28 Oct 2020

Chronique du CTI – Uber Technologies Inc. v Heller, a threat to the viability of standard form contracts of adhesion?

Par Tara Mandjee, lawyer

Tara Mandjee, lawyer

 

  

On June 26, 2020, the Supreme Court of Canada rendered a
decision against Uber Technologies Inc. (Uber), finding that the arbitration
clause in its standard form contract with its drivers was unconscionable
and invalid
, as it imposed the
Netherlands as the place of arbitration and required its drivers to pay
US$14,500 in upfront fees, irrespective of the size of the dispute.

Mr. David Heller
(Heller), a driver for UberEats, started a class action seeking a declaration
that Uber drivers are employees of Uber and are therefore entitled to benefits
under the Ontario Employment Standard Act
To become a driver, Mr. Heller was required to sign a long, standard contract
that it could not negotiate and which included a provision requiring that any
legal issue under such contract had to be submitted to the International
Chambre of Commerce for resolution. Uber contested the legal proceeding on the
basis of that arbitration clause, claiming that the case had to be resolved in
arbitration rather than before the Courts.  

This
decision is bound to remain the subject of much discussion, as (i) it creates a
new exception to the rule of systematic referral to arbitration and (ii)
simplifies the test for unconscionability. But beyond its modification of these
two tests, Uber
Technologies Inc. v Heller
is also
receiving considerable attention due to its potential impact on the validity of
arbitration clauses in standard form contracts as well as on the relationship
between gig economy businesses and their workers, since the Supreme Court cleared
the way for the representative plaintiff to pursue its proposed class action to
claim employee benefits and protections on behalf of Uber drivers.

The
competence-competence principle: who decides?

The competence-competence principle adopted by
the Supreme Court of Canada in Dell Computer Corp v Union des consommateurs
provides that challenges to an arbitrator’s jurisdiction should normally be
referred to an arbitrator. This decision recognizes however that the question
of competence should be decided by the court in first instance where it
involves pure questions or law or questions of mixed fact and law that require
only superficial consideration of the evidence in the record.  

In
the case at hand, the Court could not rely on this exception but still felt
that if a stay of proceeding was granted, Mr. Heller’s challenge would not
actually be resolved by an arbitrator due to the prohibitive fees that
corresponded to most of its annual
income. As a result, the majority created a new exception to the
competence-competence principle based on the notion of accessibility.

The new exception requires an assessment of two
questions
:

1)    
Assuming
the facts pleaded to be true, is there is a genuine challenge to arbitral
jurisdiction?

2)    
From the
supporting evidence, is there a real prospect that, if the stay is granted, the
challenge may never be resolved by the arbitrator?

Based on the fact that the arbitration fees were
far too costly, that the plaintiff could not reasonably reach the physical
location of the arbitration set out to be in the Netherlands, and that the
foreign choice of law clause circumvented domestic employment protections, the Court
ruled that its new exception applied, such that it had authority to assess the
validity of the arbitration clause in the contract between Uber and Heller.

Doctrine
of unconscionability: A simplified two-part test

The Supreme Court in Uber Technologies Inc. v Heller endorsed a
flexible two-part test for assessing unconscionability, requiring demonstration
of (i) an inequality of bargaining power, and (ii) an improvident bargain. This
replaced the test detailed in Titus v William F. Cooke Enterprises Inc, which the Court
found to be too formalistic and less equity-focused due to its two additional
rigid requirements distracting from the purpose of the unconscionability
inquiry.

(a)    An
inequality of bargaining power

 

The first element to demonstrate is an inequality of bargaining power that
prevents the weaker party from adequately protecting their interests in the
contracting process. Although there is no rigid limitations or
trigger for this element of the test, there are circumstances that help
recognize a situation of inequality of bargaining power. 

 

Inequality of bargaining power may
arise in circumstances
that make it difficult for one party to understand the agreement or fully
appreciate the import of the relevant contractual terms, due to a party’s
cognitive state or experience, or due to the density and difficulty of the
contract terms. Another circumstance that can trigger an inequality of
bargaining power is one in which one party cannot help but enter into the
agreement due to their situation, 
whether it is as a result of being in dire financial need or under
threat, or where the weaker party is deeply dependent on a stronger party.

In
the case at hand, the Court found an inequality
of bargaining power between Uber and Mr. Heller
,
given that the arbitration clause was part of a standard form contract that was
non-negotiable; Uber was more sophisticated than Mr. Heller, and the
arbitration clause contained no information about the actual costs of
arbitrating in the Netherlands.

 

(b)   An
improvident transaction

 

Similarly
to the first element, “improvidence” cannot be “reduced
to an exact science
” and is to be assessed
contextually. A bargain will be considered improvident if it unduly advantages
the stronger party or unduly disadvantages the weaker party, taking into
consideration the context of the parties’ agreement to determine if the
specific inequality in bargaining power led to an unfair result.

In the case at hand, the Court
found the arbitration clause to be improvident, because it required the payment
of up-front administrative fees almost equal to the annual income of Mr. Heller
from Uber and because the clause created the impression that a driver must
travel to the Netherlands in order to pursue a dispute.

(c)    The other Titus factors

 

Although the SCC did not formally include the other two factors from the
Titus decision as part of its flexible two-part test, it noted that
these factors remained relevant to
consider
:

 

(i)      Independent
legal advice
 is relevant to the evaluation of the imbalance of bargaining
power. It can assist a weaker party in understanding the terms of the contract,
but it may not completely cure that party’s desperation or dependence on a
stronger party.

 

(ii)   
Proof that one party knowingly taking advantage of the other is not a
requirement of unconscionability because the focus must be on the vulnerability
of the weaker party, not the mindset of the stronger one. That said, proof of
the stronger party’s knowledge of the other’s weakness can be strong evidence
of an inequality of bargaining power.

 

Impact of
this decision

Threat to
standard form of contracts?

The Uber Technologies Inc. v Heller decision is
specific to an arbitration clause included in a standard form of contract, but
one can expect that the two-part test laid out for assessing
unconscionability could be applied to other clauses of standard form of contracts. Indeed, although the Court
stressed that a standard form contract, by itself, does not establish an
inequality of bargaining power, it acknowledged that it enhances
the advantage of the stronger party at the expense of the weaker party
,
a factor which was definitely taken into consideration in the ruling of this
case.

In the society in which we live, we all “click through” standard forms
of contract on a regular basis – whether when visiting a website, installing an
application on our mobile or using certain software. Moreover, the information
technology industry relies heavily on these forms of contracts, such that the
commercial certainty of standard forms of contract being enforceable is
important to the good functioning of our modern transactional economy. With
decisions like this one, the question becomes where do we draw the line between
typical and reasonable provisions and unconscionable unenforceable ones?  

It should
be noted that the Uber Technologies Inc. v Heller case presented strong
facts: the combination of the lack of
negotiation with the egregious upfront fees rendered Mr. Heller’s rights
in effect inexistent and defeated the purpose of arbitration, which is meant “to provide
an efficient, commercially reasonable approach
to resolving disputes
”. Faced with these facts, the Supreme Court’s
ruling put particular emphasis on the importance
of access to justice, the lack thereof having resulted in a decision favorable
to Mr. Heller. Therefore, the guiding principle for companies operating in
Canada and navigating this new rule should be that where they have standard
form contracts, they must deal with potential unfairness and accessibility
issues, as courts will be less likely to close their eyes or defer to
arbitration where arbitration is “realistically unattainable” or where the allegedly invalid clause has the effect of denying
someone’s right to have access to justice.

Transposability
into Quebec law?

While
the doctrine of unconscionability is a common law construct, Quebec’s civil law
approach is not dissimilar. Article 1437 of
the Civil Code of Quebec
formalizes the fact that abusive
clauses in a consumer contract or contract of adhesion may be invalid. As a
result, one could expect Quebec courts to refer to Uber Technologies Inc. v
Heller
as a precedent – or at the very least as inspiration – to further
scrutinize dispute resolution clauses in standard form contracts with regard to
their fairness
and equity
.

Gig
economy under scrutiny?

Uber,
Airbnb, Etsy, Appen, you name it – we have entered an era referred to as the “gig
economy”, where employees are deemed to be contractors or freelancers, working
“on demand”. This means more flexibility and a better alignment between offer
and demand but over the years, this new construct has shown its weaknesses:
these so-called contractors are deprived of employee benefits and as a result
they are essentially at the mercy of the demand. This is why we are seeing more
and more class actions and disputes seeking to redefine the relationship
between gig economy businesses and their workers, as one of “employment” that
entitles them to employee benefits and protections. The Supreme Court decision
in Uber Technologies Inc. v Heller has now opened the door for Mr.
Heller to pursue its class action and there is no doubt that many companies
will follow closely the outcome of this decision as it may change the
gig economy as we currently know it
.

Conclusion: what should YOU do next?

In conclusion, here are a few steps to consider further to the Uber Technologies
Inc. v Heller
’s decision:

·       
If you are a company relying heavily
on standard form contracts of adhesion, whether governed by common law or civil
law, you might want to revisit your arbitration clause to ensure that it is not
drafted in a way that imposes highly burdensome hardships or insurmountable
procedural barriers;

·       
Irrespective of the above, with the
recent decision of Battiston
v Microsoft Canada Inc
, we see a trend where courts are
trying to protect employees from stringent contractual terms that they could
not negotiate or that were not sufficiently brought to their attention,
demanding more transparency and acknowledging an inherent imbalance of power in
the employer-employee relationship. Therefore, you should consider whether or
not key terms of your agreements with employees or workers are conspicuous
enough;

·       
Lastly, if you work in the gig
economy, you might want to track the progress of the class action brought by
Mr. Heller, as it will inevitably impact you and how you structure your
relationship with you “on-demand” workers.


Les chroniques du CTI sont rédigées par un ou plusieurs membres du Comité Technologies de l’information (CTI)
dans le but de susciter les discussions et de soulever les réflexions
au sein de la communauté juridique à propos des nouvelles technologies
et le droit. Les auteurs sont donc seuls responsables du contenu des
articles et l’opinion qui y est véhiculée n’est pas celle du JBM, mais
bien celle des auteurs. Si vous désirez rédiger une chronique, envoyez
un courriel au cti@ajbm.qc.ca. 

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