Supreme Court invalidates Uber’s mandatory arbitration provision
Uber’s mandatory arbitration clause is unconscionable, Court says, paving the way for a proposed class action
Can the question of whether Uber drivers are employees be determined by the Ontario courts, or must it be determined through arbitration in the Netherlands as required by Uber’s mandatory arbitration clause? That was the question before the Supreme Court of Canada in Uber Technologies Inc. v. Heller, 2020 SCC 16.
David Heller worked as a delivery driver for Uber on its UberEATS App. In order to become a driver, Mr. Heller had to accept, without negotiation, the terms of Uber’s standard form services agreement by clicking “YES, I AGREE” when signing up for the App. Under the terms of the agreement, Mr. Heller was required to resolve any dispute with Uber through mediation and arbitration in the Netherlands. The mediation and arbitration process required up-front administrative and filing fees of $14,500 USD, not inclusive of the other legal, travel, accommodation and other expenses Mr. Heller would incur. Mr. Heller earned approximately $400 to $600 CAD per week based on 40 to 50 hours of work delivering food for UberEATS driving his own vehicle. The fees represented most of his annual income.
Mr. Heller launched a proposed class proceeding against Uber in 2017 for alleged violations of the Employment Standards Act, 2000 (the “ESA”). Uber brought a motion to stay the proposed class proceeding in favour of arbitration in the Netherlands. In response, Mr. Heller took the position that the arbitration clause in Uber’s services agreements was invalid, both because it was unconscionable and because it unlawfully contracted out of mandatory provisions of the ESA in violation of section 5(1) of the ESA.
The motion judge held that he did not have the authority to decide whether the arbitration agreement was valid and stayed Mr. Heller’s proceeding. The Ontario Court of Appeal reversed this order, determining, among other things, that the arbitration agreement was unconscionable and that it constituted an unlawful contracting out of the ESA’s enforcement procedures, which included the choice of whether to file an ESA complaint or a civil proceeding. Uber was granted leave to appeal to the Supreme Court of Canada.
The Supreme Court’s Decision
On June 26, 2020, a majority of the Supreme Court of Canada dismissed Uber’s appeal, holding that Uber’s mandatory arbitration agreement “makes it impossible for one party to arbitrate” and that it was “a classic case of unconscionability”.
The majority held that two elements were required for the doctrine of unconscionability to apply: an inequality of bargaining power and a resulting improvident bargain. In coming to this conclusion, the Court rejected the stringent four-part test for unconscionability advanced by Uber, holding that:
… This four-part test raises the traditional threshold for unconscionability and unduly narrows the doctrine, making it more formalistic and less equity-focused. Unconscionability has always targeted unfair bargains resulting from unfair bargaining. Elevating these additional factors to rigid requirements distracts from that inquiry.
Applying the two-part test to Uber’s standard-form mandatory arbitration clause with Mr. Heller, the majority held that there was clearly inequality of bargaining power and a resulting improvident bargain between Uber and Mr. Heller:
There was clearly inequality of bargaining power between Uber and Mr. Heller. The arbitration agreement was part of a standard form contract. Mr. Heller was powerless to negotiate any of its terms. His only contractual option was to accept or reject it. There was a significant gulf in sophistication between Mr. Heller, a food deliveryman in Toronto, and Uber, a large multinational corporation. The arbitration agreement, moreover, contains no information about the costs of mediation and arbitration in the Netherlands. A person in Mr. Heller’s position could not be expected to appreciate the financial and legal implications of agreeing to arbitrate under ICC Rules or under Dutch law. Even assuming that Mr. Heller was the rare fellow who would have read through the contract in its entirety before signing it, he would have had no reason to suspect that behind an innocuous reference to mandatory mediation “under the International Chamber of Commerce Mediation Rules” that could be followed by “arbitration under the Rules of Arbitration of the International Chamber of Commerce”, there lay a US$14,500 hurdle to relief. Exacerbating this situation is that these Rules were not attached to the contract, and so Mr. Heller would have had to search them out himself.
The improvidence of the arbitration clause is also clear. The mediation and arbitration processes require US$14,500 in up-front administrative fees. This amount is close to Mr. Heller’s annual income and does not include the potential costs of travel, accommodation, legal representation or lost wages. The costs are disproportionate to the size of an arbitration award that could reasonably have been foreseen when the contract was entered into. The arbitration agreement also designates the law of the Netherlands as the governing law and Amsterdam as the “place” of the arbitration. This gives Mr. Heller and other Uber drivers in Ontario the clear impression that they have little choice but to travel at their own expense to the Netherlands to individually pursue claims against Uber through mandatory mediation and arbitration in Uber’s home jurisdiction. Any representations to the arbitrator, including about the location of the hearing, can only be made after the fees have been paid.
The majority observed the arbitration clause effectively made the substantive rights under the contract unenforceable and that “[w]hen arbitration is realistically unattainable, it amounts to no dispute resolution mechanism at all.”
The majority held that “[b]ased 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 was unconscionable and therefore invalid.
Having concluded that the mandatory arbitration clause was invalid on the basis of unconscionability, the majority determined that there was no need to decide whether it was also invalid because it unlawfully contracted out of the ESA.
The Future of Mandatory Arbitration of Employment Disputes Post-Heller
Fortunately, for workers in Ontario at least, the Ontario Court of Appeal’s holding that Uber’s mandatory arbitration clause constitutes an unlawful contracting out of the ESA was undisturbed and remains stare decisis in Ontario. This means that mandatory arbitration clauses which purport to contract out of an employee’s right to pursue an ESA complaint or civil action will be void and unenforceable in Ontario. Unfortunately for workers in other provinces, the majority’s refusal to address this issue on appeal leaves open the question of how courts in other provinces will treat the similar prohibitions on contracting out which appear in all employment standards legislation in Canada.
The majority’s decision also leaves open the question of whether a less extreme mandatory arbitration clause would be struck down on the basis of the doctrine of unconscionability. Nor did it address the broader question of whether barring precarious workers from enforcing their minimum statutory rights through class actions in and of itself gives rise to unconscionability or is contrary to public policy.
These questions are of particular concern given the well-documented barriers that individual, non-unionized employees face in enforcing their rights through ESA complaints in Canada, as well as the devastating impact that the enforcement of mandatory arbitration clauses and class actions waivers has had on the enforcement of employees’ minimum statutory rights in the United States.
Uber has purportedly introduced an updated arbitration clause in response to the Supreme Court’s decision in Heller, and so these questions may find themselves before future decision makers sooner than later.
Steven Barrett and Joshua Mandryk represented United Food and Commercial Workers Canada, which intervened in the appeal in support of Mr. Heller.