Labour, Employment and Human Rights Bulletin | The HR Space

On June 26, 2020, the Supreme Court of Canada (the "Court") issued its decision in Uber Technologies Inc. v. Heller. The Court was asked to determine the validity of an arbitration agreement in a standard form contract. In dismissing the appeal, the Court agreed with the Ontario Court of Appeal's decision that the arbitration clause was unconscionable and therefore invalid.

Background Facts

Heller provided food delivery services in Toronto using Uber's software application. Prior to using Uber's application, Heller entered Uber's standard form services agreement. The agreement contained a clause that required any disputes to be resolved through mediation/arbitration in the Netherlands. The upfront cost of the mediation/arbitration process was US$14,500. Heller argued that the arbitration clause was unconscionable and therefore not enforceable.

Supreme Court's Decision

One of the main issues was whether a Canadian court could deal with Heller's objection to the arbitration clause or whether the matter had to be determined by an arbitrator in the Netherlands. A majority of the Court said that Canadian courts can resolve disputes about an arbitrator's jurisdiction where there is a real prospect that the dispute may never be resolved by an arbitrator. Justice Brown, concurring, said that the high initial cost of the mediation/arbitration process created an access to justice issue. It created a real risk that Heller would effectively be prohibited from initiating a claim and that his dispute may never be resolved.

To decide whether the arbitration clause was invalid because it was unconscionable, the Court applied the following two-step legal test:

  • whether there was an inequality of bargaining power between Uber and Heller; and
  • whether that inequality resulted in an improvident or unfair bargain.

The Court said an inequality of bargaining power exists when one party cannot adequately protect its own interests in the contracting process. A bargain will be improvident or unfair if it disproportionately favours the stronger party or disadvantages the more vulnerable party.

The Court found that there was an inequality of bargaining power between Uber and Heller because:

  • the arbitration clause was part of an unnegotiated standard form contract;
  • there was a large difference in sophistication between the parties; and
  • the agreement did not contain information about the costs of the mediation/arbitration process and a person in Heller's position could not be expected to understand the significant costs associated with the arbitration clause.

The Court also found that the clause was unfair or improvident because of the high initial costs of the mediation/arbitration process. The costs were close to Heller's annual income and would likely outweigh the amount of any arbitration award.

The Court decided the arbitration clause was unconscionable, but it did not invalidate the entire standard form agreement. The arbitration clause could be severed from the rest of the contract.

The Court indicated that standard form contracts are more likely to be unconscionable. This is because they are written by one party without input from the other. In addition, they often contain difficult concepts or legal terminology.

Takeaway for Businesses

Standard form contracts and mandatory arbitration clauses will likely be subject to increased scrutiny following this decision.

Businesses should take steps to ensure that standard form contracts are accessible and, to the extent possible, balanced for the non-drafting party.

Mandatory arbitration clauses should also be carefully drafted to ensure they are reasonably accessible to both parties by, for example, choosing a lower cost process and a local venue for proceedings.

Originally published 20 July, 2020

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