The Supreme Court of Canada recently released a decision that considered whether a clause in Uber’s contracts is legally valid.
Mr. David Heller, an Uber driver, challenged a provision in Uber’s contract.
To become an Uber driver, Mr. Heller had to accept, without negotiation, the terms of Uber’s standard form services agreement. Under that agreement, Mr. Heller was required to resolve any dispute with Uber through commercial arbitration in the Netherlands.
Mr. Heller and workers like him are low-paid, have no benefits plans or pensions, and do not have statutory entitlements like employment insurance. They cannot easily forgo work, are unlikely to know their rights and, under Uber’s arbitration clause, are unlikely to enforce them.
In 2017, Mr. Heller started a class proceeding against Uber to determine if he and others like him were employees entitled to protection of employment standards legislation.
Uber sought a stay of the proceeding. It contended that Mr. Heller could not proceed in court. It said he was compelled to arbitrate the dispute in the Netherlands.
Mr. Heller asserted that the arbitration clause in Uber’s services agreements is invalid, because it is “unconscionable.” In other words, the clause was unreasonably harsh or unreasonably one sided and therefore ought not to be enforced.
The arbitration process specified in Uber’s contract required up-front fees of US$14,500. Mr. Heller would also have to pay legal fees and other costs. Mr. Heller earns between $400-$600 a week. The fees represent most of his annual income.
The motion judge granted Uber’s request to stay the proceeding. The arbitration clause’s validity was to be referred to arbitration in the Netherlands.
The Court of Appeal allowed Mr. Heller’s appeal. It held that Mr. Heller’s objections to the arbitration clause could be dealt with by a Canadian court. It also found that the arbitration clause was unconscionable, based on the inequality of bargaining power between the parties and the improvident cost of arbitration.
In a 207-page decision, the Supreme Court of Canada dismissed Uber’s appeal.
In response to the argument that only the arbitrator could decide the clause’s validity, Justice Brown stated:
An arbitrator cannot reasonably be tasked with determining whether an arbitration
agreement, by its terms or effects, bars access to that very arbitrator. It therefore falls to courts to do so.
Justice Brown stated that the arbitration clause was unenforceable not because it was unconscionable but because it undermined the rule of law by denying access to justice. It effectively made it impossible for him to seek enforcement of his contractual rights. So, he said it was contrary to public policy.
The majority of the Court stated:
When arbitration is realistically unattainable, it amounts to no dispute resolution mechanism at all. … The arbitration clause is the only way Mr. Heller can 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.
Based on both the disadvantages faced by Mr. Heller in his ability to protect his bargaining interests and on the unfair terms that resulted, the arbitration clause is unconscionable and therefore invalid.
Interestingly, a number of United States cases revealed that Uber allows drivers there to opt out of the arbitration clause, does not require arbitration in Netherlands and pays the arbitration fees. Uber was waiving the clause elsewhere, but seeking to strongly enforce it within Canada.
This decision confirms that contractual provisions that effectively preclude access to justice are not enforceable. The decision may have further implications beyond the law of contract.
The Supreme Court of Canada’s decision clears the way for Mr. Heller’s sizeable class action to be heard by Canadian courts. If Uber drivers are held to be employees, and not contractors, then they are entitled to be treated as such. This includes entitlements to be paid the minimum wage, as well as overtime, vacation and holiday pay. They will also be entitled to termination pay and reasonable notice of dismissal.
The content of this article is intended to provide very general thoughts and general information, not to provide legal advice. Specialist advice from a qualified legal professional should be sought about your specific circumstances.
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