Uber Technologies Inc. v. Heller: Supreme Court Finds Arbitration Clause to be Invalid
On June 26, 2020, the Supreme Court of Canada (“SCC”) issued a landmark decision in Uber Technologies Inc. v. Heller. The SCC ruled in favour of the plaintiff, David Heller, and held the arbitration provision in Uber Technologies Ltd.’s (“Uber”) agreement with its drivers is invalid. The SCC allowed Mr. Heller to proceed with a class-action lawsuit against Uber in Ontario instead of going through a foreign arbitration.
Mr. Heller, a driver for UberEats, pursued a class action against Uber, alleging that it should treat Uber drivers as employees and provide them with benefits and protections guaranteed to employees under the Ontario Employment Standard Act 2000 (“ESA”). Uber moved to stay the proceeding, arguing that their agreement did not allow Mr. Heller to sue in Ontario courts. The issue at stake was an arbitration clause in Uber’s standard form agreement with its drivers that requires resolving all disputes through private arbitration and mediation under the International Chamber of Commerce (ICC) in the Netherlands rather than a court. Under the ICC’s rules, the administration cost of starting the arbitration process costs approximately USD 15,000, excluding the legal fee, travel cost, and other costs of proceedings.
The Superior Court stayed the legal proceedings in favour of arbitration. It concluded that courts must enforce arbitration clauses that both parties have freely agreed to given that legislation does not prohibit it. There is no unequal bargaining power between the parties. In this case, the arbitrator should decide if the arbitration clause is invalid. The Court of Appeal overturned the decision and held that the arbitration clause was invalid because it was contracted out of the ESA, and contrary employment standards. The SCC affirmed the Court of Appeal’s decision and held that the arbitration clause is invalid, and the proposed class action should not be stayed.
Applicable Arbitration Statute
The first issue was whether the Arbitration Act, 1991, or the International Commercial Arbitration Act, 2017 should govern the dispute. According to the SCC, the focus should be on the nature of the dispute rather than on the relationship between the parties. The majority held that the issue at stake is labour and employment; therefore, the dispute must be governed according to the Arbitration Act.
The SCC reaffirmed that a court should refer all issues of arbitrator’s jurisdiction to an arbitrator unless there are pure questions of law or of mixed fact and law that only require superficial consideration of the record. The court may depart from the general rule of arbitral refer if there is an issue of accessibility, such as high costs and other circumstances that may prevent an arbitrator from giving effect to protections guaranteed under Ontario’s employment laws. The SCC further held that a court could resolve the challenge to arbitral jurisdiction if the facts pleaded are true. There is a real prospect that referring the issue to an arbitrator may result in the issue to be never resolved. The SCC concluded that Mr. Heller’s inability to cover the ICC fee creates a real prospect that his position would never be heard. Therefore, the court should instead determine the validity of the arbitration clause.
Unconscionability in the Standard Form Contracts
The SCC noted that the doctrine of unconscionability could have serious implications for standard form contracts through the choice of law, arbitration clauses, and forum selection. However, standard-form contracts are not inherently flawed or unconscionable.
The SCC set out a two-part test to determine whether a clause in an agreement is unconscionable: (1) if there is an inequality of bargaining power between the two parties; and (2) if there is a resulting improvident bargain.
On the first branch of the test, the SCC held that the arbitration clause is invalid because there is a clear inequality of bargaining power between the two parties. The arbitration agreement was a standard form contract, a non-negotiable form of contract. Mr. Heller did not have any ability to negotiate the terms of the contract. Mr. Heller was less sophisticated than Uber. The arbitration agreement did not provide any information on arbitration and mediation rules under the ICC. The arbitration agreement also did not attach a copy of the ICC rules, so Mr. Heller was not aware that the arbitration clause imposed approximately USD 15000 upfront administrative fee to start the process.
On the second branch of the test, the SCC found that there was an improvident or unfair bargain power because Mr. Heller was unduly a weaker party at a disadvantage. Firstly, Mr. Heller’s annual income did not allow him to cover the mediation and arbitration fee. Secondly, the cost to pursue the claim is disproportionate to the amount of arbitration award. Finally, the arbitration clause designated the Netherlands as the “place of arbitration” that gave the “impression” that Mr. Heller and other Uber drivers have no other choice but to travel to the Netherlands at their own expense to pursue claims against Uber through mandatory arbitration and mediation. According to the SCC, “any representations to the arbitrator, including about the location of the hearing, can only be made after the fees have been paid” (95).
The case highlights several important points going forward:
- parties seeking to resolve a conflict through arbitration agreements, especially (i) with standard form contracts, (ii) those in labour and employment and the “gig” economy, and (iii) contracts between parties with an unequal bargaining power must ensure that arbitration clauses do not impose undue hardship and limit other party’s ability to seek recourse through dispute resolution.
- When drafting an agreement, parties may consider factors such as:
- Overall exchange of value between parties and associated risks.
- Whether the arbitration will be accessible to both parties.
- Whether limitations on access to justice are reasonable.
- Placing a cap on arbitration and legal fees.
- Specifying that arbitration hearings may take place at a location other than stated in the contract.
- Providing a possibility of virtual or telephone hearings.
- Communicating the meaning of the clauses which may impose significant hardships.
- Providing a copy of all relevant rules governing the agreement.