Dutch Forum Clause Does Not Amount to Much: Supreme Court Says That Uber Arbitration Clause is Unconscionable

In a much-anticipated decision released on June 26, 2020, the Supreme Court of Canada has changed the law with respect to the doctrine of unconscionability. By doing so this has allowed a proposed class action lawsuit by Uber and UberEATS drivers to proceed.

There will undoubtedly be ramifications to the way consumer contracts are interpreted in Canadian courts moving forward particularly with respect to arbitration clauses and forum selection clauses. Further, this paves the way for other potential legal challenges made by “gig economy” contract workers with respect to employment standards.

Background

The nominal plaintiff of the proposed class, David Heller, was an UberEATS delivery driver who had entered into a 15-page UberEATS driver services agreement with an Uber affiliate by clicking yes to confirm acceptance on his mobile device. The services agreement contained a commercial arbitration clause providing that any disputes are to be resolved pursuant to international mediation and arbitration rules and that the place of arbitration shall be Amsterdam. The plaintiff commenced a proposed class proceeding against various companies affiliated with Uber, based out of the Netherlands.

Uber and UberEATS provide ride-sharing and food delivery services through contract workers in major cities throughout Canada. The key issue in the proposed class action is whether or not the drivers fall under the statutory employment scheme and benefit from its entitlements such as overtime pay — that issue remains to be determined.

Uber had successfully applied to stay the proceedings on the basis that the arbitration clause applied and that the Court was precluded from interfering in accordance with applicable arbitration legislation (see: 2018 ONSC 718). The evidence before the lower court was that it would cost the plaintiff US$14,500 in up-front costs to cover administrative and filing fees, plus legal and other costs to participate. Mr. Heller earned between approximately CDN$20,000 and $31,000 per year before expenses. Under the terms of the services agreement, the arbitration was to take place in the Netherlands, though Uber was amenable to having the arbitration in Canada.

Courts Below

The motion judge stayed the proceedings pursuant to the arbitration legislation. This legislation encourages private dispute resolution mechanisms and requires the Court to stay proceedings when a valid arbitration agreement is in place, subject to limited exceptions. In applying this legislation, the judge held that the dispute had to be heard in first instance by the arbitrator. The judge also found in the alternative that neither the Ontario’s employment standards legislation nor the equitable doctrine of unconscionability, which was addressed in the recent Supreme Court decision, Douez v. Facebook, Inc., 2017 SCC 33 [Facebook] invalidated the arbitration clause. Our previous blog post regarding the Facebook case is linked here: Supreme Court Modifies “Strong Cause” Requirement in Determining Enforceability of Forum Selection Clauses in Consumer Contracts.

The Ontario Court of Appeal (2019 ONCA 1) disagreed with the motion judge and held that the arbitration clause was invalid because the parties illegally contracted-out of the provisions of the Ontario employment legislation and because it was unconscionable. As a result, the proposed class action proceedings could continue in Ontario courts. Uber appealed to the Supreme Court of Canada.

Supreme Court Decision

Concurring reasons from seven of the Supreme Court justices authored by Justices Abella and Rowe held that the arbitration clause in the agreement is unconscionable and expand upon Justice Abella’s previous reasons regarding the doctrine of unconscionability in Facebook. Justice Brown, concurring in the outcome, alternatively reasoned that the appeal should be dismissed because the arbitration clause is instead contrary to public policy as it undermines the rule of law. Justice Brown’s concurring reasons are critical of the majority’s insofar as they expand the doctrine of unconscionability. The dissenting reasons of Justice Côté emphasized the principle of the freedom of parties to contract without court interference would have allowed Uber’s appeal by ordering a conditional stay of proceedings on the basis that Uber advance Mr. Heller’s filing fees.

The test for unconscionability requires two steps: (1) inequality of bargaining power and (2) an improvident bargain. In this decision, the majority incrementally moved the goal post for both steps of the analysis and introduced more equitable discretion for judges, particularly in circumstances dealing with standard form contracts. Prior case law has been reluctant to extend the applicability of the doctrine without a readily-apparent vulnerability and has not greatly differentiated between standard form or electronic consumer contracts and other commercial contracts.

The majority affirmed that there is no need for evidence of Mr. Heller being a vulnerable person, but what matters is the relative difference in power. The majority reasons call for contextual insight into the parties’ relative sophistication and by doing so increases the kinds of persons in need of the Court’s equitable protection. The Court relied upon the gulf in sophistication between Mr. Heller, a delivery driver, and Uber, a multi-national business, and accepted that Mr. Heller could not be expected to understand the implications of agreeing to arbitrate in the Netherlands under Dutch law. Even if he had read the contract, making him an exception to the rule, the agreement did not attach the international arbitration rules.

The majority also stressed the contextuality of assessing unfairness or improvidence particularly in consumer contracts, though little was provided in the way of stricture or guidance. In applying the framework of the analysis to the facts of the case, the majority held that the $14,500 up-front fees to arbitrate, in addition to the technical rules requirements, was improvident. The amount was found to be disproportionate to potential arbitral awards and also gave an “impression” that disputes would require travel to the Netherlands. The majority stated that no reasonable person who understood and appreciated the effects of the arbitration clause would have entered into it.

The difficulty of Mr. Heller to arbitrate his complaint was also the basis upon which the Court has addressed the so-called “competence-competence” principle by which arbitral disputes must be resolved in first instance by arbitrators. Another noteworthy aspect of the decision was the majority’s conclusion, with Justice Brown concurring, that prior case law did not contemplate situations where the dispute would never be resolved if parties were required to arbitrate first. These circumstances raise access to justice issues, according to the majority of the Court.

If your business needs advice on how this decision may impact your current operations, please contact a member of our Corporate / Commercial group.