Written by Daniel Standing, LL.B., Editor, First Reference Inc.
Private delivery people shuttling food orders around town is a common sight in today’s gig economy. Between the lowly driver and the huge multi-national corporation they carry the food for, it’s easy to imagine who holds the real power in this type of working arrangement. In the case decided by the Manitoba Court of King’s Bench in 2022 MBKB 178 (CanLII), the court shifted the balance of power toward the “little guy” by ruling that mandatory acceptance of an arbitration clause was unconscionable and lacked consideration. By rendering the clause void, the court kept more favourable avenues of recourse open to the plaintiff.
The plaintiff was a single mother with a high school education who worked two jobs to make ends meet. In 2014, she signed on as a delivery driver with a European food delivery company that operates out of more than 100 Canadian cities. At that time, her contract specified that both parties agreed the Manitoba Court of Queen’s Bench would have jurisdiction over disputes that might arise.
On that basis, the worker filed an action in 2018 seeking a declaration that she was an employee, not an independent contractor, and seeking an order certifying the proceeding as a class proceeding.
That same year, the landscape changed when the company gave a week’s notice to its workers that a new courier agreement was coming, and signing it was mandatory if drivers wanted to keep working. It brought one major change: disputes would henceforth be dealt with by individualized arbitration in Canada, and there would be no appeals from any question of fact, law or any other issue.
Concerned about its impact, the plaintiff discussed the new clause with her lawyer before it took effect. She then told the company she was clicking “I Agree” under protest, merely to keep being assigned work. She received no response from the company, other than its response to her lawsuit in which it asked the court to stay the proceedings in favour of arbitration.
The plaintiff argued there was no arbitration clause, since the first contract continued to govern the working relationship. In the alternative, she argued that if the new clause applies, the court should declare it void for being unconscionable.
The court’s decision
The issues were straightforward. Which contract stands: The old one or the new one? If it’s the new one, is it unconscionable?
The court resolved the dilemma by pointing out that no arbitration agreement existed between the parties when the lawsuit started. At that time, the original agreement was still in force and provided Manitoba courts as the applicable jurisdiction.
Looking at the wording of the arbitration clause, it didn’t stretch back to cover previously started or existing actions. It was a forward-looking clause with no retroactive component.
The court offered a second reason why there was no arbitration agreement between the parties: The plaintiff did not accept the terms of the new agreement. A contract requires a meeting of the minds. By clicking “I Agree” under protest, the plaintiff effectively told the company she rejects the new terms. Through its silence, the court said, the defendant acquiesced to the plaintiff’s position.
The court said if it was somehow wrong about the company having acquiesced to the plaintiff’s position with the effect that the arbitration agreement applies, then it is void for unconscionability and for lack of consideration.
The legal concept of unconscionability in this context arises when there is a “clear inequality of bargaining power” between the parties that leads to an improvident bargain. In this case, the arbitration agreement was a “contract of adhesion,” meaning agree or be fired. The court said that even with the benefit of independent legal advice, the inequality of bargaining power persisted. The unsophisticated plaintiff remained powerless to negotiate terms of the agreement, and the company’s lack of response to the plaintiff’s protest simply underscored the unilateral nature of the bargain.
In addition to being foisted on the workers, the agreement represented an improvident bargain. Courts look at such matters contextually by considering the surrounding circumstances, including the market price, the commercial setting and the parties’ positions. In this case, the arbitration agreement was improvident because the plaintiff had already started a lawsuit that the defendant tried to end using the agreement, after the fact. The new agreement could only benefit the defendant at the expense of the plaintiff by removing access to the courts. If the clause was valid, the defendant would gain an unfair advantage by reducing the size of class actions and their associated risks. This was the company’s clear goal; one of its annual reports said as much.
The court explained that arbitration clauses are supposed to promote a cost-effective and efficient way to resolve disputes. When, as in this case, a class’s ability to join together is blocked, this undermines the foundational rationale.
Lastly, the court said the arbitration agreement, as a matter of contract, failed for lack of consideration. It explained the fundamental rule that in return for the worker’s promise to be bound, something must flow back to the employee. If nothing changed, then the terms of the first contract continue to govern.
As a result, the court determined the defendant had failed to meet its onus to convince the court to stay the action, and the arbitration clause was declared invalid.
Employers who read this case will appreciate the risks associated with forcing changes on employees that stand to only benefit the employer. Leaving aside risks of constructive dismissal and other legal pitfalls, from a contractual standpoint, if the bargain is sufficiently improvident, it could be ruled void for unconscionability.
Also, remaining silent in the face of a protesting employee is unlikely to curry favour with a third-party decision maker. At worst, the employer’s silence could lead to an inference of acquiescence or condonation, either of which will likely harm the employer’s interests. Therefore, if this case is any indication, it would be preferable to keep the lines of communication open between the parties during times of contractual change to minimize the risk of negative outcomes of the sort the defendant in this case experienced.