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Soledad Díaz
Partner, Ferrere, Montevideo, Uruguay
sdiaz@ferrere.com

Overview

On 3 June 2020, a Court of Labor Appeals in Uruguay¹ rendered the first local decision on enforcement of an arbitration provision between Uber and a driver using its app.

It held that the driver could avoid the arbitration clause on grounds that their contract would be of an ‘employment nature’, which the Court in turn held would not be arbitrable in Uruguay. One of the three members of the Labor Court of Appeals dissented. Shortly after, on 26 June 2020, the Supreme Court of Canada² issued a decision holding a similar arbitration clause unenforceable (also with a dissenting vote) but based on different grounds.³ Both decisions will likely have implications for international transactions, the interpretation of arbitration clauses and the application of the 1958 New York Convention.⁴

The Uruguayan decision contradicts prior decisions rendered by the highest tribunals in the country,⁵ including three decisions by the Supreme Court of Justice.⁶ The Supreme Court has held that absent a provision of the law preventing arbitration in labour issues – which does not exist in Uruguay – all contract matters (including labour, employment or other service-related matters) that can be settled without court intervention can be submitted to arbitration. That is, for Uruguayan courts, even if the relationship between an app and drivers who chose to benefit from it qualified as ‘employment’ – which it does not – the matter would still be arbitrable.

Further, the decision contradicts a provision in the General Code of Procedure supporting the arbitrability of labour matters (section 427) and disregards the New York Convention, on account of generic constitutional principles not really applicable to the issues in dispute.

The decision is worrying for practitioners because of certain statements relating to arbitration in general that plainly contradict Uruguay’s stance as an arbitration-friendly jurisdiction. Some passages reflect long-abandoned conceptions regarding arbitration, for instance, that it entails a waiver of the right to seek effective legal protection.

Courts in Uruguay have steadily developed a pro-arbitration approach. Uruguay has been a party to the New York Convention for over 35⁷ years and, more recently, it passed an Arbitration Act (19,636) mirroring the UNCITRAL Model Law. With rather creative and common-sense interpretations very much applauded by practitioners, Uruguayan Courts have enforced arbitration provisions in the context of bankruptcy proceedings despite a confusedly drafted section of the Bankruptcy Act⁸ (section 56) stating that no arbitration can be brought against a bankrupt entity. Most actions to set aside an award have been dismissed and the majority of applications for enforcement of foreign awards, including in employment-related disputes, have been granted.⁹ Despite being an isolated judgment, the decision in the Uber case has the potential to hinder the well-deserved reputation of Uruguay as an arbitration-friendly jurisdiction.

Key arguments in the Uruguayan decision

The Court of Appeals, before addressing whether a service provider using an app is a party to a ‘labor relationship’, held that evidence supported that ‘work’ was performed, regardless of whether this was independent work or under an employment contract. The Court thus states that, under Uruguayan law, any kind of work would be ‘protected’, including by an ‘unalienable right’ to appear before state courts to seek relief. With this argument, the Court seems to say that any service provider, regardless of whether it is an employee or a contractor of any nature, would be entitled to duck any arbitration provision.

The Court further holds that the regulations applicable to conflicts over ‘work performed’ by an individual in general consist of ‘Human Rights Regulations’. Citing the American Convention on Human Rights (sections 8 and 25.1), the Universal Declaration of Human Rights (section 10) and the International Covenant on Civil and Political Rights (section 2), the Court states that an individual’s right to appeal before ‘a court’ requires that the claimant be granted access to state courts as only state courts could afford the required level of protection. To the Court, arbitration would apparently not offer the same level of protection, even if agreed upon.

The Court then went on to say that the right to access state courts could not be waived unless: (a) a special law allows for arbitration or other alternative dispute resolution mechanism; and (b) the alternative dispute mechanism afforded by the law offers the same level of procedural ‘protection’ as granted by the judiciary. The Labor Court of Appeals was clear that arbitration ‘as an alternative dispute resolution mechanism’ results in the loss of ‘rights’ and ‘possibilities’ offered by state courts, including the specialisation of labour courts and the fact that litigation has no cost for any plaintiff claiming to qualify as ‘worker’. Based on these very general – and worrying – premises, the Court generally concludes that ‘work-related matters are not arbitrable’.

The Court then very briefly addressed what appeared to be second level arguments to reject arbitration, including that the seat was outside Uruguay and that the proceedings would entail costs. Leaving aside that these arguments could not be used to prevent arbitration against a provision in the law allowing for it, the Court did not even consider whether the applicable arbitration rules allowed for online submissions and hearings (as is standard practice), that the physical presence of the parties at the seat is not required nor the possibility that plaintiff could have obtained reimbursement of costs. The Court simply started (and ended) with the misconception that a person choosing to download the app to become a driver would have been ‘compelled’ to accept arbitration.

Uruguayan regulation on arbitrability: section 472 of the General Code of Procedure

A problem with the Court’s reasoning, described above, is that none of the generic principles it relies on support its findings. In particular, they do not serve to override provisions in the Uruguayan Procedural Code, sections 472 and 476, under which all disputes that can be settled can be subject to arbitration.¹⁰ No one in Uruguay has challenged this provision or the fact that it applies to disputes which do qualify as ‘employment’ or ‘labour disputes.¹¹ Neither the courts nor scholars have contended that all labour disputes can be settled without court intervention, either before or during litigation. Matters in which a settlement is void and are thus non-arbitrable, are basically limited to family matters under Uruguayan law.¹²

The Labor Court of Appeals’ decision addresses section 472 of the General Code of Procedure, as it had been relied upon by the appellant. To circumvent it, the Court holds that the General Code of Procedure would not apply to any dispute a plaintiff chooses to characterise as arising out of an employment contract (even if the defendant challenges this characterisation). The Court holds that a special law (Law 18,572, governing certain procedural aspects of labour litigation) would apply, even in the absence of a labour contract. In fact, the Court argues that this special law would even apply to independent contractors and that it would prevail over the general and prior regulations of the General Code of Procedure, passed more than 20 years before Law 18,572.

These findings contain some misconceptions. First, Law 18,572 is entirely silent as to the arbitrability of matters like the one the Tribunal was considering. It simply has no provision dealing with arbitrability. And it is a well-established principle that a rule can only abrogate a former one provided they are incompatible, which requires a specific contradiction between their provisions. Nothing in Law 18,572 contradicts sections 472 and 476 of the General Code of Procedure.

Further, the wording of Law 18,572 makes it clear that it only deals with certain aspects of labour-related litigation, and it even has a provision stating that anything not governed by it should be addressed by supplementing it with the regulations included in the General Code of Procedure (section 31). This refutes not only the Appeals Court’s contention that the ‘labour nature’ of a dispute would make it ‘unique’, so that only specific protective labour regulations apply to it, but also its general premise that under Uruguayan law there would be no rule permitting arbitration of employment or work-related disputes, and that the law even chooses to forbid it.

The Dissenting Opinion and the Supreme Court’s prior decisions

The dissenting opinion by one of the three Justices was clear and accurate.

It was also consistent with the prior decisions by the Supreme Court. The dissenting Justice held that:

• it would not be appropriate to exclude the arbitration provision under the assumption that the relationship is of an ‘employment’ nature, because precisely the characterisation of the contract was the core of the dispute between the parties;

• no provision in Law 18,572 (governing labour litigation) addresses the arbitrability of disputes; and the General Code of Procedure, applicable in the absence of an express provision in Law 18,527, was clear that arbitration is possible in all matters in which a settlement is possible, which includes labour matters; and

• even if the relationship had been of a labour nature and certain mandatory substantive rules were to be applied, arbitrators could apply them (as the Supreme Court has established).

Consistently, the Supreme Court had relied on these arguments on prior occasions¹³ as have other courts and scholars.¹⁴ The Supreme Court was particularly clear that it was ‘completely’¹⁵ possible to arbitrate disputes characterised as being of an ‘employment’ nature. Unfortunately, as a significant number of disputes involving allegations that an employment contract exists do not reach the Supreme Court of Justice, due to the relatively low amounts at stake, it may take some time before we see a decision clarifying these matters under Uruguayan law. Such a decision endorsing arbitration provisions would be relevant not only for disputes involving app users, but for commercial transactions in general. Distribution contracts and many other services or supply contracts are frequently characterised by a party seeking to avoid the agreed dispute resolution mechanism as being of a ‘labour nature’. A decision like the one rendered in the Uber case can certainly invite many challenges to arbitration provisions (and potentially to awards) included in a significant portion of contracts, thus undermining the pacta sum servanda and party-autonomy principles which, together with respect for the New York Convention, have been a solid foundation of Uruguayan law.

Notes

1. See Decision 89/2020 by the Labor Court of Appeals Term 1, at http://bjn.poderjudicial.gub.uy/BJNPUBLICA/hojaInsumo2.seam?cid=223141.

2. See https://scc-csc.lexum.com/scc-csc/scc-csc/en/item/18406/index.do.

3. See Chris Kinnear Hunter, ‘Supreme Court of Canada Deals Blow to Uber, Declares Arbitration Clauses Invalid as a Result of “Surge Pricing”’, at http://arbitrationblog.kluwerarbitration.com/2020/07/01/supreme-court-of-canada-deals-blow-to-uber-declares-arbitration-clauses-invalid-as-a-result-of-surge-pricing/?doing_wp_cron=1596222412.6522099971771240234375.

4. See Decision 0013-000275/2016 by the Labor Court of Appeals Term 2° and Decision 255/2017 by the Court of Appeals Term 4 athttp://bjn.poderjudicial.gub.uy.

5. See Decision a 0013-000275/2016 by the Labor Court of Appeals Term 2 and Decision 255/2017 by the Labor Court of Appeals Term 4 available athttp://bjn.poderjudicial.gub.uy.

6. See Decisions 596/2017, 38/2010 and 106/2006.

7. Law 15,229 dated 11 December 1981.

8. See Decision 44/2017 of the Civil Court of Appeals Term 7, available at http://bjn.poderjudicial.gub.uy/BJNPUBLICA/hojaInsumo2.seam?cid=227295.  

9. See, among others, Decisions 41/04, 106/2006, 85/2008, 791/2012, 503/2013, 555/2013 y 843/2017 of the Supreme Court of Justice.

10. Article 472 states that: ‘All individual or collective disputes may be submitted by the parties to decision by an arbitral tribunal, save express legal provision otherwise’. Article 476 states: ‘Matters prohibited from being subjected to settlement cannot be submitted to arbitral proceedings’.

11. See Decision 106/2006 by the Supreme Court of Justice. See also PEREIRA, S., ‘Aplicación del arbitraje a los conflictos individuales de trabajo’, Revista Uruguaya de Derecho Procesal 4/1995, p 531.

12. See, Decisions 41/04, 106/2006, 85/2008, 791/2012, 503/2013, 555/2013 and 843/2017 by the Supreme Court of Justice.

13. See Decisions 596/2017 and 38/2010 of the Supreme Court of Justice.

14. See articles 472, 473.1 and 476 of the General Code of Procedure.

15. See Decision 106/2006 by the Supreme Court of Justice.

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