The Supreme Court of Canada has held that the arbitration clause contained in the agreement between Uber and its employees is unconscionable.
In this case, an Uber driver filed a class proceeding against Uber in Ontario for violations of employment standards legislation. Uber defended the suit relying on the arbitration clause in its services agreement with the driver. Under the terms of the agreement, a driver was required to resolve any dispute with Uber through mediation and arbitration in the Netherlands. The motion judge stayed the proceeding. The Court of Appeal allowed the driver's appeal and held that the arbitration clause is unconscionable, based on the inequality of bargaining power between the parties and the improvident cost of arbitration. Uber appealed before the Supreme Court.
The majority observed that the doctrine of Unconscionability is widely accepted in Canadian contract law and the requirements are: 1) an inequality of bargaining power and 2) resulting improvident bargain.
Examining the agreement, the court said that there was clearly inequality of bargaining power between Uber and the driver. The Court said that the arbitration clause makes the substantive rights given by the contract unenforceable by a driver against Uber. It observed thus:
"The arbitration agreement was part of a standard form contract. Mr. Heller was powerless to negotiate any of its terms. His only contractual option was to accept or reject it. There was a significant gulf in sophistication between Mr. Heller, a food deliveryman in Toronto, and Uber, a large multinational corporation. The arbitration agreement, moreover, contains no information about the costs of mediation and arbitration in the Netherlands. A person in Mr. Heller's position could not be expected to appreciate the financial and legal implications of agreeing to arbitrate under ICC Rules or under Dutch law. Even assuming that Mr. Heller was the rare fellow who would have read through the contract in its entirety before signing it, he would have had no reason to suspect that behind an innocuous reference to mandatory mediation "under the International Chamber of Commerce Mediation Rules" that could be followed by "arbitration under the Rules of Arbitration of the International Chamber of Commerce", there lay a US$14,500 hurdle to relief. Exacerbating this situation is that these Rules were not attached to the contract, and so Mr. Heller would have had to search them out himself."
The Court also observed that the arbitration clause is improvident because the arbitration process requires US$14,500 in up-front administrative fees. It added:
"This amount is close to Mr. Heller's annual income and does not include the potential costs of travel, accommodation, legal representation or lost wages. The costs are disproportionate to the size of an arbitration award that could reasonably have been foreseen when the contract was entered into. The arbitration agreement also designates the law of the Netherlands as the governing law and Amsterdam as the "place" of the arbitration. This gives Mr. Heller and other Uber drivers in Ontario the clear impression that they have little choice but to travel at their own expense to the Netherlands to individually pursue claims against Uber through mandatory mediation and arbitration in Uber's home jurisdiction. Any representations to the arbitrator, including about the location of the hearing, can only be made after the fees have been paid."
Dismissing Uber's appeal, the Court also added that when arbitration is realistically unattainable, it amounts to no dispute resolution mechanism at all. It said:
"The arbitration clause is the only way Mr. Heller can vindicate his rights under the contract, but arbitration is out of reach for him and other drivers in his position. His contractual rights are, as a result, illusory. 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"