Business Law

SCC Holds Uber Arbitration Clause is ‘Unconscionable’

The Supreme Court of Canada has determined that an arbitration clause contained in thousands of contracts between the ridesharing app Uber and its drivers is ‘unconscionable’. In a highly anticipated decision called Uber Technologies Inc. v. Heller, Canada’s highest court has spoken on what many considered to be an unfair term in a contract affecting thousands of ‘gig economy’ workers across the country.

What is an Arbitration Clause?

Often, business and employment contracts will contain a clause which sets out the method for resolving disputes that may arise from the contractual relationship. Often, in an effort to keep litigation costs down, the parties may wish to pre-determine the venue for dispute resolution in advance, setting arbitration as the chosen method over litigation. This can assist with preventing long-running and potentially more costly litigation in the future, however, it may not always be in equal favour for every party to the contract.

In the Uber case, for example, the contract stipulated that any disputes must not only be settled via arbitration but that the arbitration must take place before the International Chamber of Commerce (ICC) which is located in the Netherlands. The case began when a driver for Uber Eats, a food delivery subsidiary of the ridesharing company, wanted to bring a class-action lawsuit against the company to force it to classify drivers as ’employees’ rather than ‘independent contractors’ and provide them with benefits set out under the Employment Standards Act (ESA). The company requested a stay of the class-action suit while the parties awaited a decision on the venue issue. If the courts allowed the arbitration clause to stand, those seeking to enforce ESA protections would have had no choice but to take the matter to the ICC, at considerable expense.

Mixed Messages from Ontario Courts

Ontario courts have had mixed reactions to various arbitration clauses in past cases, with some being enforced (particularly with respect to shareholder agreements) and others being scrapped. For example, the case at hand had mixed results in the lower courts, with the original motions judge siding with Uber and dismissing the employees’ case. However, the Ontario Court of Appeal found that the contract, as written, amounted to a contracting-out of mandatory employment standards legislation in the province. In particular, it deprived drivers for Uber and Uber Eats of the right to bring a complaint before the Ministry of Labour. Uber then appealed the matter to the Supreme Court.

In the case at hand, the SCC found that in order to participate in arbitration before the ICC, an employee would first be required to pay administrative fees of $14,500 USD, in addition to other expenses, including travel to the Netherlands. For many Uber employees, this amount represented the bulk of their annual salary. Further, the bargaining power between Uber and its drivers was unequal. For example, Heller, the lead plaintiff in the class-action suit, had been asked to approve changes to how he would be compensated via a message on his mobile phone in the midst of a delivery. Had he refused to accept, he believed he may have risked not being compensated at all.

The costs associated with ICC arbitration were not communicated to those who signed the contract before they signed. Citing the high cost of ICC arbitration and the unequal power of Uber in comparison to its drivers, the Court stated:

Respect for arbitration is based on it being a cost-effective and efficient method of resolving disputes. When arbitration is realistically unattainable, it amounts to no dispute resolution mechanism at all… The arbitration clause is the only way Mr. Heller can vindicate his rights under the contract, but arbitration is out of reach for him and other drivers in his position. His contractual rights are, as a result, illusory.

Based on both the disadvantages faced by Mr. Heller in his ability to protect his bargaining interests and on the unfair terms that resulted, the arbitration clause is unconscionable and therefore invalid.

Going forward, businesses across Canada should be sure to draft an arbitration clause with the court’s definition of unconscionability in mind. Whenever there is an obvious inequality in the bargaining power between contracting parties that results in what may be deemed an unfair term, courts will be more inclined to invalidate that term.

The litigation lawyers at GLG LLP in downtown Toronto provide efficient and skilled trial advocacy for a range of employment litigation and contract disputes. Call the firm at 416-272-7557 or contact them online to schedule a confidential consultation.