Manitoba and Ontario courts reached different outcomes on the question of the enforceability of arbitration agreements involving gig workers.

Background

This year, the Ontario and Manitoba courts grappled with the enforceability of arbitration clauses in contracts involving “gig workers”—those working as independent contractors in the service industry. In Wasylyk, the Ontario Superior Court stayed a class proceeding commenced in the civil court because of the existence of an arbitration agreement. By contrast, in Pokornik, the Manitoba Court of Appeal (upholding a decision of the Manitoba Court of King’s Bench) determined that a similar arbitration clause was unenforceable.

The contrasting results in these two cases serve as a reminder that there continues to be uncertainty as to when the courts in Canada will enforce arbitration clauses in the context of the gig economy, particularly after the Supreme Court of Canada’s decision in Uber Technologies Inc v Heller, 2020 SCC 16 (“Uber”).

In Uber, the majority of the Supreme Court determined that the arbitration clause in the agreement between drivers on the Uber platform and the company was unconscionable and, therefore, the Ontario courts had jurisdiction. The Supreme Court relied on the agreement being a standard form contract, the inequality of bargaining power between the driver and the company, and the high costs involved in seeking arbitration (including a filing fee of US$14,500, almost a year’s income for the driver, and what the Supreme Court understood as a requirement to travel to Amsterdam for the hearing).

The Majority in Uber acknowledged that the arbitration process should be respected as a “cost-effective and efficient method of resolving disputes”, but not where arbitration would be “realistically unattainable”.

Facts

Adrian Wasylyk commenced a class action on behalf of drivers on the Lyft platform, seeking a declaration that such persons are misclassified as independent contractors and were, in fact, employees. The result of such a declaration would arguably entitle drivers to rights under the Ontario Employment Standards Act, 2000 (the “ESA”), such as minimum wage, vacation, statutory holidays, and overtime.

Prior to becoming a driver on the Lyft platform, Mr. Wasylyk entered into a Terms of Service Agreement, which prevented him from “pursuing any form of dispute resolution other than the arbitration process set out in the Arbitration and Class Action Waiver Provisions”.

In response to the class action, Lyft brought a preliminary motion under subsection 7(1) of the Ontario Arbitration Act, 1991 (the “Ontario Act”), requesting a stay of the purported class action. Subsection 7(1) requires the Court to stay a civil action where there is an arbitration agreement that deals with the subject matter of the dispute, except where the limited exemptions set out in subsection 7(2) of the Ontario Act apply.

Mr. Wasylyk argued that the subsection 7(2) exemptions applied. These exemptions are:

  1. Legal incapacity
  2. Invalid arbitration agreement
  3. Subject-matter not arbitrable
  4. Undue delay
  5. Proper matter for summary or default judgment

Meanwhile, in Manitoba, Ms. Pokornik was a delivery driver on the SkipTheDishes platform. Ms. Pokornik had begun in 2014 under an agreement that had no arbitration clause. The arbitration clause was introduced by an updated agreement dated July 19, 2018, coming into force one week later.

Ms. Pokornik commenced her class action a day prior to the effective date of the updated agreement. There was evidence that she agreed to the updated terms because she would not be able to keep delivering without such agreement, but that she accepted the new terms under protest.

Manitoba’s domestic arbitration statute, The Arbitration Act, CCSM c A120 (the “Manitoba Act”), is very similar to the Ontario Act and is based on the same model legislation (the ULCC Uniform Arbitration Act (1990)). In particular, subsections 7(1) and 7(2) of the Manitoba Act are identical to the corresponding provisions in the Ontario Act.

Decisions

The Ontario Superior Court held that the arbitration provisions found in Lyft’s Terms of Service Agreement were not unconscionable. The Court found:

  1. The arbitration process was accessible; Lyft’s provisions did not oust the competence-competence principle on the basis that the ability to arbitrate the dispute was “too costly or … otherwise inaccessible”.
  2. The arbitration agreement was not uncertain or indefinite.
  3. The arbitration provisions did not violate the ESA. The Court found that the express language of arbitration being the exclusive form of dispute resolution “to the extent permitted by law” permitted employees to continue to access the enforcement provisions of the ESA.

In contrast, in Pokornik, the Manitoba Court of Appeal upheld the Court of King’s Bench’s decision that the arbitration provisions in the agreement between a delivery driver and SkipTheDishes were unenforceable.

The Court of King’s Bench ruled that the arbitration agreement did not meet contractual formation requirements. This is because the contract amendment that introduced the arbitration agreement (it was not in the original version of the agreement Ms. Pokornik entered) was not supported by fresh consideration.

The Court separately held that the agreement was unconscionable and, therefore, invalid under paragraph 7(2)(b) of the Manitoba Act. First, the Court noted the inequality of bargaining power between the parties, drawing comparisons to Uber and noting a delivery driver’s inability to negotiate individual terms. The Court also noted the improvident bargain imposed upon Ms. Pokornik when the new agreement purported to invalidate her already-initiated class action. The King’s Bench also noted that Ms. Pokornik would not be able to obtain counsel, except in the context of a contingency fee class action.

The Manitoba Court of Appeal rejected the appeal. Although it disagreed with the lower court on the consideration point, the Court of Appeal found it lacked jurisdiction to entertain an appeal. Pursuant to subsection 7(6), the Court of King’s Bench’s ruling on the stay motion was not subject to appeal.

However, the Court did agree with the lower court, in obiter, that the updated agreement would effectively deny delivery drivers access to dispute resolution (similar to Uber), rendering it invalid. However, neither the Manitoba King’s Bench nor the Court of Appeal engaged in the type of nuanced analysis found in the Lyft case.

Analysis

We note that the Supreme Court of Canada dismissed applications for leave to appeal in both matters. The contrasting outcomes, however, may be the result of the legal frameworks applicable to each case. It is possible, for instance, that the Manitoba Court of Appeal would have allowed the appeal if it were not statute-barred.

On the other hand, that Court’s comments on improvident bargains (at paras 85-90) suggest that it viewed the retroactive exclusion of the courts—to preclude a class action filed before the class action waiver came into force—as a different situation than that which arose in Wasylyk.

The use of arbitration clauses in the gig economy will no doubt continue to be scrutinized by Canadian courts and may well continue to result in differing outcomes. Given the somewhat more straight-forward analysis in Wasylyk—where the Court did not have to deal with questions of consideration— the Ontario Superior Court’s nuanced application of Uber is likely to be preferred, at least for disputes arising in that jurisdiction. However, the enforceability of arbitration agreements contained in gig workers’ contracts will continue to be at risk of challenge.

Gig economy platforms might take a page from other online entities who have modified their dispute resolution provisions in light of Uber. Many of these entities have taken steps to render the arbitration process more accessible to users. These include:

  1. Covering the user’s filing fee absent a finding by the arbitral tribunal that the claim was abusive.
  2. Expressly providing for virtual or hybrid hearings at the request of either party.
  3. Carving from the arbitration agreement any claim falling within the jurisdiction of the small claims court in the user’s jurisdiction.

Wasylyk v. Lyft, 2024 ONSC 664

Pokornik v. SkipTheDishes Restaurant Services Inc, 2024 MBCA 3