the Director of Employment Standards. It would seem odd that notice of an arbitration (which is normally private) would have to be given to the Director but that would be the result if arbitrations are included in civil proceedings. In fact, s. 8(2), which requires that notice be given to the Director “before the date the civil proceeding is set down for trial”, also seemingly equates civil proceedings with actions. Another is s. 101(1) which refers specifically to “a proceeding before an arbitrator” and thus appears to draw a distinction between that form of proceeding and what the ESA otherwise refers to as a “civil proceeding”. In any event, what is clear is that the restriction in s. 98 does not apply to the circumstances of this case.”
The Court rejected Uber’s argument that section 96 of the ESA was not “an employment standard” and drew a line between the court’s role and that of arbitrators, a line which arbitration practitioners will no doubt return to trace again and again.
“ I return then to the point that it is for the court to decide whether the exceptions in s. 7(2) of the Arbitration Act, 1991 apply when an order for a stay of a proceeding is sought. Uber argues that this is an issue for the arbitrator to determine because it is an issue going to the jurisdiction of the arbitrator. Uber invokes the “competence-competence” principle in support of its position.
 I do not agree with Uber’s position because, in my view, this issue is not about jurisdiction. I am aware of the general approach that any dispute over an arbitrator’s jurisdiction should first be determined by the arbitrator but that addresses situations where the scope of the arbitration is at issue. That is not this case. There does not appear to be any dispute that, if the Arbitration Clause is valid, the appellant’s claim would fall within it. Rather, the issue here is the validity of the Arbitration Clause. The answer to that question is one for the court to determine as s. 7(2) of the Arbitration Act, 1991 makes clear.
 In light of that conclusion, the competence-competence principle has no application to this case and, consequently, I do not need to address the arguments made with respect to it.”
In light of the Court’s interpretation of the meaning of “employment standard” for the purpose of the ESA’s application, the Court held that the arbitration agreement qualified as a contracting out of the ESA, depriving Appellant of his right to file a complaint with the Ministry.
“This is of some importance for, among other reasons, if a complaint is made then the Ministry of Labour bears the burden of investigating the complaint. That burden does not fall on the appellant. Under the Arbitration Clause, of course, the appellant would bear the entire burden of proving his claim.”
The fact that Appellant filed a civil action and not a complaint under the ESA did not alter the Court’s analysis. The Court provided five (5) separate reasons, at paras 42-46 why, the last of which dealt specifically with the anticipated viability of the remedy Appellant might obtain in the arbitration.
In presenting its fifth reason, the Court discussed the role of expert evidence to demonstrate the viability, if any, of an arbitrated remedy, and the parties’ respective burden or opportunity to file that evidence, and held that parties resisting a referral to arbitration need not, as a condition precedent, demonstrate that their claim would fail in arbitration. Note that the Court leaves open the opportunity for the party seeking a referral to arbitration to file evidence on that very point.
“ A fifth reason is that there is no evidence in this record as to what remedy the appellant could expect to obtain if he is successful in the arbitration process. The Arbitration Clause requires that the laws of the Netherlands are to apply to the arbitration. We do not know how the laws of the Netherlands deal with the issues that the appellant has raised. We do not know if the laws of the Netherlands would provide greater, lesser, or equal benefits to the appellant, if it is determined that he is an employee. If he is an employee, then the appellant is entitled to the benefits that are provided by the ESA. In other words, as an Ontario resident he is statutorily entitled to the minimum benefits and protections of Ontario’s laws. He should not be left in a situation where those benefits and protections are set by the laws of another country.
 On that latter point, I should address the position taken by Uber that it was the appellant who should have, but did not, provide any expert evidence as to the laws of the Netherlands and whether an arbitrator there would apply Ontario law to the issues raised. I would first point out that Uber also did not provide any such expert evidence. It would appear self-evident that it would have been a great deal easier for Uber to provide that evidence, if they considered it to be important, than it would be for the appellant to do so.
 In any event, expert evidence on this point was not required. As the majority in Douez v. Facebook, Inc., 2017 SCC 33 (CanLII),  1 S.C.R. 751 pointed out in the context of forum selection clauses, there is no requirement for a party trying to avoid a forum selection clause to prove that his/her claim would fail in that forum: at para 67. Similarly, I find that in this context, there was no requirement for the appellant to prove that his claim would fail, if it was arbitrated in the Netherlands, in order to avoid the application of the Arbitration Clause.”
In concluding its analysis on the legality of contracting out under the ESA, the Court identified the importance of the issue relating to whether the drivers were independent contractors or employees entitled to the ESA’s protections.
Unconscionable – The Court adopted the analysis in Titus v. William F. Cooke Enterprises Inc., 2007 ONCA 573, recently affirmed by Phoenix Interactive Design Inc. v. Alterinvest II Fund L.P., 2018 ONCA 98, paras 15 and 37-41 to determine whether a contractual provision is unconscionable. See also Kielb v. National Money Mart Company, 2017 ONCA 356.
“1. a grossly unfair and improvident transaction;
2. a victim’s lack of independent legal advice or other suitable advice;
3. 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
4. the other party’s knowingly taking advantage of this vulnerability.”
The Court relied expressly on Douez v. Facebook, Inc.,  1 SCR 751, 2017 SCC 33 and noted that Douez v. Facebook Inc. applied by analogy to arbitration agreements despite the fact that it addressed forum selection clauses. This approach will likely invite similar analogies for arbitration parties in other cases to consider forum selection clause decisions as inspiration.
“ In approaching that issue, I start with the approach taken by the majority in Douez. While I recognize that the clause in question in Douez was a forum selection clause, I see no reason in principle why the same approach ought not to be taken to the Arbitration Clause in this case. I say that because the Arbitration Clause here is not, strictly speaking, simply an arbitration provision. It is also a forum selection provision and it is a choice of laws provision. It covers much more than just the method through which disputes will be resolved. It establishes both a foreign forum for the adjudication and a foreign law that will be applied in that adjudication. Consequently, the Arbitration Clause should be subject to a broader analysis when it comes to the issue of validity, especially in a situation where it is part of a contract of adhesion.”
The Court then applied a two-step analysis which involved a burden for each party to convince a court in determining whether a contractual provision is unconscionable. First, the party relying on the clause must establish that the clause is valid, clear, and enforceable, and that it applies to the cause of action before the court. Second, if the clause is valid, the onus shifts to the opposing party who must demonstrate strong reasons why the court should not enforce the forum selection clause and stay the action. All the circumstances of the case apply for the latter step. For the circumstances, the Court held that Arbitration Act’s section 7(2) was part of the circumstances and the burden rested on Appellant, not Uber, to prove that the clause was unconscionable.
The Court applied the four (4) criteria identified above to the facts and concluded that the arbitration agreement was unconscionable:
“1. The Arbitration Clause represents a substantially improvident or unfair bargain. It requires an individual with a small claim to incur the significant costs of arbitrating that claim under the provisions of the ICC Rules, the fees for which are out of all proportion to the amount that may be involved. And the individual has to incur those costs up-front. Uber’s submission that the individual might recover those costs, if successful, does not change the impact that flows from the fact that these costs must be paid up-front. Further, it should be self-evident that Uber is much better positioned to incur the costs associated with the arbitration procedure that it has chosen and imposed on its drivers. Additionally, the Arbitration Clause requires each claimant to individually arbitrate his/her claim and to do so in Uber’s home jurisdiction, which is otherwise completely unconnected to where the drivers live, and to where they perform their duties. Still further, it requires the rights of the drivers to be determined in accordance with the laws of the Netherlands, not the laws of Ontario, and the drivers are given no information as to what the laws of the Netherlands are.
2. There is no evidence that the appellant had any legal or other advice prior to entering into the services agreement nor is it realistic to expect that he would have. In addition, there is the reality that the appellant has no reasonable prospect of being able to negotiate any of the terms of the services agreement.
3. There is a significant inequality of bargaining power between the appellant and Uber – a fact that Uber acknowledges.
4. Given the answers to the first three elements, 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, at least on the point of favouring itself when drafting the Arbitration Clause. Its rationale in support of that favouring, i.e. that it chose this particular arbitration process in order to provide consistency of results, is an unpersuasive one.”
At paras 70-71, the Court concluded its analysis by likening the drivers to consumers if they were not employees and pointed to the driver’s bargaining position vis-à-vis Uber. Of particular interest to the Court was the up-front administrative costs associated with the ICC Mediation Rules and the ICC Arbitration Rules which the Court, at paras 12-15 and 55-58, contrasted with Appellant’s before taxes/expenses remuneration.
The Court also squarely distinguished Kanitz v. Rogers Cable Inc., 2002 CanLII 49415 (ON SC) from the facts before it and the distinctions will be relevant to arbitration practitioners drafting such clauses.
“ Finally on this point, I should mention that the motion judge, in coming to his conclusion, relied in part on my decision in Kanitz v. Rogers Cable Inc. (2002), 2002 CanLII 49415 (ON SC), 58 O.R. (3d) 299 (S.C.). Kanitz is entirely distinguishable from the situation here. First, in Kanitz, there was no evidence as to what the costs of initiating the arbitration process would be, nor evidence that any particular customer had been dissuaded from arbitrating because of the expense. The arbitration provision in Kanitz required the arbitration to proceed where the consumer resided and on mutually agreeable terms. Consequently, there was no evidence of any significant financial or geographic barriers to initiate the arbitration process, as there are in this case. I would also note that, subsequent to the decision in Kanitz, consumer protection legislation in Ontario was amended to preclude arbitration in such situations.”