Monday, 28 January 2019

Court of Appeal Strikes Down Uber Arbitration Clause

     My April 30, 2018 post told of Justice Perell’s decision in Heller v Uber to dismiss an action by Uber drivers for a declaration that the drivers are employees and protected by the Employment Standards Act.  The Uber contract contains an arbitration clause that requires disputes to be arbitrated, specifically in the Netherlands.   The clause is a hybrid, i.e. both an arbitration clause and a forum selection clause.   The court held that the arbitration clause is enforceable, and thus stayed the (proposed class) action.    Unfortunately, the court did not address the enforceability of the clause as a forum selection clause, even though the test is a bit different than the test for enforceability of an arbitration clause.

     Early this year, a unanimous Ontario Court of Appeal (2019 ONCA 1, Feldman, Pardu & Nordheimer JJ.A.) reversed. It held that one, the arbitration clause amounted to an impermissible contracting out of the Employment Standards Act and two, the clause is invalid because it is unconscionable, in part because of the burden it imposes on drivers, which burden includes the cost of travel to the Netherlands.     The Court of Appeal did not address specifically the enforceability of the clause as a forum selection clause.   It did not need to, in light of its ruling that the clause amounted to an impermissible contracting out of the Employment Standards Act

     There is for both arbitration clauses and also forum selection clauses, a legal presumption of enforceability, rebuttable on certain grounds.    The Arbitration Act, 1991 and the International Commercial Arbitration Act, 2017 say a court shall stay court proceedings that  pertain to disputes that are subject  to an arbitration agreement unless certain exceptions apply, such as that the clause is invalid, or inoperative.  Similarly, the Supreme Court of Canada held in Z I Pompey v. ECU-Line NV (2003) S.C.J. No.23 that forum selection clauses are to be enforced unless the contract in which the clause is found is invalid (a product of fraud, or of grossly uneven bargaining strength, or is contrary to public policy) or there is strong cause not to enforce the clause.    However, the grounds for rebutting that presumption differ.  There are some other factors in the strong cause analysis that are not part of an arbitration clause enforceability analysis.  These include the location of the evidence, the governing law, the impact on the parties of proceeding in one forum versus another, and other factors similar to the factors used in a forum non conveniens analysis.   Thus it is conceivable that the arbitration part of a hybrid clause is enforceable but the forum selection part is not.   Put another way, the requirement to arbitrate is enforceable, but not the requirement to do so in the selected forum. 

     In such a case, the logical outcome would be that the parties arbitrate their dispute, but not in the forum stipulated in the forum selection clause.     This should be so even if the clause stipulated a particular arbitration organization that operates only in the stipulated forum.  There is a public interest in enforcement of agreements to arbitrate because arbitration lightens the load on the courts, and in protecting the parties’ decision to use a private, expedited dispute resolution with decision makers with specialized backgrounds, chosen by the parties.  There is no public interest, however, in ensuring that a specific arbitral organization, and no other, is used for a given dispute.