Uber v. Heller: An “Agreement Not to Arbitrate” Is Unconscionable

Much has been written over the past weeks about the Supreme Court of Canada decision in Uber v. Heller, one of the most anticipated decisions of the year – at least in arbitration and employment law circles.

I won’t go into a detailed analysis of the decision in the face of much more learned comments. But I do want to suggest that the Court provides some practical lessons for those drafting and those seeking to engage (or avoid) arbitration agreements.

First, and most important, don’t try to use arbitration to frustrate legitimate claims.

Sadly this has become a common trend in many standard commercial, consumer and employment contracts in recent years. In the labour and employment realm, arbitration has long been a standard feature of collective agreements, but there has been a strong backlash against mandatory arbitration in individual contracts.

The Uber contract is a prime example.

Justice Côté, in a lone dissent, said the majority decision could not be reconciled with “the concepts of party autonomy, freedom of contract, legislative intent, and commercial practicalities. These important considerations — which ought to be taken into account — are disregarded in the majority’s reasons.” [178]

The Uber driver terms may indeed reflect “commercial practicalities” – Uber apparently cannot make a profit with its current business model, let alone if it’s drivers received minimum wages, vacations or other employment law protections.

Beyond that, commercial reality requires that large volume, small value transactions – indeed, most consumer and commercial agreements – be governed by standard form contracts. It would be impossible to offer any online product or service if the terms had to be negotiated individually.

But, as the majority decision says, the idea of party autonomy or freedom of contract is illusory in these situations. Courts and legislatures recognize that inequality of bargaining power makes freedom of contract a fiction in consumer and employment situations. That’s why we have consumer protection and employment standards laws.

So there needs to be some legal balance that allows both efficient contracting and effective dispute resolution. There is a big difference between using standard contract terms to make it easy to do business and using them to insulate businesses from responsibility for their conduct or from broader social policies.

The facts, as set out by the majority, are fairly straightforward. Heller, a delivery person for UberEats downloaded the Uber App used to match drivers and deliveries. He was presented with a set of standard terms which he accepted by clicking “I agree”. The agreement included mandatory mediation and arbitration, in the Netherlands, under International Chamber of Commerce rules. The agreement is also governed by Dutch law. The cost of taking the dispute to mediation and arbitration was about US$14,500, the lion’s share what Heller expected to earn in a year of deliveries for UberEats.

Of course, reality is always more complicated. For example, Justice Côté notes that Mr. Heller had previously raised more than 300 complaints which were resolved through Uber’s internal dispute resolution process. He is also is the name plaintiff in a proposed $400 million class action. If that class action were subject to arbitration, the ICC fees would be much higher.

Justice Côté would have allowed the appeal and stayed the class action, on the condition that Uber advanced the fees required to initiate the mediation and arbitration process. [199]

This approach may solve the accessibility problem in theory, but it may not be a practical solution.

Some gig economy companies have already offered to pay the upfront dispute resolution costs, with unintended consequences. When DoorDash, an Uber Eats competitor, agreed to pay the fees of the American Arbitration Association, they were quickly faced with 6000 claims and a bill for $9 million, according to a New York Times report in April 2020.

Justices Abella and Rowe, for the majority, and Justice Brown in separate reasons, focus squarely the issue of accessibility to arbitration.

The majority endorses the principle that, in most cases, it is up to the arbitrator to determine the validity and scope of an arbitration clause and their own jurisdiction to resolve a dispute. But there are exceptions.

“A court should not refer a bona fide challenge to an arbitrator’s jurisdiction to the arbitrator if there is a real prospect that doing so would result in the challenge never being resolved. In these circumstances, a court may resolve whether the arbitrator has jurisdiction over the dispute and, in so doing, may thoroughly analyze the issues and record.“ [paragraph 46]

The difficulty is to decide whether it’s a bona fide challenge.

[51] As well, even though this case could have been resolved based on undisputed facts, such an approach may not be sustainable in future cases. An approach to arbitral referral that depends on undisputed facts would invite parties to dispute facts. Were that standard to apply, unreasonably disputing facts would allow a party to evade any review of the merits, by use of an arbitration clause.

The Court clearly recognizes the Catch 22 in many jurisdictional challenges. Heller claims the arbitration clause is invalid because it is unconscionable and contrary to the Employment Standards Act. Uber says those questions must be decided by the arbitrator, in Amsterdam under Dutch law. The high cost of the arbitration means these threshold questions would never be decided.

The Supreme Court says the only way to “cut the Gordian knot” is for the court to decide whether the contract is unconscionable, and, therefore, whether the arbitration clause is invalid, due to an inequality of bargaining power leading to an “improvident bargain.”

[97] 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. As our colleague Justice Brown notes, under the arbitration clause, “Mr. Heller, and only Mr. Heller, would experience undue hardship in attempting to advance a claim against Uber, regardless of the claim’s legal merit” (para. 136). 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.

Justice Brown also said:

[102] The arbitration agreement between Uber and Mr. Heller … effectively bars Mr. Heller from advancing any claim against Uber, no matter how significant or meritorious. In effect, it is not an agreement to arbitrate, but rather not to arbitrate. In these exceptional circumstances, a central premise of curial respect for arbitration agreements that they furnish an accessible method of achieving dispute resolution according to law falls away.

Justice Brown agreed that the arbitration clause is invalid, but not because it is unconscionable. He said it is contrary to public policy.

So what are some of the things businesses can do to help ensure their dispute resolution clauses pass muster with the courts?

• Choose a governing law and place of arbitration that is connected to the parties’ residence or business location. (For national or international contracts, that may be the other party’s home jurisdiction, but not necessarily; one of the legitimate uses of arbitration, I think, is to avoid corrupt or unfriendly jurisdictions.)
• Make sure the other party knows what they’re agreeing to – contract terms in general and arbitration in particular. Include a link to the arbitration rules (granted, no one will read them, but give them a chance).
• Use a lower cost provider, and expedited process, to make arbitration cost-effective.
• Use an arbitration provider that can hold online hearings, to minimize cost of travel (there will be many more of those after COVID).

Above all, mediation and arbitration clauses should be designed to be used, not to frustrate claims.