Davis v. Amazon: A High Threshold for Staying Litigation, A Low Threshold for Precluding Class Arbitration

In Davis v. Amazon Canada Fulfillment Services, ULC, 2023 ONSC 3665, the Ontario Superior Court of Justice partially stayed a proposed class action as the dispute fell under the subject matter of an arbitration agreement. The Court emphasized that there is a high threshold for an arbitration agreement to be found invalid, and, interestingly, observed that there is (generally speaking) no bar to an arbitration agreement precluding class arbitration. Below, we review the case and consider the implications of this high threshold for invalidity, as well as the ability to bar class arbitration.

Factual Background

The plaintiff, Denver Davis (“Davis”), commenced a proposed class action against Amazon.Com, Inc., Amazon.Com.Ca, Inc., and Amazon Canada Fulfillment Services, ULC (collectively “Amazon”). Within the proposed class action, there were approximately 73,000 putative class members.

The putative class members could be broken up into the following categories:

1. Delivery Partners (“DPs”): workers with a direct contractual relationship with Amazon; and
2. Driver Associates (“DAs”): workers with an indirect contractual relationship with Amazon (instead they are workers for Delivery Service Partners that are contracted by Amazon).

In response to the proposed class action, Amazon moved to have the court proceeding stayed in favour of arbitration for all 16,000 DPs and for at least 21,000 of the 57,000 DAs who had arbitration provisions in their work contracts. Davis opposed this motion and argued that the arbitration agreements were invalid as they are unconscionable and/or contrary to public policy as they allegedly constituted an illegal contracting out of the employment law statutes and included a class action waiver.

All of the arbitration provisions were similar and precluded resorting to court proceedings for resolving disputes. Interestingly, the arbitration provisions also provided that the arbitrator would be precluded from deciding disputes on a class, collective, consolidated or representative basis, such that each individual claim would have to be arbitrated separately.

The Superior Court’s Decision

While the Court considered a number of issues, this article focuses only on Amazon’s motion to stay the litigation in favour of arbitration.

Legal Background

Pursuant to Section 7 of the Arbitration Act, 1991, S.O. 1991, c. 17, when a party brings a court action, their opponents may bring an application to have the civil action stayed on the ground that the parties have agreed that their dispute be arbitrated.

The Court referred to the five-part analytical test set out in Haas v Gunasekaram, 2016 ONCA 744,[1] for determining whether an action should be stayed for arbitration:

(1) Is there an arbitration agreement? (2) What is the subject matter of the dispute? (3) What is the scope of the arbitration agreement? (4) Does the dispute arguably fall within the scope of the arbitration agreement? (5) Are there grounds on which the court should refuse to stay the action?

The Court found that the first four elements of the test had been met, as Davis did not provide any arguments to dispute that Amazon had satisfied its onus in demonstrating that they were met. Accordingly, the only real question was whether there were any ground(s) on which the Court should refuse to stay the litigation.

In that regard, the Court referred to s. 7(2) of the Arbitration Act, 1991, for the exceptions to granting a stay: (1) if a party entered into the arbitration agreement while under a legal incapacity; (2) if the arbitration agreement is invalid; (3) if the subject matter of the dispute is not capable of being the subject of arbitration under Ontario law; (4) if the motion was brought with undue delay; or (5) if the matter is a proper one for default or summary judgment.

In this case, the Court considered whether the second exception was met, based on the argument that the arbitration agreements were invalid on the grounds of unconscionability and public policy.

Unconscionability and Public Policy

The test for unconscionability was laid out by the Supreme Court of Canada in Uber Technologies Inc. v. Heller, 2020 SCC 16:

(a) there was an inequality of bargaining power when the parties entered into the agreement and (b) the agreement was an improvident bargain i.e., that the weaker party was unduly disadvantaged by terms they did not understand or appreciate.

The Court stated that the Uber v. Heller case did not retract or qualify the fundamental principle that absent legislative language to the contrary, courts must enforce arbitration agreements.

As a preliminary point, the Court rejected Davis’ argument that the arbitration agreements were invalid on the purported basis that they constituted an illegal contracting out of applicable employment law statutes. The Court found that none of the relevant employment statutes across Canada rule out arbitration for employment law claims, and in addition, the present case did not involve contracting out of any of the employment standards or remedies prescribed by any of the statutes.

The Court then found that the arbitration provisions were not unconscionable. They were “not exceptional or abnormal and they [did] not have the features of time, place, cost, and procedure that were unacceptable [as] in the [Uber v. Heller] case.” The Court emphasized that “there is nothing unconscionable about the mandatory nature of an arbitration provision or that an arbitration provision precludes access to the courts” as those aspects are inherent to all agreements to arbitrate.

In addition, the careful articulation of the desire to avoid a class action in an arbitration provision was not only not unconscionable, but was also redundant insofar as the arbitration provision would require all court proceedings, including class actions, to be stayed for arbitration subject to exceptions in the legislation.

For the sake of argument, the Court assumed that the class members had weaker bargaining power and focused on whether the class members were unduly disadvantaged by terms they did not understand or appreciate. In accordance with the second part of the test, the Court found that “the terms of the contract are understandable and unless arbitration or resort to the administrative proceedings for statutory remedies is per se disadvantageous, which is not the case, the arbitration agreements in the immediate case are not unconscionable.” The Court emphasized that arbitration is a fair and efficient dispute resolution mechanism for all disputes, including employment disputes. In addition, the Court found that there was nothing in the Uber v. Heller case which suggested that arbitration agreements in the employment sector are per se disadvantageous and therefore per se unconscionable.

The Court then considered Davis’ public policy argument, and found that is not against public policy to preclude access to class actions when arbitration is provided as an alternative dispute resolution mechanism. Interestingly, the Court noted that if there was a free-standing waiver or preclusion of class proceedings that was not attached to an arbitration provision, there would be a strong argument that the provision would be contrary to public policy as there is a long-standing principle that contracts that interfere with the administration of justice are illegal. However, this principle does not apply to arbitration agreements.

The Court found that the parties agreeing to arbitrate disputes whereby the arbitrator is precluded from dealing with individual disputes on a class basis is a “pure matter of contracting and does not interfere with access to the court, which has already been legally precluded by the submission to arbitration.” Assuming that the arbitration agreement was not unenforceable on grounds of unconscionability, the Court stated that “there is no general principle that would make a contract term in an arbitration agreement specifying the procedures available or not available to the arbitrator illegal on the grounds of public policy, which public policy rather favours the freedom of contract.”

The Court ultimately held that all requirements for staying a proceeding in favour of an arbitration agreement were met, and that the arbitration provision was neither unconscionable nor contrary to public policy. Therefore, the Court stayed the action on behalf of all the DPs and DAs subject to arbitration agreements.[2]

Analysis

Davis is a further reminder that Canadian courts continue to favour arbitration as a form of a dispute resolution and will seek to enforce arbitration agreements. Beyond the general principle of holding parties to their agreements, the judiciary has ample incentive to funnel parties away from litigation to arbitration as it frees up both time and resources, particular at a time when the already-over-worked court system in under intense strain. In that regard, the Superior Court continued the judicial trend of stressing that “absent legislative language to the contrary, courts must enforce arbitration agreements” [emphasis added].

In this respect, the Court provided clarity as to the threshold of unconscionability in two respects: (1) the employment relationship alone is not enough for an arbitration agreement to be unconscionable; and (2) the harshness of an arbitration provision is not per se disadvantageous. The Court’s first point suggests that a party’s category of relationship is not enough in and of itself to satisfy both aspects of the unconscionability test. While a party may be in an unequal bargaining position, the agreement itself must also be unduly disadvantageous to the weaker party. When considering whether the agreement was disadvantageous, the Court found that the harsh aspects of an arbitration agreement are not enough to meet the high threshold. If an arbitration agreement itself is inherently unfavourable for one party, there must be something more disadvantageous than the aspects inherent to the arbitration agreement to prove that the agreement was unconscionable.

This high threshold for unconscionability in an arbitration agreement will make it much harder for parties to prove that the agreement is invalid. In that regard, this conclusion is a sensible one, given that many significant categories of legal relationships fundamentally entail inherent power imbalances – including employment, insurance, and leasing. If such relationships were inherently incapable of arbitration on this basis, this would eliminate a significant portion of those disputes normally resolved via arbitration.

Perhaps the most interesting aspect of the Court’s decision, however, was its finding that parties can structure their arbitration agreements in a way that would avoid class proceedings both in litigation and arbitration. As the Court observed, a waiver of class proceedings alone would be illegal, but when tied with an arbitration agreement, this rendered it a pure matter of contracting insofar as all court proceedings had already been waived. However, this finding raises interesting questions, insofar as a prohibition against class arbitration could raise significant access to justice issues for those persons who, practically speaking, might be deterred from pursuing an individual claim notwithstanding their ability to do so.

In particular, and as the Court observed, there is a strong argument that a waiver or preclusion of class proceedings detached from an arbitration provision is contrary to public policy because contracts that interfere with the administration of justice are illegal. Put slightly differently, preclusion of class proceedings interferes with the administration of justice. However, this raises the question of why this proposition would not hold equally true in the context of arbitration, insofar as a waiver of class arbitration might interfere with the ability of claimants to pursue their claims – particularly where a claimant is legally unsophisticated, or their claim value is small enough that they might not consider their claim worthwhile. In other words, the same public policy rationale would arguably apply.

In that regard, Davis presents an interesting point of comparison to Uber v. Heller, and particularly with respect to Justice Brown’s finding in Uber that a clause that precludes access to arbitration is unenforceable.[3] Here, it was not the case that access to arbitration was precluded, but more so that it might be uneconomical and unappealing (thus allowing parties to essentially dissuade potential claimants without having to outright prevent them from claiming). This would arguably run contrary to the underlying principles of Ontario’s Class Proceedings Act, the well-known policy objectives of which are to promote access to justice, improve judicial economy, and modify behaviour so as to discourage wrongdoing.[4] Although that legislation applies only to litigation, it is at least arguable that those policy objectives ought to animate class proceedings in the broadest sense of the term (including arbitration).

All of that being said, it is worth considering how this issue fits within the context of other pieces of legislation. As readers will appreciate, the Arbitration Act, 1991 contemplates that the parties can agree to exclude the supervisory court’s ability to consolidate separate arbitrations; similarly, it does not specifically empower the tribunal to order consolidation. Accordingly, there is an argument that, at least generally speaking, the legislative framework for arbitration is consistent with the Court’s finding in Davis.

By contrast, however, readers will also be aware that in the construction context, the Construction Act specifically contemplates that lien matters – which can be resolved through arbitration – are a form of class proceedings. This point was specifically considered by the Superior Court in Carillion v Imara, in which decision Master Albert reiterated the observation that the Construction Lien Act (i.e. the predecessor to the Construction Act) “creates a class action type of proceeding”[5], and refused to stay litigation in favour of arbitration on that basis (as well as a number of other bases).

Bearing that in mind, it therefore raises the question of whether an attempt by an arbitration agreement to preclude the possibility of a class lien arbitration would be invalid (or else deemed to be amended[6]) based on an inconsistency with that statute. Ultimately, the somewhat unhelpful answer may be that the answer to this question will depend on the applicable statute(s).

[1] Notably, the Court did not consider the more recent test in Ontario for staying litigation in favour of arbitration, as set out in Husky Food Importers & Distributors Ltd v. JH Whittaker & Sons Limited, 2023 ONCA 260.

[2] Recently, the Ontario Court of Appeal ordered an extension of time for Davis to deliver his notice of appeal from the stay decision: Davis v. Amazon Canada Fulfillment Services, ULC, 2023 ONCA 634.

[3] This finding was specifically with reference to the general rule that a challenge to an arbitrator’s jurisdiction should first be resolved by the arbitrator.

[4] See, generally, Ontario Law Reform Commission, Report on Class Actions (Toronto: Ministry of the Attorney General, 1982) at 117–46.

[5] Carillion Construction Inc. v Imara (Wynford Drive) Limited, 2015 ONSC 3658 at paras 3, 17, and 54.

[6] Pursuant to s. 5 of the Construction Act.

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