Sep 11, 2020

Uber Technologies Inc v Heller, 2020 SCC 16

Uber Technologies Inc. v. Heller, 2020 SCC 16 (CanLII)

Key Takeaway: Forced arbitration clauses in standard form contracts are unconscionable and therefore unenforceable when they prevent the weaker party to an agreement from meaningfully pursuing a dispute against the stronger party.

Overview

H is a food delivery driver using Uber Eats. To become an Uber driver, H had to accept the terms of Uber's standard form services agreement. Under the terms, H has to resolve any dispute with Uber through mediation and arbitration in the Netherlands. This carried hefty up-front fees of US $14,500 plus legal fees and other costs. These costs represent most of H's annual income earned working for Uber.

In 2017, H started a class action against Uber in Ontario for violations of employment standards legislation. Uber countered by bringing a motion to stay the action in favour of arbitration in the Netherlands, relying on their own arbitration clause in the agreement.

Verdict: The Supreme Court found in favour of H, deeming the arbitration clause to be "unconscionable," refusing Uber's motion to stay the proceedings and allowing the class action to move forward in an Ontario Court.

Sidebar: Unconscionability

The doctrine of unconscionability comes from the court of equity in England and it is used to set aside unfair agreements that resulted from an inequality of bargaining power. The purpose of unconscionability is to protect those who are vulnerable in the contracting process from loss resulting from the unfair bargain that was made.

The doctrine requires both an inequality of bargaining power and a resulting "improvident" bargain. A bargain is improvident if it unduly advantages the stronger party or unduly disadvantages the more vulnerable.

Sidebar: Majority, Concurring and Dissenting Decisions

Whenever a judgement is written by an appellate court with multiple judges on the bench (typically convened in panels of 3, 5, 7 or 9 judges) you may have multiple decisions that are issued by the court.

The "majority" decision is just that: the set of reasons endorsed by the majority of judges on the bench. These reasons carry the ruling verdict and the legal reasoning has the strongest authority when cited in future cases.

"Concurring" decisions agree with the majority in the result of the case but uses different legal reasoning to reach their conclusion. Concurring judgements may disagree with the majority's interpretation of the law as they see it, and may even offer sharp critiques of their legal reasoning while still arriving at the same result.

"Dissenting" decisions disagree with majority's result and offers a different verdict that has no force in law. Dissenting reasons may disagree with the majority's interpretation of the law and therefore arrived at a different result, agree with their interpretation yet still arrived at a different result, or some combination of the two.

Analysis

Majority Decision: Wagner, Abella, Moldaver, Karakatsanis, Rowe, Martin and Kasirer JJ

The arbitration clause in Uber's standard form contract was unconscionable. Unconscionability does not require that the transaction was grossly unfair that the imbalance of bargaining power was overwhelming or that the stronger party intended to take advantage of a vulnerable party.

The doctrine has particular implications for standard form contracts. These contracts have great potential for creating an inequality of bargaining power, and potentially enhances the advantage of the stronger party at the expense of a the more vulnerable party. In particular, clauses that enforce choice of law, forum selection, and forced arbitration clauses violate a party's reasonable expectations by depriving them of possible remedies.

In this case, there was clearly inequality of bargaining power between Uber and H. The arbitration agreement was part of a standard form contract and H could not have anticipated the $14,500 fees existed as a hurdle to resolving a dispute. These fees were close to H's annual income and disproportionate to the size of an arbitration award he could have reasonably foreseen.

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

Concurring Decision: Brown J

Justice Brown agrees with the majority that the arbitration clause should be struck out but does not agree that the doctrine of unconscionability should be used to reach this conclusion.

Arbitration agreements are invalid and unenforceable not because of unconscionability but rather because they undermine the rule of law by denying access to justice. They are therefore contrary to public policy.

The majority vastly expands the scope of the doctrine of unconscionability through their ruling. This is not necessary because other legal principles exist which operate to prevent contracting parties from insulating their disputes from independent adjudication. Expanding the scope of unconscionability will increase the uncertainty that already exists within the doctrine, and also introduce uncertainty into the enforcement of contracts generally.

The public policy doctrine provides grounds for setting aside specific types of contractual provisions including those that harm the integrity of the justice system. It applies when a provision penalizes or prohibits one party from enforcing the terms of their agreement, which serves to uphold the rule of law. The rule of law is undermined without access to an independent judiciary that can vindicate legal rights.

Here, the arbitration agreement effectively bars any claim that H might have against Uber and is disproportionate in the context of the parties' relationship. This form of limitation on legally determined dispute resolution undermines the rule of law and is contrary to public policy.

Dissent: Côté J

Justice Côté disagrees with the other judges and would allow Uber's stay of proceedings, but only on the condition that Uber advances the funds required to initiate the arbitration proceedings.

The strongest emphasis is placed here on the freedom of contract and party autonomy. The Court's own past jurisprudence supports respecting the parties' commitment to submit disputes to arbitration.

In light of H's evidence that he cannot afford the arbitration fees, Uber should be required to advance the filing fees to enable him to initiate arbitration. Additionally, if the arbitration clauses were unconscionable or contrary to public policy, the rules selection and place of arbitration clauses could be severed from the contract. The other judges do not explain why they have chosen not to address severance in their reasons.

Approaching the enforceability of arbitration agreements in the fashion taken by the majority, using a hypothetical case with an undetermined reward, compromises the certainty upon which commercial entities rely on in structuring their operations. The arbitration clause should therefore be upheld.