When people enter into contracts with companies, either as customers or independent contractors, they may not be aware that terms of service or contracts contain clauses that should an issue arise that might require litigation, the parties will instead be directed to resolve the dispute through binding arbitration. However, a recent decision from the Supreme Court of Canada held that in some cases, such arbitration clauses are unenforceable.

Uber drivers seek class-action lawsuit

The issue arose after drivers for the ride-sharing company Uber attempted to file a class-action lawsuit against the company. The driver named in the decision applied to be a driver for Uber and accepted their standard form services agreement. The agreement required him to resolve any disputes with the company through mediation and arbitration in the Netherlands. The process also required up-front administrative and filing fees of $14,500 plus legal fees and travel fees.

When the driver tried to initiate the proceeding against Uber in Ontario, the company stated it could not proceed due to the agreement between them and the driver. The motion judge who first ruled on the issue held that the parties had to abide by the agreement in place. However, the Ontario Court of Appeal held that the issue could be heard in an Ontario court and that the clause was unconscionable based on the inequality between Uber and its individual drivers. Uber appealed this decision and the matter wound up before the country’s highest court.

Supreme Court paves way for matter to be heard in court

The Supreme Court denied Uber’s appeal, stating that the company’s arbitration clause amounted to “illegally outsourcing an employment standard.” The court found that in order to decide on whether a limitation on dispute resolution imposes an undue hardship, courts should consider the nature of the disputes likely to arise between the parties as well as the bargaining positions of the parties and whether there is an imbalance found. In this case, the court found that the resolution agreement effectively barred the driver from any resolution, writing,

“Respect for arbitration is based on its being a cost-effective and efficient method of resolving disputes. When arbitration is realistically unattainable, it amounts to no dispute resolution mechanism at all. In this case, the arbitration clause is the only way (the employee) is permitted to vindicate his rights under the contract, but arbitrations is out of reach for him and other drivers in his position. His contractual rights are, as a result, illusory.”

This decision expanded on the doctrine of unconscionability in such situations in order to protect people who are vulnerable in the contracting process. The court noted that the potential for contracts such as the one between Uber and the driver to create power imbalances is high because people in the driver’s position are not able to negotiate these clauses and may not even know they exist. The court found that the driver in this case could not have been expected to understand the hurdles placed in front of him and that his annual income would not have allowed him to pursue the matter as directed in the contract.

We will be sure to keep our readers up to date with how this matter proceeds through the courts. The Advocacy Team at HMC Lawyers has over 130 years of combined experience advising clients and litigating on their behalf. Our lawyers know that strategic action at an early stage can help settle matters early and expeditiously, and help prevent prolonged and expensive litigation. We work closely with clients to help them make good business decisions when facing a legal dispute.

To make an appointment with one of our lawyers about a commercial or business litigation matter, contact us online or call 1-800-480-3534.