The Supreme Court of Canada has rendered its decision in Uber Technologies Inc. v. Heller 2020 SCC 16 and, by a 6-1 majority, upheld the decision of the Ontario Court of Appeal. We discussed that decision in our December 2019 newsletter.
Uber forced its drivers to agree to an arbitration provision by which all disputes had to be arbitrated in the Netherlands pursuant to the International Commercial Arbitrations Act. This was all very nice, but the cost to an Uber driver to do so would have involved up-front administration fees of $14,000 USD plus travel and legal costs. Had this arbitration provision been held to be effective, it would have been a powerful disincentive to have any dispute tried and would have effectively precluded any action by any driver.
The SCC postulated a two-part test for unconscionability: an inequality of bargaining power and an improvident transaction.
An inequality of bargaining power exists when one party cannot protect its interests in the bargaining process. This inequality can arise out of knowledge, experience, or vulnerabilities peculiar to individual situations. It can include cognitive asymmetry (i.e. only one party can appreciate and understand the full impact of the contractual terms). In essence, it arises in the context of a bargaining scenario in which the law’s normal assumption (i.e. that free bargaining between two parties will result in a fair transaction) no longer applies.
A transaction is improvident if it unduly advantages the stronger party and disadvantages the more vulnerable. Again, improvidence has to be assessed contextually, reading the terms of the contract in light of the surrounding circumstances at the time of contract formation. These circumstances include the market price, commercial setting, and position of the parties.
The Supreme Court agreed with the Court of Appeal that the clause was unconscionable. As to inequality of bargaining power: the contract arose out of a take-it-or-leave-it standard form contract and the drivers were powerless to negotiate its terms. As to the concept of an improvident transaction: the drivers were not sophisticated; the arbitration cost details were not even contained in the contract; and the drivers could not have been expected to appreciate the financial and legal implications of the arbitration clause. The Court went so far as to comment that no reasonable person who had understood and appreciated the implications of the arbitration clause would have agreed to it.
Accordingly, the arbitration clause met the two prerequisites for unconscionability: an inequality of bargaining power and an improvident transaction.
This case does not deal with the issues on the merits; it just allows those issues to be dealt with in court rather than by way of arbitration. Given, however, that the issues arise out of a class action in which the class plaintiff is asserting that the drivers are employees, entitled to the benefits accruing to employees, rather than independent contractors, this case may ultimately have significant ramifications for Uber.
Image courtesy of freestocks-photos.
Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.