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Uber has consistently generated headlines since its inception several years ago. Whether the company was in the news for its disruption of the taxi industry or for its self-driven automobiles, Uber has become a business that most people know of and that offers services many use. Most recently, Uber drivers have argued that the company has misclassified them as independent contractors when they are in fact employees who should be entitled to the usual protections of the Employment Standards Act, 2000 (the “ESA”).

Uber drivers use their own vehicles to transport riders to and from destinations booked using a cell phone app that allows riders to hail an uber and handles the payment process. Riders are charged a fee of which Uber retains a portion, and the remainder of the fee is disbursed to drivers in scheduled intervals. Uber does not provide its drivers with any form of compensation other than the driver’s portion of the rider fee. Uber has long insisted that its drivers are independent contractors who enter into service agreements with Uber and essentially run their own independent businesses. Drivers, however, have argued that they are employees. In Heller v Uber, an Ontario Uber driver brought a proposed class action proceeding against Uber that, if successful, would lead to a declaration that Uber drivers are employees of the company and not independent contractors.

Whether the drivers are independent contractors or employees is significant because employees enjoy significant rights and protections under provincial laws that are not available to independent contractors. Amongst other things, employees are entitled to a minimum wage, vacation time and vacation pay, overtime pay, limitations on hours of work, and termination and severance pay (if applicable) upon termination of the employment relationship by the employer. Independent contractors do not share these entitlements and protections.

The Arbitration Clause

Initially, the class proceeding regarding employee status was stayed because of an arbitration clause found in Uber drivers’ contracts that requires any disputes surrounding driver’s tenure with Uber be settled by arbitration in the Netherlands under Dutch law. The class representative appealed the decision, arguing that the arbitration clause was invalid as it was unconscionable and, if Uber employers were in fact employees, purported to contract out of the ESA, which is prohibited under employment standards law.

The Ontario Superior Court of Justice found that the arbitration clause was manifestly unfair as it required the party with less economic and bargaining power to expend considerable resources to comply with the terms of the contract and because it was a standard form contract offered to drivers on a “take it or leave it” basis. The Court also found that the arbitration clause was unenforceable because, if Uber drivers were employees, it deprived them of their statutory right under the ESA to make complaints to the Ministry of Labour.

Employee Status

The Court did not address whether or not Uber drivers are employees, but the decision paves the way for that proceeding to move forward. If the class action proceeds, the decision will have important implications for many types of modern employment—particularly in the gig economy, which relies on workers performing on-demand tasks.

Many businesses in various industries prefer to structure their organizations such that they do not have employees, but instead contract with independent contractors who are considered to be business owners in their own right. By using this sort of labour, businesses can avoid many of the obligations associated with having employees, such as those set out above.

However, there is a risk in structuring organizations this way if the relationship between the organization and the worker is closer to an employment relationship than a relationship between two independent businesses. Adjudicators will assess the true nature of the relationship rather than rely on the form in which it has been structured, taking into account a number of contextual factors. If the worker is working under the control and supervision of the employer, on the employer’s terms, subject to discipline by the employer and uses the employer’s tools to complete their work, to name a few key factors, the worker likely would be considered an employee for the purposes of ESA. However, if the worker is truly in business for him or herself, the worker likely would be found to be an independent contractor.

Deciding how to structure a relationship can be a costly exercise for employers. Typically, employee status determinations arise when an individual makes a complaint to an Employment Standards Officer or when a wrongful dismissal claim is made before a court, and there may be costs associated with litigating the dispute to ascertain whether or not the workers are employees or contractors. If the worker is found to be an employee, the employer will also potentially be responsible for two years of back-pay, and other transfers to the employee. Employers may also face consequences if it becomes evident that the purpose behind declaring the workers to be contractors was to defeat the purpose of the ESA and to avoid obligations to employees.

Accordingly, organizations should be careful about determining whether individuals who perform work for them will be engaged as employees or independent contractors. Only where there is a true relationship between two independent businesses should a worker be deemed an independent contractor. While it can be tempting to structure a business in this way, there is an inherent risk in doing so where the relationship is structured in a way better resembling employment. The potential costs associated with a finding that the workers are in fact employees can be devastating to an organization that relies heavily on independent contractor relationships.

As always, we will monitor the issue as it proceeds throughout the courts, and keep you informed of further developments in this area, as well as ramifications on the world’s largest rideshare service and the gig economy in general.

This blogis provided as an information service and summary of workplace legal issues.

This information is not intended as legal advice.