Uber’s “Unconscionable” Arbitration Clause Opens Door for Class Action

Victoria Merritt

By Victoria Merritt. 

The Supreme Court of Canada has decided that Ontario courts, not a Dutch arbitrator, can hear a potential class action lawsuit against Uber that may determine if its drivers are “employees.”

In doing so, the majority affirms the principle of unconscionability, reminding employers that an enforceable employment agreement must be fair and accessible, regardless of the nature of the employment or whether the agreement is standard form.

Uber v. Heller

A growing number of Canadians find themselves working in unconventional employment relationships, often referred to as “gig” employment. Uber drivers are a good example of this type of arrangement.

In 2017, Toronto Uber driver David Heller started a class action lawsuit that argued Uber drivers are employees and should be entitled to the protection of employment standards legislation. Today, the Supreme Court of Canada weighed in on part of that dispute (Uber Technologies Inc. v Heller, 2020 SCC 16) and affirmed the importance of ensuring contracts with workers are fair.

Background

Back in March 2019, my colleague Paula Krawus told The Story of Uber and the Arbitration Clause on our blog. While her post is definitely worth a re-read, in a nutshell, it focuses on the validity of a clause in the agreement between Uber and its drivers that requires that any disputes between them be settled by arbitration in the Netherlands. Before Mr. Heller’s claim that drivers were employees could proceed, the Ontario courts needed to determine who had the authority to actually hear that claim: a court or an arbitrator.

As Paula explained, the Ontario Court of Appeal was of the opinion that the Uber arbitration clause was invalid for two reasons – it was unconscionable and it amounted to a “contracting out” of employment standards legislation – and therefore Heller’s claim should be heard by the courts.

It turns out that this was not in fact the end of the story. Uber appealed the Ontario court decision to the Supreme Court of Canada, asking our highest court to determine who should determine whether an Uber driver is an employee or independent contractor. Here’s what they decided:

Decision

The majority of the Supreme Court of Canada agreed with the Ontario Court of Appeal that the Uber arbitration clause was unconscionable, and therefore invalid. The SCC did not consider whether the arbitration clause was invalid because it contracted out of Ontario’s employment standards legislation.

After reviewing the unconscionability doctrine, the Court’s majority concluded that Uber and Mr. Heller did not have equal bargaining power, and that the arbitration clause was unfair. The cost of taking a dispute to arbitration was almost equal to Mr. Heller’s entire annual income, making his contractual right to do so “illusory”, and such an obvious bar to dispute resolution was something no reasonable person would have agreed to. In terms of inequality of bargaining power, the majority highlighted that the Uber agreement was a standard form contract which Mr. Heller could only accept or reject. It also noted that Uber was a large, multi-national corporation, while Mr. Heller was one food deliveryman.

The question of whether Uber drivers are employees was left open for another decision on another day – but that decision will be decided by an Ontario judge, not a Dutch arbitrator.

Takeaway

A key takeaway for employers is that fair, negotiated, and plain language employment agreements – regardless of the nature of the employment – are more important than ever.

The majority offers a powerful defense of the doctrine of unconscionability, which allows courts to find a contract or part of a contract invalid on the basis that it is unfair. The majority rejects Uber’s proposed narrowing of the scope of that doctrine, and affirms a two-part analysis that requires an inequality of bargaining power, and a resulting improvident bargain. They also expand the unconscionability doctrine to include standard form contracts, suggesting that such contracts should be accessible, and not overly one-sided.

The majority comments that there is no scientific approach to determining if something is ‘fair’, but that “fairness, the foundational premise and goal of equity, is inherently contextual…and necessarily dependent on the circumstances” (para 78).

Employers who take the time to ensure their employment agreements are easily understood  and fair will not only earn the respect of their employees, they will also have more assurance that such agreements will be enforced by the courts if a dispute arises.


NOT LEGAL ADVICE. Information made available on the Kent Employment Law website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action, based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. One of our lawyers would be pleased to discuss any specific legal concerns you may have.

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