This week, the Supreme Court of Canada (SCC) released a new decision in a long-lasting case involving Uber and one of its drivers, called Uber Technologies Inc., et al. v. David Heller (“Uber“).
This is an important development, since the SCC rarely takes up court cases – in fact, it only hears about 10% of all appeals from the lower-level courts in Canada.
The main dispute in Uber was whether an “arbitration clause” in drivers’ service contract requiring all disputes between the ride-hailing company and its drivers be resolved through a mediation and arbitration in the Netherlands is valid and legal. In reviewing the case, the SCC decided against Uber, finding the arbitration clause “unconscionable and therefore invalid.” In particular, the Uber arbitration clause said the following:
“Governing Law; Arbitration. Except as otherwise set forth in this Agreement, this Agreement shall be exclusively governed by and construed in accordance with the laws of The Netherlands, excluding its rules on conflicts of laws. . . . Any dispute, conflict or controversy howsoever arising out of or broadly in connection with or relating to this Agreement, including those relating to its validity, its construction or its enforceability, shall be first mandatorily submitted to mediation… If such dispute has not been settled within sixty (60) days after a request for mediation has been submitted under such ICC Mediation Rules, such dispute can be referred to and shall be exclusively and finally resolved by arbitration … by one (1) arbitrator appointed in accordance with ICC Rules. The place of arbitration shall be Amsterdam, The Netherlands. . . .”
In making it decision, the SCC clarified a few other important principles that are relevant in many other areas of the law, including Ontario employment law. Here is a basic overview of the case and its implications for Ontario employees and their employers.
Facts
In Uber, one of the company’s drivers, Mr. Heller, brought a class-action lawsuit, seeking $400 million in damages and a declaration that all of Uber’s drivers are actually employees (not independent contractors), and therefore entitled to the basic benefits and protections under the Employment Standards Act, 2000, such as minimum wage, vacation, overtime and termination pay and severance pay.
What is arbitration? It is a form of resolving a contractual dispute where the parties agree that a neutral third-party (“arbitrator”) can quickly make a decision about the dispute after hearing evidence and arguments (which is usually binding), instead of going to court.
While it is not unusual for some contracts to have an arbitration clause, this case was different because (1) Uber required all disputes with its drivers be governed by the foreign law of the Netherlands; and (2) the arbitration process be held all the way in the Netherlands – both despite the fact that these drivers live and work in Canada. Obviously, this was a far more expensive and time-consuming process, and likely acted as a deterrent against workers from seeking recourse in disputes with Uber.
Decision
The SCC found the arbitration requirement in Uber drivers’ contracts was unlawful. Among other things, Uber’s arbitration clause set conditions that were too costly and unrealistic. For instance, Canadian drivers were required to pay US$14,500 to file a claim for arbitration in the Netherlands. In reality, assuming most Uber’s drivers working full-time earn approximately between $35,000 – $40,000 (before deductions and expenses), the fee just to file a claim represents a significant chunk of their earnings (not taking into account the costs of travel, lost time off work, etc.). As the SCC stated:
“Respect for arbitration is based on its being a cost-effective and efficient method of resolving disputes. When arbitration is realistically unattainable, it amounts to no dispute resolution mechanism at all.”
As the SCC went on to emphasize, in order for an arbitration clause in a worker’s contract to be feasible, it should not set conditions that indirectly strip away at a worker’s legal rights/protections and ability to actually make use of the arbitration process:
“This could occur because the fees to begin arbitration are significant relative to the plaintiff’s claim or because the plaintiff cannot reasonably reach the physical location of the arbitration. Another example might be a foreign choice of law clause that circumvents mandatory local policy, such as a clause that would prevent an arbitrator from giving effect to the protections in Ontario employment law.”
Legal Principles
In reaching its decision, the SCC reaffirmed an important legal principle in basic contract law that applies in other areas of employment law disputes:
Unconscionability
This is a legal rule the courts use to void unfair contracts entered into by parties with clearly unequal bargaining power, where one party’s negotiating power is much weaker than the other. In other words, when proven, it permits a party to set aside a contract that is manifestly unfair.
The general rule for the courts is to not intervene in contracts freely entered into by people (this is called “freedom of contract”), unless doing so is necessary to protect a vulnerable person from being unfairly taken advantage of by a far strong party
To prove unconscionability, the facts of each case must convince the court there is:
(1) an inequality of negotiating power – one party cannot properly protect its own interests when negotiating a contract; and
(2) improvident contract – the resulting deal was substantially unfair, creating an undue advantage to the stronger party, or an unndue disadvantage to the weaker party.
Although an inequality of negotiating power can sometimes be proven where one party knowingly takes advantage of another’s vulnerability, it is not essential for a finding of unconscionability. It is also not necessary to prove that a transaction was grossly unfair, that the imbalance of bargaining power was overwhelming, or that the stronger party intended to take advantage of a vulnerable party. The court’s emphasis is on whether the resulting contract was manifestly unfair at the time the contract was formed or entered into by the parties (not when deciding a future dispute).
Why was the Uber arbitration clause unconscionable?
According to the SCC, the requirements to prove unconscionability were proven:
1) there was clearly an inequality of bargaining power between Uber and its drivers: the arbitration clause was placed into a “standard form contract” (basically, a template) which Uber requires all its drivers to sign in order to work for it, and which leaves little (if any) room for its drivers to negotiate and understand.
2) the resulting contract between Uber and its drivers was improvident (unwise and lacking foresight) since it imposes a hefty $14,500 (U.S.!) application fee, in addition to travel costs, legal costs and other costs to even participate in an arbitration hearing to resolve a dispute – all the way in the Netherlands! As the SCC noted:
“The improvidence of the arbitration clause is also clear because these fees are close to H’s annual income and are disproportionate to the size of an arbitration award that could reasonably have been foreseen when the contract was entered into.”
In the words of the court to conclude its case:
“In this case, the arbitration clause is the only way H is permitted to vindicate his rights under the contract, but arbitration is out of reach for him and other drivers in his position. His contractual rights are, as a result, illusory.”
Therefore, Uber drivers were effectively unable to resolve a dispute with the company given the significant financial and logistical disadvantages caused by the arbitration in Netherlands clause. This meant Uber drivers could not protect their own legal rights and interests, making the arbitration clause unconscionable and therefore invalid.
As a result, Uber could not rely on the arbitration clause to force its drivers to resolve disputes the way it intended – all the way in the Netherlands through a costly, time-consuming journey. Instead, such work-related disputes must be resolved in provincial courts where an Uber driver with a dispute with the company lives/works.
How Unconscionability Affects Other Employment Contract Terms
Apart from an arbitration clause (which is not very typical in most employment contracts for Ontario employees), the unconscionability rule can apply to various other sections of an employment contract. For instance, depending on the specific wording of an employment contract or the facts/circumstances of each case, it would not be unrealistic to assume employment lawyers may consider challenging a termination clause for unconscionability in a wrongful dismissal case to obtain a severance package for employees, or a bonus clause that governs the requirements for employees to be eligible to receive bonus pay, or a choice of law or forum selection clause that requires a dispute being settled by using another country’s employment laws.
TAKEAWAY LESSONS
The Uber case has important implications for employees on a range of issues, including on the issue of unconscionable employment contracts. Please call our office for legal advice on the specific facts of your case with an employment lawyer.
If you are an employer looking to discuss your own workplace matters, including independent contractor and employment agreements, please call our office to arrange a legal consultation with an employment lawyer.
If you are an employee adjusting to working remotely for your company and you would like to discuss changes your employer has proposed to your employment arrangement, including signing new employment contracts, feel free to contact Bune Law at 647-822-5492 to get legal advice regarding your specific rights and options.
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