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Arbitration Clause Update: Uber at the SCC

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The Supreme Court of Canada (“SCC”) has confirmed the advice we gave in our February eNewsFlash (and our previous blog) that arbitration clauses will NOT BE ENFORCED in Canada where they are viewed as unconscionable and effectively constitute a denial to the access to justice.

By way of background, in Heller v. Uber Technologies Inc., 2020 SCC 16 (“Heller”), an Ontario Uber driver commenced a proposed class action against Uber, alleging that Ontario Uber drivers were improperly classified as independent contractors, when they were actually employees entitled to the protections of the Ontario Employment Standards Act, 2000. The class action sought a declaration that Uber had violated the provisions of the ESA and asked for $400 million in damages.

Uber took initial steps to defend itself by seeking a stay of proceedings based on “standard form” contracts between the drivers and the Uber entities. These agreements contained arbitration clauses stipulating that any disputes arising under or relating to the agreements be submitted to arbitration in the Netherlands.

Unfortunately for Uber, the Ontario Court of Appeal unanimously sided with Heller, allowing the proposed class action to proceed. The decision was appealed, and on June 26, 2020, the SCC upheld the Court of Appeal’s decision.

The SCC noted that the Uber “arbitration only” clause required that the case had to be heard in the Netherlands (choice of venue), under Netherlands law (choice of law), and required and upfront filing fee of US$14,500.

In striking down this arbitration clause, the SCC noted that these requirements effectively made it “impossible” for the drivers to resolve disputes. The upfront fee plus the additional expenses which would be required in terms of travel to the Netherlands, accommodation, and professional fees were well in excess to the amount in dispute and meant that arbitration was realistically unattainable and “illusory”.

Because of this, the SCC held the clause was unconscionable and constituted a denial of access to justice. The result being the clause was void as contrary to public policy. Furthermore, the class action could now proceed.

By way of commentary, like direct selling, the Uber situation involved a standard form contract—meaning that the other party has no ability to negotiate different terms. The SCC indicated this was a very important factor in its decision to strike down Uber’s clause.

It is important to note, however, that the SCC’s decision also makes clear that arbitration clauses will be respected where they are “cost-effective and provide an effective method for resolving disputes”.

What this means—in order to ensure the likelihood of future enforceability—is that direct sellers need to be extremely cognizant in the structure of their “standard form” dispute resolution clauses in order to ensure they are fairly balanced and allow an independent consultant access to justice on a cost-effective basis.

This requires a reconsideration of the choice of law and the choice of venue clauses in current contracts (and Policies and Procedures) and, especially, a consideration of the upfront fees to initiate arbitration in Canada.

For those who have not already done so, now is definitely the time for such a review in order to bring your documents into conformity with the principles set out by the SCC.

Otherwise, a direct seller could end up in Uber’s situation facing a class-action!!

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