In a recent Supreme Court of Canada decision, the court determined that the arbitration clause imposed on workers by a standard Uber contract was unconscionable and therefore invalid.

What Happened?

The applicant provided food delivery services in Toronto using Uber’s software applications. Uber operates a global business in more than 600 cities and 77 countries, with a customer base of millions of people and businesses. The company has been operating in Ontario for eight years.

To become a driver for Uber, the applicant had to accept the terms of Uber’s standard form services agreement.

Under the terms of the agreement, the applicant was required to resolve any dispute with Uber through mediation and arbitration in the Netherlands. The mediation and arbitration process required up-front administrative and filing fees of US$14,500, plus legal fees and other costs of participation. Those fees represented most of the applicant’s annual income; the applicant earned between $400-$600 a week.

In 2017, the applicant started a class proceeding against Uber in Ontario for violations of the Employment Standards Act.

Parties’ Positions

Uber brought a motion to stay the class proceeding in favour of arbitration in the Netherlands, relying on the arbitration clause in its services agreement with the applicant.

The applicant argued that the arbitration clause was unconscionable and therefore invalid.

Lower Court Decisions

The motion judge stayed the proceeding, holding that the arbitration agreement’s validity had to be referred to arbitration in the Netherlands, in accordance with the principle that arbitrators are competent to determine their own jurisdiction.

The Court of Appeal allowed the applicant’s appeal and set aside the motion judge’s order. It concluded that the applicant’s objections to the arbitration clause did not need to be referred to an arbitrator and could be dealt with by a court in Ontario. It also found the arbitration clause to be unconscionable, based on the inequality of bargaining power between the parties and the improvident cost of arbitration.

Supreme Court of Canada Decision

The Supreme Court of Canada stated that theclaim that the arbitration clause was unconscionable required the consideration of two elements: whether there was an inequality of bargaining power and whether there was a resulting improvident bargain.

The court explained that unconscionability is an equitable doctrine that is used to set aside unfair agreements that resulted from an inequality of bargaining power. The purpose of unconscionability is the protection of those who are vulnerable in the contracting process from loss or improvidence in the bargain that was made.

The court found that there was inequality of bargaining power between Uber and the applicant because the arbitration clause was part of an unnegotiated standard form contract, there was a significant gulf in sophistication between the parties, and a person in the applicant’s position could not be expected to appreciate the financial and legal implications of the arbitration clause. It found that the arbitration clause was improvident because the arbitration process required US$14,500 in up-front administrative fees. The improvidence of the arbitration clause was clear because the administrative fees were close to the applicant’s annual income and were disproportionate to the size of an arbitration award that could reasonably have been foreseen when the contract was entered into.

As a result, the court found that the arbitration clause was unconscionable and therefore invalid.

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