Supreme Court of Canada finds Uber arbitration clause unconscionable, invalid.
Friday, June 26, 2020 - Filed in: Courts
"H provides food delivery services in Toronto using Uber’s software applications. To become a driver for Uber, H had to accept the terms of Uber’s standard form services agreement. Under the terms of the agreement, H was required to resolve any dispute with Uber through mediation and arbitration in the Netherlands. The mediation and arbitration process requires up-front administrative and filing fees of US$14,500, plus legal fees and other costs of participation. The fees represent most of H’s annual income.
In 2017, H started a class proceeding against Uber in Ontario for violations of employment standards legislation. Uber brought a motion to stay the class proceeding in favour of arbitration in the Netherlands, relying on the arbitration clause in its services agreement with H. H argued that the arbitration clause was unconscionable and therefore invalid. The motion judge stayed the proceeding, holding that the arbitration agreement’s validity had to be referred to arbitration in the Netherlands, in accordance with the principle that arbitrators are competent to determine their own jurisdiction. The Court of Appeal allowed H’s appeal and set aside the motion judge’s order. It concluded that H’s objections to the arbitration clause did not need to be referred to an arbitrator and could be dealt with by a court in Ontario. It also found the arbitration clause to be unconscionable, based on the inequality of bargaining power between the parties and the improvident cost of arbitration."
The SCC (8:1, with joint reasons by Abella and Rowe JJ., separate concurring reasons by Brown J., and dissenting reasons by Côté J.) dismissed the appeal.
Justices Abella and Rowe wrote as follows (at paras. 4, 97-99):
"We agree with the Court of Appeal. This is an arbitration agreement that makes it impossible for one party to arbitrate. It is a classic case of unconscionability.
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. As our colleague Justice Brown notes, under the arbitration clause, “Mr. Heller, and only Mr. Heller, would experience undue hardship in attempting to advance a claim against Uber, regardless of the claim’s legal merit” (para. 136). 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.
Given the conclusion that the arbitration agreement is invalid because it is unconscionable, there is no need to decide whether it is also invalid because it has the effect of contracting out of mandatory protections in the ESA."
Justice Brown wrote as follows (at paras. 101-102, 112, 128, 163, 167, 174):
"While I agree with my colleagues Justices Abella and Rowe that the mandatory arbitration requirement is invalid, I would not rely upon the doctrine of unconscionability to reach this conclusion. Contractual stipulations that foreclose access to legally determined dispute resolution — that is, to dispute resolution according to law ⸺ are unenforceable not because they are unconscionable, but because they undermine the rule of law by denying access to justice, and are therefore contrary to public policy.
The arbitration agreement between Uber and Mr. Heller does just that: it effectively bars Mr. Heller from advancing any claim against Uber, no matter how significant or meritorious. In effect, it is not an agreement to arbitrate, but rather not to arbitrate. In these exceptional circumstances, a central premise of curial respect for arbitration agreements ⸺ that they furnish an accessible method of achieving dispute resolution according to law ⸺ falls away. On this narrow basis, I would find that the arbitration agreement is unenforceable, and would dismiss the appeal and affirm the judgment of the Court of Appeal.
Access to civil justice is a precondition not only to a functioning democracy but also to a vibrant economy, in part because access to justice allows contracting parties to enforce their agreements. A contract that denies one party the right to enforce its terms undermines both the rule of law and commercial certainty. That such an agreement is contrary to public policy is not a manifestation of judicial idiosyncrasies, but rather an instance of the self‑evident proposition that there is no value in a contract that cannot be enforced.
I say respectfully that this new procedural mechanism is unnecessary and will serve only to complicate and delay proceedings. Indeed, my colleagues appear to recognize this by their warnings that “this assessment must not devolve into a mini‑trial”, that “a single affidavit will suffice” and that “[b]oth counsel and judges are responsible for ensuring the hearing remains narrowly focused”. First, it seems to me that any development in contract law that requires a new affidavit from anyone on anything is probably a mistake. More fundamentally, however, and again with respect, my colleagues’ warnings seem to me entirely unrealistic. This Court might as well tell the parties and the motion judge to keep the hearing to 20 minutes, to conduct it on “Zoom” during the morning break or to dispense with cross‑examination on the affidavit(s). My colleagues’ exhortations, well‑intentioned as they undoubtedly are, are simply futile. Even worse, they will be seen as such; in the face of the realities of litigating the individual motion, it will not matter to anyone what we who dwell on Mt. Olympus think about such matters. The motion that my colleagues direct will proceed in the form in which the parties see fit, and the hearing will be conducted in the manner that the parties and the motion judge think appropriate in the circumstances. It therefore seems reasonable to expect that time savings, if any, will be minimal for those cases in which no genuine issue exists for the court to decide. And where a genuine issue does exist, the additional hearing will simply create duplication.
The stakes are undoubtedly high here. Concluding that a standard form contract is sufficient to satisfy unconscionability’s procedural requirement would open up the terms of every such contract for review on a measure of substantive reasonableness. This would represent a radical and undesirable change in the law, particularly considering the complexity and range of transactions to which unconscionability applies (see Bigwood (2005), at pp. 208‑9). The result of the inevitable, undisciplined application by courts of such an undisciplined expansion of the scope of unconscionability will be profound uncertainty about the enforceability of contracts.
The wholesale shift in the law that my colleagues advance by removing knowledge as a requirement, seemingly in response to the equities of this particular case, drastically expands the scope of unconscionability. It is neither supported by the jurisprudence nor counselled by academic commentary, and rightly so. Not only is eliminating the knowledge requirement a recipe for further uncertainty in the doctrine of unconscionability, it is commercially unworkable. Contracting parties are left to wonder whether an unknown state of vulnerability will someday open up their agreement to review on grounds of “fairness”. This alone should give pause, but my colleagues do not stop there. Under their approach, a party who contracts exclusively with individuals who have received independent legal advice still cannot take comfort in the finality of their agreements. According to my colleagues, only competent legal advice will ameliorate an imbalance in bargaining power (para. 83). A potential defendant therefore cannot be assured of finality unless it knows the content of the advice its counterparty has received.
In sum, my colleagues’ approach drastically expands the scope of unconscionability, provides very little guidance for the doctrine’s application, and does all of this in the context of an appeal whose just disposition requires no such change."
Justice Côté (in dissent) wrote as follows (at para. 178):
"The parties to the agreement at issue in this appeal have bound themselves to settle any disputes arising under it through arbitration. My colleagues Abella and Rowe JJ. and Brown J. advance competing theories which impugn, to varying degrees, the choice of the law that governs the parties’ contractual arrangements, the designated seat of the arbitration, and the selection of an international arbitral institution’s procedural rules. My colleagues do not impeach the parties’ agreement to submit disputes to arbitration, yet they find that the parties’ commitment to do so is invalid. I cannot reconcile this result with the concepts of party autonomy, freedom of contract, legislative intent, and commercial practicalities. These important considerations — which ought to be taken into account — are disregarded in the majority’s reasons."
Note: The summary and body are drawn from Eugene Meehan’s SupremeAdvocacy Weekly Updates for the Law Community.