Uber arbitration clause declared invalid by Ontario Court of Appeal

In a recently released decision from the Ontario Court of Appeal, the court declared the arbitration clause in Uber’s driver services agreement invalid. While this ruling has direct, immediate implications for the Uber drivers’ proposed class action lawsuit, it may also serve as a broader precedent for commercial agreements containing an arbitration clause.

In the initial action, an Uber Eats driver alleged that all Uber drivers in Ontario are employees and thus entitled to the benefits set out in Ontario’s Employment Standards Act (ESA). However, the plaintiff driver had entered into a services agreement at the commencement of his relationship with Uber, which contained an arbitration clause that required all disputes arising from the agreement to be resolved by arbitration. While Uber favoured arbitration, the plaintiff argued that the arbitration clause didn’t apply to his employment dispute, and, furthermore, was illegal and should not be enforced as the provision was unconscionable. 

In reversing the lower court’s decision, the Court of Appeal found that the arbitration provision was invalid. The court held that the “competence-competence” principle, which bestows the arbitral tribunal with jurisdiction to decide its own jurisdiction, had no application. The court reasoned that issues of arbitral jurisdiction relate to the scope of the arbitration provision itself, rather than the validity of the clause as a whole. As such, should a party wish to contest the validity of an arbitration provision, pursuant to this ruling the dispute would now need to be brought before the courts. The court also determined that the provision was unconscionable based on the facts of the case, and that it amounted to an illegal contracting out of the ESA when an employee-presumption stance was adopted.

Historically a jurisdiction friendly upholding arbitration provisions, this decision could change the tide of how these clauses are enforced in Ontario. Arbitration, which has traditionally been thought of as a lower cost alternative to the court process, could now become more expensive than anticipated should a party choose to contest the validity of an arbitration provision – and be forced to go to court to do so. Not only does this have the potential to undermine the purpose of an arbitration clause, but, as noted, it may have the effect of increasing the defendant’s legal fees substantially. Many liability insurance policies, such as a directors’ and officers’ and an employment practices liability (EPL) insurance policy, can respond to provide defence cost coverage in the event an insured is faced with a claim. This could provide defendant insureds with valuable financial protection in the event they are forced to litigate the validity of an arbitration clause in court.