The Manitoba Court of King's Bench recently rejected a motion by a large online meal delivery service to stay a class proceeding in favour of arbitration in accordance with the terms of a new agreement with its couriers. The plaintiff courier had commenced an action seeking relief that included a declaration that she was an employee of the company and to have her action certified as a class proceeding. The ruling is another example of Canadian courts applying high scrutiny to standard form contracts in the "gig" economy and, in particular, to arbitration clauses.
The Court sided with the plaintiff courier (the "Plaintiff"), finding that:
- the new arbitration clause did not apply retroactively to the lawsuit, which started before the new agreement came into effect;
- there was no effective acceptance of the terms of the new agreement because the Plaintiff clicked "I accept" under protest;
- the arbitration provision in the new agreement
- lacked consideration; and,
- was unconscionable (applying the unconscionability test set out by the Supreme Court of Canada in Uber v Heller, 2020 SCC 16 ("Uber")).
The company, SkipTheDishes ("Skip"), applied to stay the Plaintiff's action - which sought a declaration that she was an employee as well as certification of the class action - on the basis of the arbitration clause in Skip's new standard service agreement with couriers (the "New Agreement"). The company argued that this clause deprived the Court of King's Bench (and all courts) of jurisdiction over the matter.
Original agreement, with no arbitration clause (2014)
When the Plaintiff began working as a courier in 2014, her relationship with Skip was governed by an earlier agreement (the "Original Agreement") that did not contain an arbitration clause but instead conferred jurisdiction on the Manitoba Court of Queen's Bench (as it then was), and established Manitoba law as the governing law of the agreement.
Another point that was of significance to the decision was that the Plaintiff, a single mother with a high school education, was a relatively unsophisticated party in comparison with the company.
New agreement, with an arbitration clause, accepted "under protest" (2018)
In July 2018, Skip emailed the Plaintiff to inform her that it was implementing the New Agreement, which would take effect one week later. This email included highlights of the New Agreement and specifically noted that the New Agreement required disputes to be submitted to individualized arbitration. The New Agreement's arbitration clause sited arbitration in Ontario, made Skip responsible for paying reasonable arbitration costs, and barred class proceedings. Further, the arbitration clause purported to apply to disputes "arising from or related to this Agreement or any previous Agreement...".
The Plaintiff was required to click "I Accept" to the New Agreement on the Skip application before she could continue working. The company confirmed that if she did not accept the New Agreement, she could not continue using its platform. To keep working, the Plaintiff sent an email back saying, "I do not agree with the new terms, but will indicate 'Agree' so I can continue to get shifts because I want to work. I am doing this under protest". The company did not reply to this email and the Plaintiff proceeded to click "I Accept".
The Plaintiff engaged legal counsel and, before the New Agreement came into effect, commenced the action.
Analysis and Decision
The Court concluded that there was no arbitration agreement between the parties. In so doing it found as follows:
- The New Agreement and arbitration clause could not be construed as applying retroactively. When the Plaintiff filed the action, the Original Agreement was in force. The arbitration clause in the New Agreement was forward-looking and did not encompass a pre-existing court action.
- The Plaintiff had not accepted the terms of the New Agreement (which meant that the Original Agreement continued to apply). Specifically, the Court pointed to the Plaintiff's email to Skip saying that she did not agree with the terms but would click "I Agree" under protest so she could keep working. Although the company received the email it did not reply, which the Court held to demonstrate its acquiescence to the Plaintiff's position.
- Even if the Court's interpretation of the arbitration clause and applicability of the New Agreement was wrong, it was of the view that the arbitration agreement was invalid for unconscionability and lack of consideration. The Court's reasoning with respect to these two issues is interesting, so we will consider it in detail.
In finding the arbitration agreement unconscionable, the Court applied the two-step test from Uber: (i) was there inequality of bargaining power?; and (ii) was the resulting bargain improvident?
Here, the Court found that there was significant inequality of bargaining power between the parties. The New Agreement was a contract of adhesion, imposed without any opportunity to negotiate and while the Plaintiff had legal assistance in reviewing the contract, that did not change the inequality of bargaining power in the relationship. Further, there was also a significant gap in sophistication between the parties.
The resulting bargain was also improvident because the arbitration clause, if applied as interpreted by Skip, would benefit the company at the expense of the Plaintiff "by retroactively removing her ability to access the courts". While noting that Uber recognized judicial respect for arbitration based on arbitration being a cost-effective and efficient method of resolving disputes, the Court stated that arbitration agreements that preclude the possibility of class actions undermine the principle of efficient adjudication of claims given the access to justice benefits of class actions. It should be noted that the Court found that the arbitration clause had been included in the New Agreement at least in part to prevent class actions.
Lack of consideration
Finally, the Court ruled the arbitration agreement was invalid for lack of consideration. In return for a new promise by an employee - in this case, adjudicating disputes in arbitration - the employer must pass new consideration on to the employee. Continued employment is not consideration. Further, the removal of the right to sue, as well as removing the right to participate in class actions, was not a benefit to the Plaintiff but to Skip. Additionally, while the New Agreement expressly allowed couriers to provide services to other platforms, the Court found this not to be new consideration as the Original Agreement had also recognized that the relationship was "non-exclusive".
Takeaways for Employers
After Uber v. Heller, the decision in this case, cited asPokornik v. SkipTheDishes Restaurant Services Inc., 2022 MBKB 178 (CanLII), is another example of Canadian courts applying high scrutiny to standard form contracts in the "gig" economy and, in particular, to arbitration clauses. While companies and employers may prefer adding arbitration clauses to avoid court disputes and class actions, they must be wary of several issues raised in the case.
Offer and acceptance
First, for any contract to take effect, there must be a clear offer, acceptance, and consideration:
- The Court held that an email stating that the Plaintiff accepted the terms "under protest" invalidated her act of clicking "I Accept" as a legitimate form of acceptance.
- Further, Skip failed to provide new consideration for the New Agreement to become effective - mere continuation of employment or service was not "new" consideration.
Companies wishing to insert arbitration clauses in their agreements must ensure the acceptance is unqualified and that they provide something new of value (e.g., a pay raise, increase in other benefits, promotion, etc.).
Courts' reluctance to enforce arbitration clauses in standard form contracts
Second, companies should be wary about the enforceability of arbitration clauses in standard form contracts. The arbitration clause in this case differed from the clause that was at issue in Uber - notably, it placed arbitration in Canada and required the company to pay the costs - but, like the clause in that case, it was found to be unconscionable. Similarly to the Uber ruling, the Court in this case emphasized the gap in sophistication between the parties in finding an inequality of bargaining power existed, while also broadly criticizing arbitration clauses that prohibit class actions as undermining access to justice and the efficient adjudication of claims.
The Authors would like to acknowledge the assistance of Cameron Penn in the preparation of this blog.
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.