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Arbitration Clauses and Contracting Out of Employment Standards Legislation – Why the Gig Economy Faces Uber Big Problems

Arbitration Clauses and Contracting Out of Employment Standards Legislation – Why the Gig Economy Faces Uber Big Problems

By December 22, 2019March 4th, 2022No Comments

One of the more recent additions to the modern landscape has been technology-based, independent contractor working relationships that are highly flexible and remote. Many have called the system made up of these new work arrangements the “gig economy.” The gig economy offers drivers, dog walkers, language speakers, and any other service provider, the ability to freelance their services through savvy tech companies like Uber and Foodora that have built powerful apps that link the freelancer to the customer.  

While ingenious and an effective capitalization on the power of the internet, this new model has had some perverse effects on workers’ rights. Where traditionally, most employees are entitled to minimum standards laid out in the Employment Standards Act (“ESA”), such working arrangements bypass the traditional employee-employer relationship by categorizing agents as independent contractors. The arrangements often contain arbitration clauses, meaning that problems are solved through sophisticated dispute resolution forums under foreign law, in suave European capitals. For instance, Uber’s agreement with its drivers centers on an arbitration clause that results in dispute resolution taking place in Amsterdam, under Dutch law. 

Arbitration clauses are increasingly common in today’s complex society. Since the parties are often able to agree on the arbitrator, the location and the duration of proceedings, they grant parties more flexibility and more control. Arbitration is also more efficient than civil proceedings and can prove to be cheaper. The downside, however, is that large corporations can set the parameters of these agreements, to the detriment of the other less powerful party. 

Optimistically, such arbitration clauses are progressive in that they provide more “modern” solutions to contractual disputes. A more cynical interpretation, however, is that they cleverly force workers to contract out of provincial employment legislation like the ESA. This is especially problematic since it is not uncommon for independent contract workers to make less than the minimum wage. Some view corporations adding arbitration clauses to workers’ contracts as a means of evading local legal obligations.

In 2018, David Heller, an Uber Eats driver, began a class-action lawsuit against Uber, claiming that he and his class members (fellow drivers) were not independent contractors, but employees, who were entitled to mandatory minimum entitlements set by the ESA. Mr. Heller also claimed that the arbitration provisions of the service agreements entered into between the parties were void and unenforceable. The Judge ruled in favour of Uber, citing the validity of the arbitration clause. 

The case proceeded to the Ontario Court of Appeal, where the court forcefully maintained that the arbitration clause was invalid on two grounds: 1) it contracts out of the ESA, and 2) it is unconscionable under common law.

With regard to contracting out of the ESA, it was held that section 5 of the ESA precludes parties from contracting out of employment standards legislation. Specifically, employees cannot contract out of the provisions of the ESA that allow complaints about labour standards to be brought before the Ministry of Labour. 


With regard to unconscionability, the essence of the ruling was that there was a huge inequality in bargaining power between Uber and the drivers. Moreover, hefty arbitration filing fees in the tens of thousands of US dollars, and complex travel arrangements meant that it would be almost impossible for a driver to exercise their rights under the arbitration provision, which already weighed heavily in favour of Uber.

Next month, the Supreme Court of Canada will hear Uber’s appeal, in a decision that may reverberate throughout the employment law world for many years to come. The Court will decide if the Ontario Court of Appeal’s decision to invalidate the arbitration clause was correct. The ruling will more than likely speak to whether employers can draft service agreements with independent contractors and employees that contain arbitration clauses, and whether such clauses can legally contract out the provincial employment standards legislation. 

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