Legal Blog

Unconscionable

We often read about agreements or portions of them that are unconscionable and should therefore be set aside. Most lawyers used to consider unconscionability in the same manner as some judges considered pornography (i.e. I cannot define it, but I know it when I see it). Unconscionability has been defined and that definition was applied in Heller v. Uber Technologies Inc. 2019 ONCA 1.

Class Action

The plaintiff driver was the representative in a class action claiming that Uber drivers were employees and that, in its treatment of them, Uber had breached the Employment Standards Act (ESA). Uber moved to dismiss the action, arguing that the drivers’ agreements mandated arbitration only. The driver argued that the drivers’ agreement was ineffective to preclude the class action because (i) the arbitration clause breached the ESA and, therefore, was an exception, under s. 7(2) of the Arbitration Act, to the mandatory nature of an arbitration clause and (ii) even if it were fully effective, it was unconscionable and ought not be enforced.

ESA

The ESA defines an employment standard as a requirement or prohibition that applies to an employer for the benefit of an employee.

The Court noted that nothing in the ESA referenced arbitrations as an exception to the rights given to employees. It also noted that employees had rights under the ESA to make complaints to the Director of Employment Standards and for an Employment Standards Officer to investigate the complaint and issue orders depending on that investigation.

The Court held that this investigative process was an “employment standard” and, by eliminating the right of a driver to use the complaint rights, the arbitration clause was an attempt to contract out of the ESA and therefore unenforceable.

Set Aside

The arbitration clause stipulated that disputes first had to be mediated and then arbitrated under the rules of the International Chamber of Commerce (in the Netherlands no less) and that the laws of the Netherlands applied. The Court noted that “the up-front administrative/filing-related costs for a driver to participate in the mediation-arbitration process in the Netherlands prescribed in the Arbitration Clause is US$14,500. As an UberEATS driver, the appellant earns about $20,800-$31,200 per year, before taxes and expenses.”

The Court then set out the criteria for unconscionability:

• “a grossly unfair and improvident transaction;
• a victim’s lack of independent legal advice or other suitable advice;
• an overwhelming imbalance in bargaining power caused by the victim’s ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility, or similar disability; and

• the other party’s knowingly taking advantage of this vulnerability.”

In coming to its decision, the Court noted that any driver with a claim, which might be a few hundred dollars, must undertake mediation and then arbitration in the Netherlands according to ICC rules, which results in disbursements of $14,500 plus the costs of travel, accommodation, and costs of counsel. All this for a driver, making $400-$500 per week, claiming minimum wages, overtime, and vacation pay.

The agreement was a “click here” if you accept the terms or go away. The representative driver easily proved a grossly unfair and improvident transaction, lack of independent legal advice or other suitable advice, an overwhelming imbalance in bargaining power, and Uber taking advantage of the drivers’ vulnerability. All of the criteria for unconscionability were satisfied.

Outcome

The Court set aside the normal arbitration stay and held that the matter could proceed in the courts.

Interestingly, the Supreme Court of Canada granted leave to appeal. The matter has been argued and is awaiting decision.

Image courtesy of Ramdlon.

Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.