Arbitration Clauses In Employment Contracts: The Wolf In Sheep’s Clothing

SCC Clarifies the Rules for Arbitration Clauses in Employment Contracts | Author: Kimberley Sebag, Employment Lawyer.

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In January 2018, Ontario passed Bill 148, which tightened the rules for employers who engage contract workers. This came at the heels of a groundbreaking case spearheaded by our firm. In Keenan v. Canac, a decision by the Ontario Superior Court helped to distinguish “dependent contractors” from their entrepreneurial counterparts, the “independent contractors.” It’s been over two years since the legislation passed. One would imagine that employers now understand how dependent contractors are no different from employees.

Not so, it seems, with those bent on breaking the rules at any cost. Uber, a global leader in the gig economy, is an example of a business that continues to disregard our laws in this respect. Classifying all workers as independent contractors, they took their subversion to new levels by injecting mandatory arbitration clauses in contracts with their drivers and bike couriers. It was an evident attempt to block access to resolution in this dispute.

What is Mandatory Arbitration?

Mandatory arbitration is a contractual provision found in many employment contracts. It allows employees and employers to resolve disputes swiftly and cost-effectively. However, mandatory arbitration also contractually prevents workers from pursuing resolutions through the courts. Historically, Canadian courts remained wary of arbitration proceedings because of the risks to weaker claimants. However, we started to relax this view in the 1980s when legal proceedings started becoming time and cost-prohibitive. Today, Canadians remain world leaders in arbitration processes. We have developed robust rules and legislation to prevent employers from misusing the provisions.

Mandatory Arbitration in the U.S.

In contrast, such abuses have become par for the course in the U.S. where regressive anti-worker sentiments have taken a foothold over the last two decades. An article titled The Black Hole of Mandatory Arbitration by Cynthia Estlund outlines the problem contextually for employment disputes.

U.S. employers preferentially use mandatory arbitration, not for efficiencies or cost-effectiveness, but to shield themselves from public scrutiny and accountability. Non-disclosure provisions cause both the process and results to remain shrouded in secrecy. Furthermore, arbitrators themselves remain bound and influenced by the more powerful party to the agreement. This introduces structural flaws to fair and due processes for employees. Employers wield substantial power over employees by imposing mandatory arbitration as a condition of employment in non-union jobs. Driven purely by their ability to limit employee challenges to workplace issues, this results in an unequal balance of power in the working relationship.

Empirical data bears out the ineffectuality of mandatory arbitration for employees in the United States. Estlund’s study uncovered that a majority of arbitrations were not even heard by an arbitrator. As more workers entered into mandatory arbitration agreements, an equal increase in cases going to arbitration did not materialize. And there was also a predictable fall in cases going to court. It seems like mandatory arbitration clauses have succeeded in muzzling hundreds of employees and their grievances have vaporized into the ether.

Uber’s Mandatory Arbitration Clause

As more multinational businesses set up shop in Canada, advocates fear similar outcomes for Canadian employees. Uber is one such organization. By classifying their drivers and bike couriers as independent contractors, Uber avoids paying costs typically associated with employees. These include vacation pay, severance, overtime and other similar benefits. In 2017, David Heller, an Uber driver, along with his colleagues, took Uber to task over this matter. They argued that they were not independent contractors at all, but rather employees. However, their contract with Uber included a mandatory arbitration clause binding drivers to the laws of the Netherlands.

Effectively this meant that an Uber employee in Ontario, driving or riding on Ontario roads, with Ontario passengers or goods, en route to Ontario destinations could only seek resolution for their employment dispute through mediation and arbitration in Amsterdam. The associated costs for moving forward with such a proceeding was USD 14,500, close to a driver’s entire annual earnings.

Supreme Court Ruling

Uber is an international corporation with offices in the Netherlands. And our laws permit them to include such provisions in their contracts. Consequently, Mr. Heller and his lawyers first had to challenge the mandatory arbitration provisions to clear the pathway for presenting the independent contractor grievance to a Canadian Court. The arbitration clause case went all the way to the Supreme Court of Canada.

In a unanimous ruling just a few weeks ago, SCC judges found that Uber’s mandatory arbitration clause did not represent the spirit of the provision, which was meant to bring swift and cost-effective resolution to employment disputes. Rather, it created an impermeable legal barrier that rendered arbitration impossible for Uber drivers. Furthermore, it also blocked their access to legal resolution through the courts. This was antithetical to the principles of the Canadian legal system. In addition, the judges found Uber culpable of knowingly and unfairly binding vulnerable workers to flagrant and unconscionable contracts and employment practices.

This strong ruling now allows our courts to ignore mandatory arbitration provisions that block Canadian workers from due process to clear up disputes with their employers. Courts can also strike out provisions that give employers an unfair and distinct advantage over their employees, and those that permit employers to insulate themselves from challenges behind a legal brick wall.

Arbitration Clauses in Existing Employment Contracts

Uber drivers can pursue a class-action in Canada regarding their independent contractor status. While that matter may take several years to progress through the courts, David Heller’s pursuit of justice successfully cemented legal protection for employees from harsh and punitive arbitration clauses they may have been forced to sign, as a condition of employment.

As we become a globalized society, tensions will occur between employers, who live under different legislative regimes, and their employees who receive the stellar protection of progressive Canadian labour laws. We fully expect to litigate new cases against employers who are either unaware of our laws or blatantly choose to ignore them.

Lecker & Associates have practiced employment law for over 35 years. We have successfully represented employees in disputes against their employers. The most important advice we can offer is not to sign any contract until a lawyer has vetted it. It does not matter whether it is an employment or termination contract. If you have already signed one, and remain concerned about your rights, contact us for a 1-hour consultation. It may bring you peace of mind to know that, in our experience, your employer may not understand our laws as well as we do.

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