Ontario: Foreign Arbitration Requirement Invalidated

 

By Rosemarie Lally, J.D. March 22, 2019
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​In a ruling likely to reshape multinationals' arbitration agreements, the Ontario Court of Appeal invalidated an arbitration clause requiring Uber drivers in the province in Canada to resolve all employment issues through a prohibitively expensive process in the Netherlands.

"This case is part of a series of cases redefining the balance between multinational companies and individual workers in the modern gig economy," said Christopher Burkett, an attorney with Baker McKenzie in Toronto. "Large multinational companies engaging with independent contractors should be careful not to be viewed as using their bargaining power to subvert the rights of individual workers within their home jurisdictions."

The case arose when an Uber Eats driver brought a proposed class action, seeking a declaration that drivers are Uber employees entitled to the benefits provided by Ontario's Employment Standards Act (ESA). Uber requested to stay the action, claiming that the appellant was bound by an arbitration clause in the Uber services agreement stipulating that disputes go through an arbitration process in Amsterdam under the law of the Netherlands, with upfront filing fees of U.S. $14,500 paid by the driver. The superior court granted the motion to stay the action in favor of arbitration.

The appellate court reversed the lower court, finding that the clause was invalid and unenforceable because it violated the ESA, which guarantees employees' ability to pursue employment claims in court or with the government. Uber's arbitration clause attempted to contract out of Ontario's statutory scheme, the court said. Reasoning that its review must begin with the presumption that the appellant could prove that he was an employee of Uber, the court found that the clause denied drivers the ability to make complaints to the Ministry of Labour, thus depriving them of the statutory right to have an employment standards officer investigate their complaints.

Further, the appellate court held that the clause was "unconscionable" for failing to protect the weaker contracting party. The clause "represents a substantially improvident or unfair bargain," the court said, noting that a driver making C$400 to $600 (approximately U.S. $299 to $449) a week, based on 40 to 50 hours of work in Ontario, would be forced to undertake arbitration in Amsterdam to resolve a claim possibly worth a few hundred Canadian dollars.

[SHRM members-only toolkit: Introduction to the Global Human Resources Discipline]

Can Employers Still Rely on Arbitration Clauses?

Employers should "absolutely review" their existing contracts to make sure the arbitration process outlined is accessible and doesn't violate statutes in workers' home countries, said Lior Samfiru, an attorney with Samfiru Tumarkin in Toronto and co-counsel for the appellant. "Think about narrowing the scope of the provision."

Noting that Google now does not have arbitration agreements in its employee contracts, Samfiru expressed his belief that more firms will soon follow Google's lead. "Companies, especially big ones, rely on public perception of their brand, and I think that many more of them will choose not to use arbitration clauses going forward," he said. "In the age of the #MeToo movement, it's bad optics for a company to be seen as trying to silence accusers bringing sexual harassment or discrimination claims." The fact that arbitration provides no right to an appeal compounds the public-perception problem, he added.

For employers who choose to continue using arbitration clauses, Samfiru offered this advice:

  • Make sure the clause doesn't breach statutory protections in local jurisdictions.
  • Avoid overreach. Don't make the conditions so outrageous that no one can realistically use the arbitration process.
  • Ensure the parties have equal bargaining power.
  • Make the arbitration process accessible from both a monetary and a geographical standpoint.

Differing Opinions on the Future of Arbitration Clauses

However, Burkett said he doesn't believe that this decision indicates a wholesale problem with the arbitration of employment claims. Noting that arbitration can be helpful in conserving overburdened court resources, he said employers must avoid onerous provisions that the courts may find unenforceable.

"Arbitration clauses are generally enforceable in Ontario," agreed Laura Fric, an attorney with Osler in Toronto.

To diminish the likelihood that an arbitration clause will be deemed unenforceable, Fric said employers could craft arbitration clauses with less onerous conditions that address the court's reasons, such as:

  • Providing that arbitration is subject to the local laws of the jurisdiction where the services are provided.
  • Ensuring that arbitration hearings can be held in the local jurisdiction where the relevant services are provided.
  • Requiring low, upfront arbitration fees or providing that the employer pay the initial filing fees, with the understanding that the fees may be reimbursed if the employer is successful in the arbitration.

Emphasizing that Ontario courts want to protect the rights of workers in the gig economy, Burkett advised lawyers drafting contracts to ensure workers have recourse to exercise the statutory rights guaranteed by their home jurisdictions. "Counsel should revisit all arbitration clauses, in particular foreign arbitration clauses, to ascertain their validity," Burkett said.

"With so many nuances and intricacies across jurisdictions, multinationals have to be careful not to be seen as exerting their power to unduly limit individual employees' rights," he cautioned.

With that in mind, lawyers should take a localized approach to drafting arbitration clauses; individualized versions may be needed based on jurisdictional requirements. Before issuing a global policy, counsel can conduct a global survey to determine if various jurisdictions would uphold a policy, Burkett suggested.

Heller v. Uber Technologies Inc., ONCA, No. C65073 (Jan. 2, 2019).

Rosemarie Lally, J.D., is a freelance legal writer based in Washington, D.C.

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