Global Development

1. Background to the Uber Appeal

The facts

In 2017, David Heller, an Uber driver, commenced a proposed class action on behalf of all Uber drivers who have been providing services using Uber apps in Ontario since 2012. Mr. Heller is seeking a declaration that these drivers are employees of Uber and are therefore entitled to the minimum benefits and protections provided for under the Ontario Employment Standards Act, 2000 (‘ESA’). Mr. Heller claims damages on behalf of the proposed class of Uber drivers in the amount of CDN$ 400 million.

Before the class of Uber drivers received certification, Uber moved to stay the action in favour of arbitration based on the arbitration clause in Uber’s Services Agreement, to which all drivers must agree when logging onto the Uber app for the first time. The arbitration agreement provides as follows:

Any dispute, conflict or controversy, howsoever arising out of or broadly in connection with or relating to [the Services] Agreement, including 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 a 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 Place of the arbitration shall be Amsterdam, The Netherlands.

The Motion for a Stay and Heller’s Appeal

The motion judge granted Uber’s motion for a stay, holding that Ontario courts must enforce arbitration agreements freely entered into, even in contracts of adhesion.

However, the Ontario Court of Appeal unanimously held that the arbitration clause was invalid and set aside the stay.¹ It did so for two separate reasons.

First, the Court of Appeal held that the arbitration agreement takes away the right of employees to engage in the complaint process provided for under the ESA or to commence a ‘civil proceeding’, as also permitted under the ESA. According to the Court of Appeal, the arbitration clause in the Uber Services Agreement constituted an illegal contracting out of the ESA and was therefore invalid. The Court of Appeal held that the competence-competence principle had no application on the basis that the issue was the validity of the arbitration agreement as opposed to its scope.

Second, the Court of Appeal held that the arbitration clause was unconscionable. The Court of Appeal stated that ‘[w]hat makes the Arbitration Clause clearly improvident is the fact that any driver with a claim, that might ordinarily amount to nothing more than a few hundred dollars, must undertake an arbitration in the Netherlands in order to have their rights determined independently. That arbitration must be held in Amsterdam, under the law of the Netherlands, and must be conducted in accordance with the ICC Rules’.²

The evidence in the record was that the up-front costs that an Uber driver could be expected to incur in pursuing the tiered dispute process as set out in the clause were approximately USD$ 14,500. The Court of Appeal concluded that this was out of proportion to the amount in dispute, by reference to Mr. Heller’s individual claim and to Mr. Heller’s weekly salary of CDN$ 400 to CDN$ 600, which he earns based on 40 to 50 hours of work as an Uber driver. The Court also concluded that Uber had crafted the dispute resolution clause to take advantage of its drivers and that it did so ‘knowingly and intentionally’.³

2. The Supreme Court of Canada’s approach in Uber

The competence-competence principle reaffirmed, subject to a narrow exception

In a majority judgment, the Supreme Court of Canada affirmed the applicability of the competence-competence principle to questions concerning the validity of an arbitration agreement, consistent with the Court’s prior jurisprudence and the ICC Court’s submissions on the appeal that ‘allegations of invalidity ought to be addressed in the same manner as other jurisdictional challenges pursuant to the competence-competence principle’.⁴ That is, ‘normally’ courts should systematically refer to the arbitrator any questions relating to the arbitrator’s jurisdiction, including questions relating to the validity of the arbitration agreement, to be decided by the arbitrator in the first instance.⁵

However, the majority of the Court developed a new and narrow exception to the rule of systematic referral in circumstances where the jurisdictional challenge ‘would never be resolved’⁶ or, as articulated by Justice Brown in his concurring opinion, where referring the jurisdictional challenge to the arbitrator would ‘effectively prevent access to arbitration’.⁷

The devil will be in the details

The majority was alive to the possibility that, in developing an exception to the rule of systematic referral, plaintiffs may raise spurious validity challenges. The majority therefore adopted a two-part analysis requiring that a court assess, first, whether, assuming the facts pleaded to be true, there is a genuine challenge to arbitral jurisdiction and, second, whether there is a real prospect that, if the stay is granted, the challenge may never be resolved by the arbitrator.

The majority acknowledged that the second limb of the analysis requires some limited assessment of evidence and cautioned that the assessment must not devolve into a mini-trial. However, this assessment appears to go well beyond a prima facie review of the case, insofar as it may entail a review of contested evidence. Moreover, the proposed means for managing the risk of this assessment turning into a mini-trial, namely efforts on the part of counsel and judges to ensure the hearing remains narrowly focused, is unconvincing.

3. The likely impact of Uber on commercial arbitration in Canada

The good

The Uber judgment is unlikely to affect commercial arbitration in Canada. In light of the overall positive attitude of Canadian courts toward commercial arbitration, this is a good outcome.

A live issue in the appeal was whether there should be a broad carve-out from the legal framework developed by the Supreme Court of Canada in its prior cases for challenges to arbitral jurisdiction based on the alleged invalidity of the arbitration agreement. The Court did not accept to make such a carve-out.

The bad

While judicial attitude toward commercial arbitration in Canada is unlikely to change as a result of the Uber judgment, the development of an exception to the rule of systematic referral of validity challenges to the arbitrator has the potential, at least in the immediate aftermath of the judgment, as parties seek to test the limits of the exception, of multiplying validity challenges and rendering them more complex and therefore more costly.

Similarly, the judgment may give rise to an increase in opportunistic attempts to defeat arbitration agreements. It will be important for the courts to assert clearly the narrow scope of the newly-developed exception to the competence-competence principle.

The ugly

Unfortunately, the majority reasons contain a number of statements that suggest a fundamental misunderstanding of the role of the seat or ‘place’ of arbitration, implying that the arbitral proceedings and any hearing would necessarily have to take place in the Netherlands. Pursuant to Article 18(2) of the ICC Rules, an ICC tribunal ‘may, after consulting the parties, conduct hearings and meetings at any location it considers appropriate, unless otherwise agreed by the parties’. It should be uncontroversial that the mere designation of the place of arbitration in an ICC clause is not evidence of a contrary agreement displacing the power of the tribunal under Article 18(2) of the ICC Rules.

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