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SUPREME COURT OF CANADA DEVELOPS A NARROW EXCEPTION TO THE ENFORCEABILITY OF ARBITRATION AGREEMENTS
The Supreme Court of Canada, in its long-awaited decision in the Uber matter, rules that as the dispute that has occurred between the Uber and its drivers relates to employment, it exceptionally falls outside of the normal legal framework that requires the systematic referral of the challenges to the jurisdiction of an arbitrator to the arbitrator.
BACKGROUND
In 2017, Mr. Heller set in motion a proposed class against Uber on behalf of Uber drivers providing food delivery or personal transportation services. He made a declaration that he and other Uber drivers were employees governed by the Employment Standards Act (ESA) and $400 million in damages for alleged breaches of the ESA. A motion was brought by Uber to stay the action in favor of arbitration in accordance with the terms of the arbitration clause set out in its standard services agreement.
The arbitration clause of the Uber was found valid by the motions Judge and granted the motion to stay. The Appeal Court of Ontario disagreed and allowed Mr. Heller’s appeal.
THE DOMESTIC ARBITRATION ACT APPLIES TO EMPLOYMENT DISPUTES
In the Supreme Court of Canada, the majority held that the International Commercial Arbitration does not apply in this case. While the dispute between Mr. Heller and Uber is disputable on an international level, it is not in fact “commercial”. The majority held that whether the ICAA applies depends on the nature of the parties’ dispute, which can be figured out from an analysis of the pleadings.
The majority believes that the parties’ dispute in this matter is “fundamentally about labor and employment”, which is not the sort of dispute that the ICAA is supposed to govern. Therefore, the applicable statute is Ontario’s domestic Arbitration Act, 1991 (Arbitration Act).
According to the opinion of Justice Cote, the arbitration at issue is both international and commercial. Uber’s services agreement expressly states that it creates a software licensing agreement, and not an employment relationship. Disputes that arise from such type of commercial relationship, fall within the scope of the ICAA.
NEW EXCEPTION TO THE COMPETENCE-COMPETENCE PRINCIPLE
The majority focusing on the issue of whether Mr. Heller’s class action should have stayed in favor of arbitration examined the provision of the Arbitration Act, which allows a court to refuse to stay a civil proceeding in favor of arbitration if the arbitration agreement is invalid.
The majority endorsed the framework which was set out in its earlier decision in Dell that, in conformance to the competence-competence principle, all challenges to the jurisdiction of an arbitral tribunal should normally be referred to the tribunal, unless they raise: (i) pure questions regarding law, or (ii) questions of mixed fact as well as the law that require only superficial consideration of evidence in the record. The majority pointed out that the second limb of the Dell test will be available only where “ the necessary legal conclusions can be drawn from facts that are either evident on the face of the record or undisputed by the parties”.
The majority explained that there are “abnormal” cases that are not contemplated within the Dell framework, which raises issues requiring a departure from the normal application of the competence-competence principle, the Uber case being one of them. The aspects of an arbitration agreement, in particular, would effectively insulate the agreement from the challenge; a court may determine the validity of the agreement.
In order to ensure that the only solid validity challenges are examined by the courts, the court must ensure that (i) there is a challenge that is genuine to the arbitral jurisdiction and (ii) there is a real possibility that the challenge may never be resolved if the stay is granted. The majority acknowledges that the second prong requires a limited assessment of the evidence and cautions against such motions turning into “mini-trials”.
Justice Cote holds the opinion that the validity of Uber’s arbitration clause should be decided by the arbitral tribunal, consistent with the competence-competence principle. The creation of a new exception was rejected by her to the rule of systematic referral to the arbitrator of challenges to jurisdiction as contrary to legislative intent and the court’s precedents.
- Uber
- Dell
- Supreme Court of canada
