Here’s why your employment contract may not hold water, even if you have signed it
Original article by Howard Levitt, published in the Financial Post, January 22, 2019.
The over-worn saying “The bigger they are, the harder they fall” has particular resonance in employment law. Even large companies with armies of lawyers often find that their contracts don’t withstand the scrutiny of the courts. Individual employees are often apprehensive about suing, given the employer’s expensive legal team that might be assembled. That’s misplaced, as the situation is often otherwise. Two recent Ontario cases illustrate just that.
In one, Uber required workers to accept its terms of service, including that all disputes must be resolved through arbitration. In the other, Royal & Sun Alliance Insurance required a terminated employee to release it from all legal actions in order to secure his severance. Both companies believed they had secured predictability in their employment relations. In both cases, Ontario courts ruled otherwise.
David Heller embarked on work delivering food through the now-ubiquitous Uber app. Like every delivery person availing themselves of the Uber platform, Heller acceded to Uber’s standard services agreement. This included a term requiring any dispute against Uber to be resolved by arbitration in the Netherlands.
Heller nevertheless commenced a class-action lawsuit in Ontario against Uber, arguing that Uber’s workers are employees who had been denied their rights under Ontario’s Employment Standards Act (ESA).
The arbitration clause superficially appeared to be an insuperable obstacle to Heller’s class action. A motions judge sided with Uber, ruling that the agreement required Heller to pursue his claim in a Dutch arbitration.
The Court of Appeal overturned this decision and allowed the class action to proceed because the arbitration clause violated the ESA and was also unconscionable.
For the purpose of this preliminary motion, the Court assumed that Uber workers could ultimately prove they were employees — but it did not actually determine that. Heller and his compatriots might yet lose their case on the basis of being independent contractors.
The Court ruled that the clause denied Uber workers their employment standards right to complain about Uber’s alleged ESA violations to the Ministry of Labour or to an Ontario court. This was an attempt to contract out of an employment standard, which the ESA expressly forbids.
The Court also held that, independent of its first finding, the clause was unconscionable. Even a minor dispute over a few hundred dollars would need to be taken to arbitration in the Netherlands, entailing an up-front cost of US$14,500 merely to access the arbitration process — not including the costs of travel, accommodation or legal counsel. Such a bargain was grossly unfair, especially as Uber workers often earn a scant $300-$400 per week.
Additionally, Uber workers did not obtain legal advice or have the opportunity to negotiate terms; there was “a significant inequality of bargaining power” in the relationship; Uber had taken unfair advantage of its workers with terms that brazenly favoured itself; and, as the court found, the question of whether Uber workers are employees is important to Ontarians and should therefore be publicly determined by the Ontario courts.
Heller’s class action was permitted to proceed, although Uber may still appeal the decision to the Supreme Court.
Uber had “a significant inequality of bargaining power” in the relationship and had taken unfair advantage of its workers with terms that brazenly favoured itself
In another decision where concerns of unconscionability abounded, the Superior Court allowed Joe Swampillai to sue his former employer and its benefits administrator for long-term disability benefits — even though he had ostensibly signed away this right when his employment ended.
Swampillai worked in the mailroom for Royal & Sun Alliance Insurance until stricken by a degenerative disc disease, he was no longer able to perform this work. He began receiving short-term and then long-term disability (LTD) benefits through the policy administrator, Sun Life.
After two years, Sun Life informed Swampillai that his LTD benefits would cease. He appealed the decision but, in the midst of his appeal, his employment was terminated. He was presented with a time-sensitive severance offer that included a release, which he signed. Refusing to sign meant he would have received nothing more than his minimum ESA entitlements.
When Swampillai sued both Royal and Sun Life, the two defendants brandished the signed release and moved to have the case dismissed. But the motions judge found the release was unconscionable and refused to dismiss the claim.
Key to this determination was that Swampillai was actively appealing Sun Life’s decision, and the employer was aware of this (Sun Life, per the policy, handled all benefits claims itself). However, the severance offer did not mention Sun Life, nor did it say that Swampillai would be required to abandon his appeal if he accepted the offer. He thought it only dealt with his severance and notice payments, and his employer did not disabuse him of that misunderstanding.
The court found that the LTD claim was substantial, and it was grossly unfair for the employer to require this claim be abandoned without offering additional payment or even raising the matter with him.
Swampillai was also in precarious financial straits due to his loss of benefits coupled with the time-sensitive nature of the severance offer. His vulnerability was “extraordinary,” and it created an “overwhelming” imbalance of power that the employer improperly exploited.
The release was set aside and Swampillai was allowed to proceed with his claim.
Employers cannot be cavalier when drafting employment contracts and releases or in having them signed.
Although these cases present different facts, there are clear common lessons for employers.
Employers cannot be cavalier when drafting employment contracts and releases or in having them signed. This is especially so for larger companies, who wield bargaining power far superior to that of their individual employees.
Canadian courts have long held that employees are inherently vulnerable vis-à-vis their employer. Therefore, employers must scrupulously avoid even the impression that they are taking an unfair advantage. This is most essential when deciding to terminate an employee, as this is when courts have said the employee is at his or her most vulnerable.
The Uber case reminds employers they must not insist on terms that deny employees their basic legal protections. Contracting out of the ESA is always impermissible.
The Swampillai case shows that employers should be attentive to the employee’s particular situation when negotiating releases. Employers should use the utmost care to draft a release specifically tailored to the employee; releases that are overbroad, plagued by omission or where its impact is not made clear, may not stand up to scrutiny.
Both cases illustrate that courts will not hesitate to punish employers who fail to act accordingly.