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This article reviews the decision made by the Supreme Court of Canada in Uber Technologies Inc. v. Heller in June 2020. In this case, the majority of the bench noted that the arbitration clause in the contractual agreement between Uber and David Heller, an UberEATS driver was unconscionable and invalid. Hence, the arbitration clause was struck down which was barring a group of workers from moving a class action claim pertaining to the terms and conditions of their work at UberEATS. Herein, the Supreme Court of Canada made some significant observations on the enforceability of arbitration agreements and the application of the doctrine of unconscionability.
The roots of this case lie in a class action claim, initiated by David Heller, who worked with UberEATS, the food delivery service of Uber Technologies Inc. (Uber). This lawsuit was first launched in 2017, in an attempt to force the company to recognize its drivers as employees rather than independent contractors. The action regards a class of all drivers working for Uber in Ontario, and considers whether they are employed in personal transportation or food delivery.
The primary prayers that were sought by the Plaintiffs were as follows:
- A declaration that the class of drivers are employees under Ontario’s Employment Standards Act, 2000, S.O. 2000, c. 41 (hereinafter referred to as “ESA”)and not independent contractors.
- Damages up to the amount of $400 million for unpaid minimum standards entitlements under the ESA.
Heller and other drivers used the Uber App to provide their services. Herein, they entered into a Services Agreement with Uber. This agreement categorizes them as independent contractors and includes an arbitration clause. As per this clause, disputes which “arise out of or broadly in connection with the agreement” must be resolved by means of arbitration in Amsterdam, Netherlands under the Rules of Arbitration of the International Chamber of Commerce.
If the drivers have any complaints in connection to their salaries, they go through a two-tier dispute resolution procedure with the Uber staff, after which they can proceed to arbitration.
The Supreme Court of Canada dismissed the appeal made by Uber and upheld the decision made by the Court of Appeal, that the arbitration clause was ‘unconscionable’ and invalid. In the dissenting opinion of Côté J.A., he opined that he would have allowed Uber’s appeal, holding the Arbitration Clause was enforceable so long as Uber paid up-front arbitration fees for Heller.
Both the parties disagreed on which arbitration statue would be applicable to their dispute:
- According to Uber, the International Commercial Arbitration Act, 2017, S.O. 2017, c. 2, Sched. 5 (ICAA), was the applicable statue. This Act applies and enforces international instruments to international commercial arbitration agreements.
- Heller and the class workers argued that the applicable statue was the Arbitration Act, 1991, S.O. 1991, c. 17 (AA). This piece of legislation pertains to arbitration agreements in Ontario, not having both an international and commercial character.
Both these statues are mutually exclusive and as such, only one can be applied to an arbitration in Ontario.
The majority of the bench in this case held that such a determination can be made only after a thorough examination of the nature of the dispute and not by the relationship between the parties. Therefore, the dispute was whether Heller was an employee under the Employment Standards Act. Under the ICAA, employment is not a “commercial” issue. Therefore, the applicable arbitration statue would be the Arbitration Act, 1991.
The Supreme Court upheld the unconscionability aspect, but narrowly applied the test of unconscionability. The four-pronged test of unconscionability set in the case Titus v. William F. Cooke Enterprises Inc., was rejected. In order for the test to be successfully, the following criterion ought to be met:
• A grossly unfair and improvident transaction.
• A victim’s lack of independent legal advice or other suitable advice.
• An overwhelming imbalance in bargaining power.
• The other party’s knowingly taking advantage of this vulnerability.
Instead, the judges followed a new approach to this doctrine, which was determined by only two factors:
- An inequality of bargaining power that prevents the weaker party from adequately protecting their interests in the contracting process. The essence of the inequality analysis is to determine whether a party’s ability to freely enter into the agreement was impaired in some way.
- An improvident transaction: A bargain is improvident if it unduly advantages the stronger party or unduly disadvantages the weaker party. This assessment must review the context of the parties’ agreement to determine if the specific inequality in bargaining power led to an unfair result.
In this respect, the bench was of the opinion that the Titus test was formalistic and not equity-based. However, the other elements of the test were said to remain relevant.
According to the majority, standard form contracts may not be inherently unfair but they hold the potential to enhance the advantage of the stronger party. This might be done through the careful usage of choice of law, forum and arbitration clauses that could divest the weaker party of remedies.
On the matter of the contested arbitration clause, the judges were of the opinion that there was clear inequality of bargaining power between the parties, as:
- The clause was contained in the standard form contract, which Heller could not negotiate.
- The service agreement did not include any details regarding the costs of the arbitration procedure in Netherlands.
- Heller could not have been expected to appreciate the financial and legal implications of the agreement on arbitration under international commercial law or the Dutch law.
In essence, the substantive rights given by the contract was unenforceable by a driver against Uber. No reasonable person would have agreed to the arbitration clause, had they been able to understand and appreciate its implications. Hence, the clause was struck down as unconscionable and invalid.
The significance of the rejection of the Titus test for unconscionability by Supreme Court is to be noted, especially considering that it is commonly applied by several Canadian courts in employment cases. The flexible approach of the majority in this case opens the possibility of the lack of legal knowledge of the workers not to be held against them by their employers. It also makes the future applicability of this doctrine chaotic, as the courts shall now entertain the arguments based on the employee’s circumstances and not the obvious or upper-handed attempts made by the employer to his advantage.
The decision is helpful as it lifted the veil of arbitration clauses on standard form contracts and made it open to civil litigation.
Author: Nikita Singh, Faculty of Law, Aligarh Muslim University.
Editor: Astha Garg, Junior Editor, Lexlife India.