Two sides of the coin to SCC ruling on UberEats contract

A Supreme Court of Canada (SCC) ruling that found an arbitration clause in an Uber driver’s contract invalid can be seen as both a positive and a negative, says Toronto class-action lawyer Margaret Waddell.

In the claim brought by former UberEats driver David Heller, the majority decision found that the provision forcing him to seek arbitration in the Netherlands was “unconscionable” because it imposed financial and logistical barriers to obtaining a resolution to his complaint.

“Respect for arbitration is based on it being a cost-effective and efficient method of resolving disputes. When arbitration is realistically unattainable, it amounts to no dispute resolution mechanism at all,” the court writes. “Based on both the disadvantages faced by Mr. Heller in his ability to protect his bargaining interests and on the unfair terms that resulted, the arbitration clause is unconscionable and therefore invalid.”

The ruling opens the way to a proposed $400-million class-action lawsuit to force Uber to recognize its drivers as employees instead of independent contractors.

‘Clearly unconscionable’

Waddell, a partner with Waddell Phillips Professional Corporation, says while “what was going on was clearly unconscionable in the lay sense of the word,” she questioned if the court needed to go as far as it did.

“I thought it was extraordinary what they have done. They’ve really broadened the concept of unconscionability substantially beyond the way it was previously interpreted, she tells LegalMattersCanada.ca. “As a piece of jurisprudence, it is definitely good. 

“What I am concerned about is that it is going to create substantial uncertainty over whether clauses in standard form contracts are going to be enforceable,” Waddell adds. “That’s going to invite more litigation until the parameters of unconscionability are determined and they are certainly not clear from this decision.”

The court was told that to become a driver for the food delivery company, Heller had to agree to a long, standard contract and didn’t have the power to negotiate any of it.

Any legal problem he had with the company would have to be resolved by the International Chamber of Commerce in the Netherlands, the contract stated, at Heller’s expense.

He later discovered it would cost him US$14,500 ­– most of his yearly income ­– to start the arbitration process, and that didn’t include legal or travel expenses.

Appealed to the Supreme Court

Heller launched a lawsuit claiming Uber was breaking the terms of the contract and Ontario employment law. On appeal from an order staying the court proceeding, the Ontario Court of Appeal decided the agreement was invalid and therefore the claim could proceed in the courts. That decision was appealed to the Supreme Court.

Waddell says the recent SCC decision “is going to have a tremendous impact in the future on standard form contracts.”

“I think it could have been dealt with just on a public policy basis,” she says “It clearly was unconscionable what was going on. But did they need to set the arbitration agreement aside and find it invalid on that basis? I am not sure that they did.”

• Boarding school class action raises issues about systemic abuse
• Litigation proves effectiveness of class actions to protect investors

Waddell notes that in his concurring opinion, Justice Russell Brown disagreed that unconscionability applied. 

“When I was reading through the judgment, I thought Justice Brown got it right, but he seemed to be standing out in the wilderness by himself,” she says. “What they could have done is just said that this agreement is contrary to public policy since it effectively precludes the ability for adjudication of any claims because of the location and costs involved in arbitrating under the terms of the agreement, which is what Brown said.”

Majority went further

Waddell says the majority “went further than that and have opened up the definition of what is unconscionable.”

“They’ve taken away part of the analysis with respect to the unconscionable actor,” she explains. “In the past, it always involved an element of at least knowing when you were taking advantage of somebody and there was no evidence here of Uber was knowingly taking advantage of people.”

Waddell says the court “had to work around that issue and it seems they have done that by simply finding an inequality of bargaining power and a bad deal is sufficient to make out unconscionable.”.

“That’s every standard form contract that is out there. I can think of very few that are a good deal for the person contracting for the services,” she says. “This really is opening up the door to challenges against basically any standard form contract where someone doesn’t like the terms because they turn out to be more difficult or expensive than might otherwise have been the case.” 

The message the SCC is sending, says Waddell, “is that people who are engaging in standard form contracting have to have some kind of limitations put on them so that they don’t continue to overreach.”

She says striking down an arbitration clause when it is manifestly unfair is essential.

‘Very positive outcome’

“That has definitely been achieved here. The majority decision and Brown’s concurring decision is a very positive outcome because many corporations are building in arbitration clauses and they are not being done in good faith, particularly in the services industry,” Waddell says. “They are being done to prevent parties from being able to effectively bring challenges over minor disputes.

“Now what the SCC is saying is that the court can take a hard look at that and if it is manifestly unfair or denying access to dispute resolution, then they are going to set that aside,” she adds.

Still, Waddell says she believes the ruling will “open the doors for arguments about unconscionability.”

“As a piece of consumer protection, it is definitely a great step forward, but for corporations trying to legitimately move out of the courts and into an alternative dispute process they are going to be in a world of uncertainty,” she says.