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BINDING ARBITRATION - Voluntary binding arbitration - Agreement to arbitrate - Validity and enforceability

Friday, June 26, 2020 @ 2:33 PM  

Lexis Advance® Quicklaw®
Appeal from a decision of the Ontario Court of Appeal setting aside a stay of proceedings. The respondent David Heller provided food delivery services in Toronto using software applications provided by the appellants, Uber Technologies Inc., Uber Canada, Inc., Uber B.V. and Rasier Operations B.V. (collectively “Uber”). To become a driver for Uber, Heller had to accept, without negotiation, the terms of Uber’s standard form services agreement, which required that any disputes with Uber be resolved through mediation and arbitration in the Netherlands. The mediation and arbitration process required up-front administrative and filing fees of US$14,500, plus legal fees and other costs of participation. Heller started a class proceeding against Uber in 2017 for violations of the Employment Standards Act (ESA). Uber brought a motion to stay the class proceeding in favour of arbitration in the Netherlands pursuant to the arbitration clause and the International Commercial Arbitration Act (ICAA). Heller took the position that the arbitration clause in the services agreements was invalid because it was unconscionable and because it contracted out of the mandatory provisions of the ESA. The motion judge held that he did not have the authority to decide whether the arbitration agreement was valid and stayed Heller’s proceeding. The Court of Appeal reversed that order, finding that the arbitration agreement was unconscionable based on the inequality of bargaining power between the parties and the improvident cost of arbitration. Uber appealed.

HELD: Appeal dismissed. The parties’ dispute was fundamentally about labour and employment. Employment disputes were not covered by the ICAA. Thus, the Arbitration Act (AA) applied to the dispute. Section 7(2) of the AA allowed the court to retain jurisdiction and decline to stay proceedings where the arbitration agreement was invalid. Heller raised a genuine challenge to the validity of the arbitration agreement. The clause was argued to be void because it imposed prohibitive fees for initiating arbitration and those fees were embedded by reference in the fine print of a contract of adhesion. If a stay was granted, Heller’s genuine challenge might never be resolved due to the fees involved in seeking arbitration. The arbitrator could not resolve the dispute without those fees being paid. It was therefore necessary for the court to determine the validity of the arbitration agreement. The arbitration agreement was unconscionable. Unconscionability involved both inequality and improvidence. There was clearly inequality of bargaining power between Uber and Heller. The arbitration agreement was part of a standard form contract. Heller was powerless to negotiate any of its terms. His only contractual option was to accept or reject it. There was also a significant gulf in sophistication between the parties. The arbitration agreement contained no information about the costs of mediation and arbitration in the Netherlands. Heller could not be expected to appreciate the financial and legal implications of agreement to arbitrate in the Netherlands. The improvidence of the arbitration clause was also clear. The mediation and arbitration processes required US$14,500 in up-front administrative fees. That amount was close to Heller’s annual income and did not include the potential costs of travel, accommodation, legal representation or lost wages. The arbitration clause effectively made the substantive rights given by the contract unenforceable by a driver against Uber. The arbitration clause was unconscionable and therefore invalid.

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, Supreme Court of Canada, R. Wagner C.J. and R.S. Abella, M.J. Moldaver, A. Karakatsanis, S. Côté, R. Brown, M. Rowe, S.L. Martin and N. Kasirer JJ. June 26, 2020. Digest No. TLD-June222020011-SCC