What’s the current state of the law in Canada on internet contracts?

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E-commerce Legal Review (Part 1): Uber’s Arbitration Clause Struck Down

By Richard Stobbe

Today we start a three-part series reviewing e-commerce agreements, click-through agreements, and online ‘terms of service’ or ‘terms of use’. Users agree to these terms every day.  What’s the current state of the law in Canada on internet contracts?  

 

Almost a year ago, we wrote about a case where Uber drivers challenged Uber’s user online terms.  (See: Uber vs. Drivers: Canadian Court Upholds App Terms). Uber drivers claimed that they should have the benefit of local laws which protect employees. This case was at the centre of the debate about whether Uber’s drivers are customers, independent contractors, or employees. Uber’s counter argument was that the drivers’ claim should not proceed because, under the terms of use, all of the drivers agreed to settle disputes by arbitration in the Netherlands.

So the court had to wrestle with this question:  Should the arbitration clause in the terms of use be upheld? Or should the drivers be entitled to have their day in court in Canada? 

The original class-action case was decided in favour of Uber. The court upheld the app terms of service, and deferred this dispute to an arbitrator in the Netherlands. The court applied the Supreme Court of Canada reasoning in Seidel v. TELUS Communications Inc. (applying the competence-competence analysis). The first Heller decision was appealed.

In the second Heller decision ( Heller v. Uber Technologies Inc., 2019 ONCA 1 (CanLII)), the Ontario Court of Appeal struck down Uber’s mandatory arbitration clause for several reasons:

  1. The arbitration clause was found to be invalid on the basis of unconscionability. On this point, the court noted that the cost to initiate the mandatory arbitration process under Uber’s terms would cost a driver more than USD$14,000 (noting that the average Uber driver might earn $400 – $600 per week ).
  2. The court agreed that if the arbitration clause was valid, then the claim would fall within that clause. However, the court said this case fell one step prior to that: the validity of the arbitration clause itself was in issue. In that light, the competence-competence principle had no application to this case. The arbitration clause was not valid, the court decided, therefore the jurisdiction issue did not even arise.
  3. The court reasoned that employers (with Uber standing in the position of employer for these purposes) should not be entitled to contract out of the Employment Standards Act  (ESA) on behalf of their employees. The choice to proceed by way of arbitration should be in the hands of the employee. “It is [the employee’s] choice whether to take that route,” said the Court, “and he is only barred from making a complaint if he chooses to take it. The Arbitration Clause essentially transfers that choice to Uber who then forces the appellant (and all other drivers) out of the complaints process.”
  4. The court raised a number of public policy considerations – including the problems regarding the result that would come out of the arbitration process in the Netherlands, the problems associated with an arbitration ruling that would not benefit others for a determination of the underlying issues. In other words, other drivers in the class would be deprived of a remedy if each driver was forced through arbitration, whereas a complaint under the Ontario Employment Standards Act would set a precedent that others could rely on. “The issue of whether persons, in the position of the appellant, are properly considered independent contractors or employees is an important issue for all persons in Ontario,” said the Court. “The issue of whether such persons are entitled to the protections of the ESA is equally important. Like the privacy issue raised in Douez, the characterization of these persons as independent contractors or employees for the purposes of Ontario law is an issue that ought to be determined by a court in Ontario.”

In the final result, the Court concluded that the mandatory arbitration clause amounted to an illegal contracting out of an employment standard, contrary to the Employment Standards Act (Ontario), assuming the drivers are indeed employees. Separately, the Court decided the arbitration clause was unconscionable at common law, and therefore invalid under the (Ontario) Arbitration Act.

Lessons for business?

  • The court of appeal sent a clear message that expensive and unwieldy mandatory arbitration clauses such as the one used by Uber will risk being struck down for unconcsionability.
  • Aside from the issue of unconscionability, such clauses are at risk on other public policy  grounds, where local courts wish to assert local laws. In this case, it was the ESA. Courts have shown themselves to be wary of permitting platform providers (such as Uber and Facebook) to use the terms of service to contract out of local laws. See Douez v. Facebook, Inc., [2017] 1 SCR 751, 2017 SCC 33 (CanLII), where the SCC found that Facebook’s forum selection clause was unenforceable, although for a set of confusing reasons (the majority in Douez did not address the issue of unconscionability). In Douez, it was a local privacy law that was at issue (British Columbia’s Privacy Act).

 

Get advice on your online contracts to ensure that they will not be at risk of being struck down based on this latest guidance from the Court.

Calgary – 07:00 MST

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