July 8, 2020by Israel Foulon LLP
Recently, in Uber Technologies Inc. v. Heller, 2020 SCC 16, Canada’s highest Court struck down a mandatory arbitration clause in Uber’s standard form services contract. The majority held that the arbitration clause was void and unenforceable due to unconscionability, as it effectively insulated Uber from having any claims brought against it. This decision impacts the enforceability of arbitration clauses and will likely impact the way the gig economy operates in Canada.
David Heller was an Uber Eats driver in Toronto. When he first opened the Uber app, he was presented with and required to agree to a 14-page standard-form services contract. Through Uber, David earned approximately $20,000 to $30,000 a year based on a 40 to 50-hour workweek.
The service contract contained the following provisions:
- The Choice of Law Clause: This clause stated that the agreement was governed by and construed in accordance with the law of the Netherlands.
- The Arbitration Clause: This clause prohibited a driver from commencing a legal dispute against Uber or its related affiliates in Ontario, requiring that all disputes be submitted for mandatory arbitration and mediation in the Netherlands.
To access the dispute resolution scheme provided for in the contract, a driver would need to travel to Amsterdam and pay $14,500 in upfront administrative fees.
In 2017, Heller attempted to start a class proceeding to establish that (1) drivers for Uber and its related food delivery providers are employees; and (2) as employees, they are entitled to the minimum employment standards outlined in the Employment Standards Act, 2000 (“ESA” or “the Act”). Uber successfully brought a motion to stay the proceedings by enforcing the mandatory arbitration provisions in the contract.
The Ontario Court of Appeal (ONCA)
On appeal, the Court held that the mandatory arbitration provisions were invalid for two reasons:
- It attempts to contract out of the ESA:
The ESA allows employees to seek to enforce their rights in Ontario (and at no legal costs) through the investigative complaints process through an employment standards officer and the Ministry of Labour. As a result, the contractual provisions concerning the arbitration clause, requiring any dispute to be brought through an expensive arbitration process in Amsterdam, was found to be void by statute for attempting to contract out of a minimum employment standard.
2. The Clause is Unconscionable
It is an improvident bargain contained within a standard-form contract. To provide services through Uber’s platform, a driver has no choice but to accept the terms contained within the agreement. However, the practical effect of the arbitration clause was to defeat any claims brought against Uber (because they could not be pursued cost effectively) rather than providing its drivers with a meaningful dispute resolution system.
The Supreme Court of Canada (SCC)
The majority found that the mandatory arbitration provision in the agreement was invalid and unconscionable. The majority recognized the value in adopting an open principle of unconscionability, holding that judges have always been concerned with enforcing unfair agreements that are unduly harsh and oppressive. A contractual term may be found unconscionable where:
- There is inequality in bargaining power stemming from some weakness or vulnerability affecting one of the parties; and
- There is a resulting improvident bargain.
The nature of the bargain must be assessed at the time the contract was formed. The doctrine of unconscionability cannot be applied to save a valid transaction that becomes unduly harsh over time. The majority found that endorsing the doctrine promotes access to justice and encourages those drafting standard form contracts to make them more accessible and to ensure that the terms contained therein are fair.
While courts are normally required to defer to arbitrators on the question of the validity of arbitration clauses, the majority held that courts may depart from this general rule, in limited circumstances, such as when important accessibility to justice issues are raised.
The majority of the Court found that there was a significant disparity in sophistication between Uber, a large multinational corporation, and its drivers. A person in Heller’s shoes could not be expected to appreciate: (i) the impact of the arbitration clause on the parties’ contractual relationship; nor (ii) the exorbitant upfront administrative fees required to enforce one’s rights under the contract. The majority determined the arbitration clause was invalid and unenforceable, holding that:
The arbitration clause, in effect, modifies every other substantive right in the contract such that all rights that [Heller] enjoys are subject to the apparent precondition that he travel to Amsterdam, initiate an arbitration by paying the required fees and receive an arbitral award that establishes a violation of this right. It is only once these preconditions are met that [Heller] can get a court order to enforce his substantive rights under the contract. Effectively, the arbitration clause makes the substantive rights given by the contract unenforceable by a driver against Uber. No reasonable person who had understood and appreciated the implications of the arbitration clause would have agreed to it (emphasis added).
In concurring reasons, Justice Brown concluded that the arbitration clause was invalid because it undermined the rule of law and was contrary to public policy. He stated that the majority vastly expanded the doctrine of unconscionability without providing any meaningful guidance as to its application, which would lead to uncertainty.
In dissenting reasons, Justice Côté concluded that consensual agreements should be binding, and that Uber should advance the fees required for Uber drivers to initiate arbitration proceedings. Justice Côté was the only justice to address the ESA issue, finding that the arbitration clause was neither inconsistent with the ESA nor contrary to public policy.
How Does This Decision Affect Employers in Ontario?
It is important to note that the majority’s reasons did not discuss whether the arbitration clause violated the ESA. As such, we are left with the Court of Appeal’s finding that an arbitration clause that prevents an employee from using the ESA’s enforcement process is unlawful and void (at least in Ontario).
It is not readily apparent that all arbitration clauses will be found to violate the ESA. However, the effect of the Supreme Court’s decision is significant. We recommend that employers with mandatory arbitration provisions in their employment contracts have them reviewed as soon as possible. At a minimum, these clauses should reflect that employees continue to have the ability to access any statutory procedures. Employers may also wish to explore what steps may be taken to ensure that the arbitration process represents a practical dispute resolution mechanism.