Unconscionability of Mandatory Arbitration in Contracts of Adhesion: Heller v. Uber Technologies Inc.

April 28, 2020

Katherine Starks*

I. INTRODUCTION

With its decision in Heller v. Uber Technologies Inc.,[1] the Court of Appeal for Ontario has reopened the path to judicial consideration of the status of Uber drivers in that province. The plaintiff, David Heller, works forty to fifty hours per week driving for the food delivery service UberEATS, earning about $400-$600 weekly.[2] His proposed class action seeks, among other relief, a declaration that drivers for both Uber’s “ridesharing” and food delivery services in Ontario are employees of Uber for the purposes of that province’s Employment Standards Act.[3] Uber’s position, captured in express language in its contract with drivers in Ontario, is that drivers are not employees of Uber and not subject to the ESA.[4] In this way, the case raises the question of the status of workers in the “gig economy,” a matter that could have significant implications as this business model expands into new industries.[5] However, the litigation has so far focused on a preliminary issue that carries important implications of its own: the validity and enforceability of the arbitration clause in the agreement between drivers and Uber.

II. THE ARBITRATION CLAUSE

The arbitration clause at issue is embedded in the contract of adhesion that individuals seeking to work as drivers for Uber in Ontario agree to via a click-through “I AGREE” button.[6] It purports to bind the parties to a mandatory dispute resolution mechanism and to set the forum for such dispute resolution and the applicable law. In particular, the clause provides that the agreement is governed by the laws of The Netherlands, and disputes between the drivers and Uber must be resolved in the first instance by mediation, and then finally by arbitration, according to the International Chamber of Commerce rules, in Amsterdam.[7]

The motion judge made several findings of fact in relation to dispute resolution between drivers and Uber that bear on the analysis of the arbitration clause. First, the Uber app used by drivers enables them to contact Uber Customer Services Representatives (CSRs) about issues.[8] The first point of contact for drivers are CSRs in the Philippines, and then, at the second level of “support,” CSRs in Chicago.[9] Local technical support for drivers is available through a “support centre” called Greenlight Hub.[10] Turning to the dispute resolution mechanisms contemplated by the arbitration clause, it was found that, for a dispute under $200,000 USD, undertaking mandatory mediation would cost up to $7,000 USD in up-front filing and administrative fees; and if mediation failed and the matter proceeded to arbitration, there would be an additional $7,500 USD in up-front filing and administrative fees. Additional costs associated with the dispute resolution mechanism contemplated in the arbitration clause would include charges for the mediator or arbitrator of approximately $3,000 USD, plus travel and legal expenses.[11]

            Relying on the arbitration clause, Uber brought a motion to stay Mr. Heller’s proceeding. The court was required to grant the stay if the arbitration agreement was valid and not subject to a statutory exception.[12] The Ontario Superior Court of Justice granted the stay in favour of arbitration.[13] The Court of Appeal overturned this decision and found the arbitration clause invalid on two separate grounds. First, assuming for the purpose of the preliminary motion that the employment relationship claimed by Mr. Heller’s could be proven,[14] the Court held that the clause amounted to an illegal contracting out of the ESA.[15] Notably, this conclusion depends on the application of the ESA and would be undermined if the proceeding ultimately determines that no employment relationship exists between Uber and Mr. Heller. However, the second ground of invalidity, unconscionability, does not rely on an employment relationship. The remainder of this brief comment canvasses a few issues raised by the unconscionability analysis in this case.

III. UNCONSCIONABILITY ANALYSIS OF THE ARBITRATION CLAUSE

The unconscionability analyses at the lower court and Court of Appeal differed in both their approach to the facts and the applicable analytical framework. The motion judge found that there were ample “dispute resolution mechanisms readily available in Ontario” and only “a substantial dispute”—such as the $400 million claimed by Mr. Heller’s proposed class action—would require resolution by the means contemplated in the arbitration clause.[16] The motion judge found that unconscionability was not established despite the imbalance of bargaining power between the parties, because the stronger party, Uber, did not prey upon Mr. Heller or extract an improvident bargain.[17]

The Court of Appeal found this reasoning to be unsupported by the factual record regarding the availability of dispute resolution mechanisms and the cost of those mechanisms relative to both the size of the claim and the financial resources of the claimant. The Court held that the arbitration clause is the only dispute resolution mechanism available—no other available process provided “independent grievance or adjudication procedures.”[18] Furthermore, because the proposed class action was not certified, the costs of arbitration, noted above, must be considered in relation to an individualclaimby Mr. Heller and in the context of Mr. Heller’s resources as an individual driver.[19]

The Court of Appeal further held that the test in Douez v. Facebook, Inc.[20]applied, with modification in recognition of the statutory context.[21] This rejected the motion judge’s reasoning, which distinguished Douez on the basis that it dealt with a forum selection clause in a consumer contract.[22] The Court observed that the agreement at issue was not just an arbitration clause but also a forum selection and choice of laws clause.[23] Furthermore, the Court concluded that the motion judge erred in approaching the agreement as a “normal commercial contract.”[24] Rather, Uber drivers are better analogized to consumers in terms of their relative bargaining power.[25] While there does not seem to be an analogy to the quasi-constitutional privacy rights that were at stake in Douez, the nature of this agreement as a take-it-or-leave-it contract of adhesion between individuals and Uber was sufficient to ground the analogy.[26]

The Court found that the clause was unconscionable, failing at the first stage of the Douez test: the arbitration clause amounted to an improvident bargain due to the exclusivity of the dispute resolution mechanism and its cost, combined with the effects of forum selection and choice of laws; Mr. Heller had no legal advice and no ability to negotiate terms of the agreement; there was an inequality of bargaining power between the parties; and Uber favoured itself in drafting the agreement.[27] This conclusion may indicate that the tide is receding after “the tsunami of case law favouring arbitration agreements,”[28] and that the high standard of scrutiny for contracts of adhesion set out in Douez may have broader application than that case’s consumer contract setting.

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*           J.D. Candidate (University of Saskatchewan)

[1]           2019 ONCA 1, 430 DLR (4th) 410 [Uber ONCA].

[2]           Ibid at para 2.

[3]           Ibid at para 4; Employment Standards Act, 2000, SO 2000, c 41 [ESA].

[4]           Heller v Uber Technologies Inc, 2018 ONSC 718 at para 47, 421 DLR (4th) 343 [Uber ONSC].

[5]           For a discussion of this economic model (and the legal treatment of the status of its workers in the United Kingdom), see generally Bill Wilson, “What is the ‘gig’ economy?”, BBC News (10 February 2017), online: <https://www.bbc.com/news/business-38930048>, archived: <https://perma.cc/8DES-XLVB>. But see recent reports that the shift toward the gig economy has been less drastic than anticipated: Anne Lowrey, “The Truth About the Gig Economy”, The Atlantic (14 January 2019), online: <https://www.theatlantic.com/ideas/archive/2019/01/gig-economy-isnt-really-taking-over/580180>, archived: <https://perma.cc/QC7X-ME4S>.

[6]           Uber ONCA, supra note 1at para 8.

[7]           Ibid at para 11.

[8]           Uber ONSC, supra note 4 at para 22.

[9]           Ibid.

[10]         Ibid at para 23.

[11]         Ibid at para 25

[12]         The legislation applicable to create this obligation was contested by the parties. Uber argued that the International Commercial Arbitration Act, 2017 (SO 2017, c 2, Sch 5, [ICAA]) governed, while Mr. Heller argued that the Arbitration Act, 1991 (SO 1991, c 17) governed. The motion judge decided that, “while not much turns on it,” the ICAA applied (Uber ONSC, supra note 4 at paras 35, 50). The Court of Appeal expressed in obiter “serious reservations” about this conclusion but did not decide the issue, noting that the same analysis would apply under either statute (Uber ONCA, supra note 1 at para 21).

[13]         Uber ONSC, supra note 4 at para 80.

[14]         Uber ONCA, supra note 1 at para 27.

[15]         Ibid at para 49.

[16]         Uber ONSC, supra note 4 at para 70.

[17]         Ibid.

[18]         Uber ONCA, supra note 1 at para 55.

[19]         Ibid at paras 57-58.

[20]         2017 SCC 33, [2017] 1 SCR 751 [Douez].

[21]         Uber ONCA, supra note 1 at paras 66-67.

[22]         Uber ONSC, supra note 4 at para 76-77, 79.

[23]         Uber ONCA, supra note 1 at para 63.

[24]         Ibid at para 70.

[25]         Ibid at para 71.

[26]         Ibid at paras 70-71.

[27]         Ibid at para 68.

[28]         Uber ONSC, supra note 4 at para 74.