On June 26, 2020, the Supreme Court of Canada ruled that the arbitration clause in Uber’s standard form driver contracts, which requires disputes to be resolved through mediation and arbitration in the Netherlands, was unconscionable and thus invalid. As a result, Ontario’s Uber drivers may now bring claims against the technology giant in a court in Ontario.
David Heller is a driver for UberEats. To become a driver for UberEats, he had to accept, without negotiation, the terms of Uber’s standard form services agreement. A clause within this agreement states that Uber drivers must resolve any disputes they have with Uber through an arbitration process in the Netherlands that would cost the Uber driver US$14,500 in up-front administrative and filing fees. This does not include legal fees, travel expenses or other costs of participation.
In 2017, Heller commenced a class action suit in Ontario against Uber for violating provincial employment standards legislation. Uber brought a motion to stay the action, relying on the arbitration clause in the contract. At the motion, Heller argued that the Ontario-based proceeding should continue because the arbitration clause is invalid for unconscionability. The motion judge stayed the proceeding, determining that the issue of the validity of the arbitration clause should be referred to an arbitrator in the Netherlands. Heller successful appealed the motion judge’s decision to the Court of Appeal, which determined that the arbitration clause did not need to be referred to an arbitrator in the Netherlands, and further, that it was unconscionable.
Uber appealed the decision of the Court of Appeal to the Supreme Court of Canada. The Supreme Court was tasked with answering two main questions. First, who has the authority to determine the validity of the arbitration clause: courts in Ontario or arbitrators in the Netherlands? Second, if the Ontario court does have such authority, is the arbitration clause in Heller’s agreement with Uber invalid for unconscionability?
Decision of the Supreme Court of Canada
With respect to the first question, a majority of the Supreme Court decided that Ontario courts have authority to determine the validity of the arbitration clause in this case. In coming to this conclusion, the Court set out a framework which applies to Ontario’s Arbitration Act, 1991. According to this framework, a court should refer all challenges to an arbitrator’s jurisdiction to the arbitrator unless they raise pure questions of law, questions of mixed fact and law that require only the superficial consideration of the evidence in the record, or if there is an issue of accessibility. With respect to the issue of accessibility, a court should not refer a jurisdictional challenge to an arbitrator if there is a real prospect that doing so would result in the challenge never being resolved. In such circumstances, a court may resolve whether the arbitrator has jurisdiction over the dispute. Applying this framework, the Court determined that a court could resolve the arguments that Heller raised, given the cost burden associated with the arbitration process in the Netherlands.
With respect to the second question, a majority of the Supreme Court decided that the arbitration clause in Heller’s agreement with Uber was invalid for unconscionability. The Court stated that the purpose of the doctrine of unconscionability is to provide relief from improvident contracts, and to protect vulnerable parties in the contracting process from loss or improvidence in the bargain that was made. Where there is an inequality of bargaining power between contracting parties and where such inequality results in an improvident bargain, the agreement may be set aside by the courts for being unconscionable. The Court stated that a contract is improvident if, at the time the contract is formed, it unduly advantages the stronger party or unduly disadvantages the more vulnerable party. This determination requires a contextual assessment. The Court further noted that the doctrine of unconscionability has particular implications for standard form contracts. Standard form contracts have the potential to create an inequality of bargaining power and to enhance the advantage of the stronger party at the expense of the more vulnerable one.
Applying the unconscionability doctrine to the case, the Supreme Court found there was inequality of bargaining power between Uber and Heller. The arbitration clause was part of a standard form contract, the contract contained no information about the costs of arbitration in the Netherlands, and a person in Heller’s position could not be expected to recognize the implications of the arbitration clause.
The Court also held that the improvidence of the arbitration clause was clear. First, the up-front fee was close to Heller’s annual income and did not even include other costs, such as travel, accommodation, legal representation or lost wages. In addition, the costs were disproportionate to the size of an arbitration award that could reasonably have been foreseen when the contract was entered into. The agreement also designates the law of the Netherlands as the governing law, and Amsterdam as the place of the arbitration. In doing so, it requires Heller to travel to Amsterdam, pay the required fees, and receive an arbitration award in his favour before seeking to have a court enforce his substantive rights. Accordingly, the Court determined that the arbitration clause made the substantive rights given by the contract effectively unenforceable.
As a result, the Supreme Court of Canada deemed the arbitration clause in Heller’s agreement with Uber to be unconscionable and invalid.