SCC: Uber Arbitration Unconscionable. Uber Is a Company Known for Pushing Limits, Did They Push Too Far This Time?

There is a class-action lawsuit by Uber drivers in Ontario against Uber alleging, among other things, violations of employment standards legislation. The main issue is whether Uber drivers are independent contractors as the Uber agreement says, or whether they are actually employees.

But before those issues could be heard, the courts had to decide whether those issues could be litigated in the courts, or whether they had to be decided through binding arbitration, as stated in the Uber agreement. The Supreme Court of Canada found the arbitration clause invalid because it was “unconscionable”, and thus the merits of the case will be decided in court, not under the arbitration clause. (Some background about the Uber action is in previous Slaw posts.)

Arbitration clauses saying that disputes must be settled by an alternative dispute resolution (ADR) process rather than in the courts are common in agreements. The idea is that ADR can be quicker, easier, cheaper, and more private than litigation. It can also help preserve the relationship between the parties as opposed to going to court. So, for the most part, arbitration clauses are a good thing.

So why was this one unconscionable?

The Uber arbitration clause required disputes to be heard through an arbitration process in the Netherlands pursuant to International Chamber of Commerce rules. Under those rules, the cost to initiate an arbitration is about US$14,500. Legal fees and travel to the Netherlands would be on top of that.

The court found that given the amount of money that an Uber driver makes, “… arbitration is out of reach for him and other drivers in his position.” Also, that “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.”

So the merits of this lawsuit can now proceed to be decided in the courts.

This will be a closely watched case as the issue of employee vs independent contractor is a common one.

Another question arising from the decision is whether its unconscionability analysis might be applied to other aspects of standard form contracts of adhesion where one party has no choice but to accept the contract presented. The commercial certainty of such contracts being enforceable is important. The issue is where the line is between typical and reasonable provisions and unconscionable unenforceable ones.