June 26th, 2020
This morning, the Supreme Court of Canada (“SCC”) released its highly-anticipated decision in Uber Technologies Inc. v Heller. The SCC dismissed the appeal, finding that the arbitration clause in Uber’s services agreement with its drivers is invalid. You can find our earlier blog post on the Ontario Court of Appeal’s decision in this case here.
In the case, an UberEATS driver based in Toronto, Mr. Heller, commenced a proposed class action on behalf of Uber and UberEATS drivers in Ontario, alleging violations of Ontario’s Employment Standards Act (“ESA”) by Uber. Uber brought a motion to stay the action in favour of arbitration, in accordance with an arbitration clause in Uber’s service agreements. The arbitration clause required that disputes be submitted to mediation under the International Chamber of Commerce Mediation Rules and, if mediation is unsuccessful, then be referred to arbitration in Amsterdam, The Netherlands, under the Rules of Arbitration of the International Chamber of Commerce. Those Rules provided for the payment of a mandatory fee for the administration of mediation and arbitration proceedings totaling US$14,500. Mr. Heller challenged the validity of the arbitration clause, alleging it to be void for unconscionability and void because it contracts out of the ESA.
The Ontario Superior Court granted Uber’s motion and stayed the action in favour of arbitration. The Ontario Court of Appeal disagreed and set aside the stay of proceedings, finding that Uber’s arbitration clause amounted to an illegal contracting out of the ESA and was unconscionable. The SCC dismissed Uber’s appeal, finding the arbitration clause unconscionable and therefore invalid, such that the action may proceed in court.
The SCC’s decision has potentially far-reaching implications in respect of a number of areas of law. Over the next few weeks, we will be posting a series of blogs delving deeper into this multifaceted decision, including its impact on arbitrations, class actions, and principles of contract law. For now, here is a brief summary of some of our key takeaways from the decision:
1 - The SCC had to determine whether it was appropriate for a court to decide the challenge to the validity of the arbitration clause itself, or refer that matter to be decided by the arbitrator. Here, if the court were to grant a stay in favour of arbitration, the challenge to the validity of the arbitration agreement may never be resolved, as Uber’s onerous arbitration clause had the effect of discouraging arbitration. This would create an access to justice issue. The SCC therefore created a new basis to depart from the general rule of arbitral referral: where there is (a) a bona fide challenge to arbitral jurisdiction, and (b) a real prospect that the challenge will never be resolved by the arbitrator.
2 - The SCC expanded the scope of the contractual doctrine of unconscionability by (a) applying the doctrine in the absence of a significant degree of procedural unfairness, such that virtually any standard form agreement now may be argued to be unconscionable, (b) eliminating the generally accepted requirement that the stronger party have knowledge of the weaker party’s vulnerability, and (c) applying the doctrine to an individual provision of a contract rather than the bargain as a whole.
3 - The SCC found Uber’s arbitration clause to be so onerous as to be unconscionable, but there is little guidance as to how future courts can determine what reaches the standard of unconscionability or how companies with their own arbitration clauses can take precautions against a similar outcome. Here, Uber’s clause appeared to require travel to the Netherlands, as well as a payment of US$14,500. The SCC noted that the US$14,500 payment was close to Mr. Heller’s annual income and higher than the amount likely to be at issue in a dispute subject to the arbitration clause – but there was no evidence that Uber was aware of Mr. Heller’s annual income, and the amount of Mr. Heller’s claim was unknown. Would the arbitration clause still have been unconscionable if the required payment was only US$10,000, or $5,000? Or if the claimant were only required to travel to the United States or Mexico instead of the Netherlands? The SCC provides little guidance on these issues.
Companies that use standard form contracts and want to preserve an intention to arbitrate disputes will need to be particularly careful in drafting their dispute resolution clauses, as a clause that is too onerous – whatever that may mean in the circumstances – may be invalidated as unconscionable.
4 - The immediate implication for Mr. Heller’s case is that it can proceed in the Superior Court of Justice in Ontario. Since similar claims will not be driven toward individual arbitrations, Mr. Heller’s future steps will now include a motion for certification of his claim as a class proceeding on behalf of Uber drivers, and ultimately some determination on the merits of whether the drivers’ relationship with Uber is governed by the ESA.
Stay tuned for our future blog posts for more in-depth analysis of the SCC’s decision.
 SO 2000, c 41.
 2018 ONSC 718.
 2019 ONCA 1.