On June 26, 2020, the Supreme Court of Canada (“SCC”) released a decision which paves the way for a major class action brought by Uber drivers seeking to be classified as employees, rather than as independent contractors. In Uber Technologies Inc v Heller [Uber], the SCC upheld the decision of the Ontario Court of Appeal (“ONCA”), which found that a clause in Uber’s services agreement requiring all disputes to go through arbitration in the Netherlands was unenforceable.

The outcome of the class action which can now proceed could have major implications for whether and when workers in today’s gig economy should properly be classified as employees rather than independent contractors, with all the rights and protections associated with employee status.

Background

The class action was proposed by Mr. Heller, an Uber driver in Ontario seeking a declaration that Uber drivers are employees for the purposes of the Employment Standards Act, 2000 [ESA] and that Uber violated the ESA. The drivers in the class action are claiming $400 million in damages.

The class proceeding regarding employee status was initially stayed because of an arbitration clause in Uber drivers’ contracts. The arbitration clause required any disputes surrounding a driver’s tenure with Uber to be settled through arbitration in the Netherlands under Dutch law, at significant upfront expense to the driver. Mr. Heller appealed this decision, arguing that the arbitration clause was invalid because it was unconscionable and an illegal attempt to contract out of the ESA.

The ONCA Decision

As discussed in our earlier article, the ONCA found that the arbitration clause was unconscionable. The ONCA held that it was manifestly unfair because it was a standard form contract offered on a “take it or leave it” basis to drivers who had far less economic and bargaining power than Uber, and would require them to spend significant resources to comply with the terms of the contract. The ONCA also found that the arbitration clause was unenforceable because, if Uber drivers are found to be employees, the clause deprived them of their statutory right under the ESA to make complaints to the Ministry of Labour.

The SCC Decision

The SCC found that the arbitration clause in the contract between Uber and Heller was unconscionable because there was inequality of bargaining power between them and the clause was improvident. The SCC held that there was inequality of bargaining power between Uber and Heller because the arbitration clause was part of an unnegotiated standard form contract, there was a significant gulf in sophistication between the parties, and a person in Heller’s position could not be expected to understand the financial and legal implications of the arbitration clause. It found that the arbitration clause was improvident because the arbitration process would require the driver to pay USD $14,500 in up-front administrative fees. Therefore, it upheld the ONCA ruling that the arbitration clause was unconscionable and thus invalid.

The SCC did not address the ONCA finding that a mandatory arbitration clause in an employment contract that prevents an employee from filing a statutory claim constitutes an unlawful contracting out of the ESA.

The courts have not yet ruled on the issue which lies at the heart of the class action: the classification of Uber drivers as independent contractors or employees. This will be left for Ontario’s courts to determine now that the arbitration clause has been found to be void such that the class action can proceed.

Takeaways

Mandatory Arbitration Clauses

As a result of this decision and the ONCA’s lower decision, contracts between organizations and their employees or contractors that contain mandatory arbitration clauses may no longer be enforceable. Employers that have such contracts with their contractors or employees should have those clauses reviewed to determine their enforceability in light of this new SCC decision.

Employee Misclassification

Under the ESA, employees are generally entitled to a minimum wage, vacation time and vacation pay, overtime pay, limitations on hours of work, and other entitlements.

Many businesses prefer to structure their organizations such that they do not have employees, but instead contract with independent contractors who are considered to be business owners in their own right. By engaging workers in this way, businesses can avoid many of the costly obligations associated with having employees.

However, there are serious risks associated with treating a worker as an independent contractor if the relationship between the organization and the worker is more indicative of an employment relationship than a relationship between two independent businesses.

In determining whether a worker is an employee or an independent contractor, adjudicators will take into account a number of contextual factors to assess the true nature of the relationship, rather than relying exclusively on the form in which it has been structured or the words used in a written contract. For example, if the worker is working under the control and supervision of the employer, on the employer’s terms, is subject to discipline by the employer and uses the employer’s tools to complete their work, the worker would likely be considered an employee, even if the contract says otherwise.

This recent decision demonstrates why businesses and organizations – including those that may not currently consider themselves employers – should be careful to avoid misclassifying individuals who perform work for them as independent contractors when in reality they are engaged in an employment relationship.

This blog is provided as an information service and summary of workplace legal issues. This information is not intended as legal advice.