Canada: Beware The Unconscionable Clause: Ontario Court Of Appeal Declines To Stay Class Action Based On An Arbitration Agreement

Last Updated: January 23 2019
Article by Marco P. Falco

Arbitration often represents an efficient alternative to the Courts. The parties to a contract agree to by-pass the Court process in the hope that their dispute is resolved in a faster, more effective way. However, arbitration is not without its limits.  

A 2019 decision of the Ontario Court of Appeal, Heller v. Uber Technologies Inc., 2019 ONCA 1, reinforces that the enforceability of arbitration agreements very much depends on whether they impose "unconscionable" consequences on the parties.

Arbitration Clauses in "Contracts of Adhesion"

Heller involved a proposed class action on behalf of Uber and UberEATS drivers.  

The plaintiff, Heller, an UberEATS driver, commenced a class action in Ontario against Uber claiming $400 million in damages (the "Class Action"). The action alleged that Uber drivers were employees of Uber, governed by the Employment Standards Act, 2000, S.O. 200, c.41 (the "ESA").  

Heller sought a declaration on behalf of the class that Uber was in breach of the ESA and that the arbitration provision in the service agreements entered into between Uber and its drivers (the "Service Agreement") was void and unenforceable. 

The Service Agreement between Uber and its drivers is a contract of adhesion. Each Uber driver is required to accept the Service Agreement when initially subscribing to the Uber App.

The Service Agreement also includes an arbitration clause (the "Arbitration Clause").   The Arbitration Clause provides that the Service Agreement is governed by the laws of the Netherlands. It further provides that any dispute arising out of the Service Agreement is required to be submitted first to mediation. If within sixty days after the request for mediation has been made the dispute has not been settled, it is to be resolved by arbitration in Amsterdam, the Netherlands.   

In order for a driver to participate in this mediation / arbitration process, she must pay initial costs of approximately $14,500USD.

Uber brought a motion in the Ontario Superior Court arguing that the Class Action should be stayed on the basis that the parties agreed to resolve their dispute by way of arbitration.

Under section 7(1) of Ontario's Arbitration Act, 1991, S.O. 1991, c.17 (the "AA"), the Court is required to stay a proceeding where the parties agreed to submit their dispute to arbitration. Section 7(2) provides a number of exceptions to this rule, including where the arbitration agreement is "invalid".

At the stay motion, Heller argued that the Services Agreement was invalid because it required Uber drivers to contract out of protections in the ESA. Heller further argued that the arbitration clause was unconscionable for the average Uber driver, given the $14,500 costs associated with commencing arbitration and the requirement that the arbitration take place in Amsterdam.

The motion judge rejected Heller's arguments and stayed the Class Action. 

The Court of Appeal reversed the motion judge's decision.

Arbitration Agreements in Breach of the ESA Are Invalid

The Court of Appeal held that the arbitration clause in the Services Agreement was invalid as it required Uber drivers to contract out of the protections of the ESA.  

Under section 5 of the ESA, an employer or employee is prohibited from contracting out of or waiving an "employment standard". An "employment standard" is defined as a requirement or prohibition under the ESA that applies to an employer for an employee's benefit.

If the plaintiffs in the proposed Class Action are presumed to be "employees" under the ESA, then they cannot be held to a contractual term that denies them the benefits of the ESA.

The Court held that arbitration clause in the Services Agreement amounted to a "contracting out of the ESA". 

This is because the clause eliminated "the right of the appellant (or any other driver) to make a complaint to the Ministry of Labour regarding the actions of Uber and their possible violation of the requirements of the ESA". Uber drivers were accordingly denied the right to have a complaint investigated by an employment standards officer. The arbitration clause forced drivers "out of the [ESA] complaints process".  

The Court also expressed concern about the lack of evidence in the record regarding the remedy available to a successful applicant in the Dutch arbitration process. The Court did not know if the laws of the Netherlands "would provide greater, lesser, or equal benefits to the appellant" than under the Ontario ESA.

The Arbitration Clause was Unconscionable

The Court further held that arbitral clause imposed unconscionable requirements on Uber drivers, rendering it "invalid" under section 7(2) of the AA.

There was no effective dispute resolution mechanism for Uber drivers in Ontario or elsewhere, other than the arbitration clause in the Service Agreement. The idea that Uber drivers could contact support centers in the Philippines or Chicago, in the Court's view, did not amount to "independent grievance or adjudication procedures".  Accordingly, the only place in which a dispute under the Services Agreement could be adjudicated was the Netherlands. This imposed a substantial burden on Uber drivers, particularly since the Class Action in this case had yet to be certified.

Moreover, the Services Agreement imposed up-front costs of $14,500USD to engage in the mediation / arbitration process. The Court held that these costs, particularly for Uber drivers who on average earned $400-$600 per week, would represent an unconscionable barrier to arbitration. The Court characterised the arbitration clause as a "substantially improvident or unfair bargain". This was especially so given the recognized inequality of bargaining power between Uber and its drivers:

It seems to me that the fundamental flaw in the approach adopted by the motion judge to this issue is to proceed on the basis that the Arbitration Clause is of the type involved in normal commercial contracts where the parties are of relatively equal sophistication and strength. That is not the case....[the arbitration clause in this case] operates to defeat  the very claims it purports to resolve...

Invalid Arbitration Clauses are Unenforceable

The Court's analysis in Heller appears to have been largely guided by the equities of the case.

The Court sensed unfairness in a contract requiring Uber drivers to deny themselves employee protections under the ESA, while at the same time obliging them to resolve significant arbitral disputes in the Netherlands. The inequality between the bargaining powers was clearly on the Court's mind when assessing the arbitral clause.

Heller illustrates that Ontario Courts will show little reticence in assessing the validity of arbitration agreements, particularly in contracts of adhesion.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Marco P. Falco
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
 
Email Address
Company Name
Password
Confirm Password
Position
Industry
Mondaq Newsalert
Select Topics
Select Regions
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions