Killian McParland and Jennifer Thompson

In a decision released earlier today, Uber Technologies Inc. v. Heller¹, the Supreme Court of Canada determined that an agreement requiring Uber drivers to go to arbitration instead of suing in Court was invalid.

Mr. Heller was a driver for Uber EATS in Toronto. Mr. Heller had to accept Uber’s standard form contract to be able to operate as an Uber driver. There was no opportunity to negotiate. The agreement included an arbitration clause requiring Mr. Heller to resolve any disputes through mediation and arbitration in the Netherlands. The arbitration would cost US$14,500 to initiate, plus any other expenses.

Mr. Heller brought a proposed class action in the Ontario Courts against Uber alleging that he and other drivers are employees of Uber and entitled to the benefits of Ontario’s Employment Standards Act, 2000. Uber relied on the arbitration clause and requested that the action be stayed in favour of arbitration. This was granted by the Ontario Superior Court of Justice, but overturned by the Ontario Court of Appeal, which held that the arbitration clause was unenforceable. Uber appealed to the Supreme Court of Canada.

The majority of the Supreme Court upheld the decision of the Ontario Court of Appeal and held that (1) in the circumstances, the Court was able to determine the enforceability of the arbitration clause; and (2) that the arbitration clause was unenforceable due to unconscionability.

Jurisdiction to determine the enforceability of arbitration clauses

Where there is an arbitration clause, the Court generally must stay any proceedings unless one of the exceptions under the Ontario Arbitration Act applies. In this case, it was argued that the applicable exception was that the agreement was invalid.

Ordinarily, whether an arbitration clause is valid must first be determined at arbitration (not by the Court) unless (1) it is solely a question of law, or (2) it is a question of mixed law and fact and only a “superficial review” of the facts is required.

However, the majority in Heller held that there is a third exception available where the arbitration clause would impede access to justice: in circumstances where the contract would effectively be “insulated from a meaningful challenge”.²

The test for the new exception is (a) assuming that the pleaded facts are true, there is a genuine challenge to jurisdiction; and (b) there is a real prospect that if a stay is granted, the matter will never be arbitrated.

On the facts, the majority held that due to the nature of the arbitration clause, particularly the substantial cost of arbitrating the matter in the Netherlands, the matter would realistically never be arbitrated. The Court therefore had jurisdiction to review the enforceability of the arbitration clause itself.

Enforceability of the arbitration clause

An arbitration clause can be rendered unenforceable if it is unconscionable. The majority endorsed the existing dual requirements for unconscionability: (1) inequality of bargaining power; and, (2) a resulting improvident bargain.

The majority held that both elements of the test were met in this case. There was inequality of bargaining power due in large part to the standard form contract used meaning Mr. Heller was “powerless to negotiate any of its terms”, and the contract “contain[ed] no information about the costs of mediation and arbitration in the Netherlands.”³ It was improvident because “the mediation and arbitration processes require US$14,500 in up-front administrative fees.” This amount was close to Mr. Heller’s annual income and did not include the potential costs of travel, accommodation, legal representation or lost wages. The costs were therefore disproportionate to the size of an arbitration award that could reasonably have been foreseen when the contract was entered into.

In respect of standard form contracts the majority commented:

The potential for such contracts [standard form contracts] to create an inequality of bargaining power is clear. So too is their potential to enhance the advantage of the stronger party at the expense of the more vulnerable one, particularly through choice of law, forum selection, and arbitration clauses that violate the adhering party’s reasonable expectations by depriving them of remedies. This is precisely the kind of situation in which the unconscionability doctrine is meant to apply.⁴

In light of this decision, those using standard form contracts in non-commercial situations should take care to ensure that the contracts are evenly balanced.

For Mr. Heller, the result of this standard form arbitration clause was that he had no genuine avenue to bring a claim under the agreement:

Effectively, the arbitration clause makes the substantive rights given by the contract unenforceable by a driver against Uber. No reasonable person who had understood and appreciated the implications of the arbitration clause would have agreed to it.⁵

Accordingly, the arbitration clause was found to be unconscionable and therefore unenforceable, with the result that Mr. Heller may continue with his class action against Uber.

Other grounds of appeal left unaddressed

Although the Ontario Court of Appeal had found that the arbitration agreement was unenforceable on two grounds, only one of these, unconscionability, was addressed by the majority decision of the Supreme Court of Canada. Unfortunately, the majority declined to answer the question of whether, as the Court of Appeal held, an arbitration clause is also invalid if it does not permit (alleged) employees to pursue an employment standards complaint under the Employment Standards Act, 2000.

The dissenting judgment written by Justice Côté would have overturned the finding of the Ontario Court of Appeal on this point.

As a result, employers – particularly those operating outside of Ontario – are left with uncertainty regarding the permissible scope of arbitration agreements with their employees (or contractors who later claim to be employees).

Key takeaway for employers

Employers with arbitration clauses in employee or contractor agreements would be well-advised to review these clauses for compliance with this most recent decision from the Supreme Court of Canada.

¹ 2020 SCC 16.
² At para 39.
³ At para 93.
⁴ At para 89.
⁵ At para 95.

This article is provided for general information only. If you have any questions about the above, please contact a member of our Labour and Employment group.

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