Supreme Court of Canada Refuses to Enforce Uber Contract Requiring Arbitration in Holland

A Canadian Uber driver, Heller, brought a class action against Uber, actually several Uber entities, alleging violations of Canada’s Employment Standards Act. According to the motion judge in the Ontario Superior Court of Justice, Uber “[d]rivers in Ontario do not enter into contracts with Uber Technologies Inc. [incorporated in Delaware] or Uber Canada Inc. The Drivers rather create an internet account and a contractual relationship with Uber B.V. and with Rasier Operations B.V. and, or Uber Portier B.V.” Each of those Uber entities is incorporated under the laws of the Netherlands. Uber’s form contract for drivers says it shall be governed by the laws of the Netherlands, and that any dispute not resolved in mediation:

“shall be exclusively and finally resolved by arbitration under the Rules of Arbitration of the International Chamber of Commerce (“ICC Arbitration Rules”) …. The Place of the arbitration shall be Amsterdam, The Netherlands.” 

The motion judge granted Uber’s motion to stay the class proceedings in favor of arbitration in the Netherlands, relying on Canada’s International Commercial Arbitration Act, which implements the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).  

The Court of Appeal of Ontario set aside the lower court’s order, and allowed Heller to litigate, rather than arbitrate, the class action. The Court of Appeal emphasized that the ICC’s “up-front administrative/filing-related costs for a driver to participate in the mediation-arbitration process in the Netherlands prescribed in the Arbitration Clause is US$14,500. As an UberEATS driver, the appellant earns about $20,800-$31,200 per year, before taxes and expenses.” The Court of Appeal held that the arbitration agreement “constitutes a contracting out of the Employment Standards Act “ which permits a driver to make a complaint the Ministry of Labour regarding the actions of Uber and their possible violation of the requirements of the ESA.” The arbitration agreement “deprives [the driver] of the right to have an ESO investigate his complaint.” The Court of Appeal noted that the driver “has not, in fact, chosen to make a complaint under the ESA but rather has commenced this proposed class action”, but held that this did not under the court’s conclusion that the arbitration agreement impermissibly contracted out of the ESA.

As an independent ground for denying enforcement to the arbitration clause, the Court of Appeal held the clause unconscionable.

The Supreme Court of Canada agreed with the Court of Appeal that the arbitration clause is unenforceable: “This is an arbitration agreement that makes it impossible for one party to arbitrate. It is a classic case of unconscionability.” The Supreme Court’s opinion contains a lengthy discussion of the unconscionability doctrine, featuring some differences of opinion among the justices.

Earlier Canadian cases include Dell Computer Corp. v. Union des consommateurs, [2007] 2 S.C.R. 801, and Seidel v. TELUS Communications Inc., [2011] 1 S.C.R. 531. 

Nursing Home Arbitration

Will courts enforce arbitration agreements covering wrongful death claims? Generally, yes, if the patient signed the agreement. But what if a family member signed on the patient's behalf? The New York Times discusses: Plaintiffs' lawyers "argued that unless family members had power of attorney, they lacked the authority to agree to arbitration." This argument often works: "Appeals courts across the country have been throwing out arbitration agreements signed by family members of nursing home residents." Basically an agency law question, although with undertones of unconscionability.

Uber Arbitration Agreement Held Unconscionable

Uber was sued by its drivers and sought to compel arbitration of that suit. A California federal court refused to enforce the delegation clause (which said questions concerning the enforce-ability of the arbitration clause would be resolved by the arbitrator) and then held the arbitration clause substantively unconscionable because: it eliminates plaintiffs’ right to bring certain claims in any forum; has an impermissible fee-shifting clause; and “permits Uber to litigate the claims most valuable to it in court . . . while requiring its drivers to arbitrate those claims. . .they are most likely to bring against Uber,”

Arbitration and Unconscionability

Savannah Law Professor Susan Landrum has written Much Ado About Nothing?: What the Numbers Tell Us About How State Courts Apply the Unconscionability Doctrine to Arbitration Agreements  Marquette Law Review, Vol. 97, No. 3, 2014.

The abstract:

This Article evaluates how state courts have applied the unconscionability doctrine to contracts, including those involving arbitration agreements. Numerous scholars have been critical of state courts’ application of the unconscionability doctrine to arbitration agreements and have argued that, because state courts are often skeptical or even hostile to arbitration, at least some state courts have used the unconscionability doctrine more often to invalidate arbitration agreements than other types of contract provisions. These assumptions hold true for some individual states or limited time periods, but further research was necessary to determine if the assumptions are true more broadly. For purposes of this study, I analyzed the unconscionability case law, a total of 460 cases, from twenty states — Alaska, Arkansas, Colorado, Illinois, Maine, Maryland, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, Ohio, Oregon, Rhode Island, South Carolina, and Vermont — during the time period from 1980 to 2012. The results of my research demonstrate that there is significant variation in how courts apply the unconscionability doctrine. Moreover, this Article shows that, for many of these states, the assumptions that scholars have had regarding state courts’ hostility to arbitration agreements, and those courts’ willingness to use the unconscionability doctrine as a means of invalidating arbitration provisions, are not always supported by the case law. Instead of applying generalized assumptions, it is necessary to delve deeper into the case law of each individual state to understand that state’s use of the unconscionability doctrine in the context of arbitration agreements.

California Appeals Court Holds Arbitration Clause Unconscionable

 Sabia v. Orange County Metro Realty, Inc., No. B243141 (2nd Dist. Div. 8 June 18, 2014) summarized by California Mediation and Arbitraiion.

California Employment Arbitration Unconscionability Cases

Summarized by Joel Grossman.  Example: Calif. Court of Appeals holds unconscionable an agreement unless employer provided it in Spanish.

Money, Politics and Judicial Decisions: A Case Study of Arbitration Law in Alabama

This article presents the results of a study of 106 decisions by the Supreme Court of Alabama from January 18, 1995 through July 9, 1999. The decisions are in the area of arbitration law and reveal the remarkably close correlation between a justice's votes on arbitration cases and his or her primary source or campaign funds. Justices whose election campaigns are funded by plaintiffs' lawyers oppose arbitration, whereas justices whose campaigns are funded by business favor arbitration. The correlation holds not just with regard to ideologically-charged doctrines, like unconscionability, but also with seemingly bland questions of contract formation, interpretation and waiver.

Journal of Law & Politics, Vol. 15, No. 645,

Class Arbitration

ContractsProf Blog weighs in on the Sixth Circuit class arbitration decision discussed here.

Prof. Jeremy Telman, Valparaiso Univ. Law School, argues that an arbitration clause silent on class arbitration should be interpreted to permit it.  "In such cases, courts should invoke contra proferentem and interpret the agreement in favor of the non-drafting party."

West Virginia Arbitration Cases

Liz Kramer rightly says "A few months ago, you would have reasonably thought that West Virginia was one of the most anti-arbitration states in the country.  There was not an unconscionability argument that the state didn’t seem to buy with respect to arbitration clauses."  However, she explains, recent cases show the state's high court more receptive to enforcing arbitration clauses. 

West Virginia has some similarities to Alabama and Montana, other states that have had anti-arbitration bents at various times, insofar as all 3 states have a cultural populism and strong plaintiffs' bar that can combine against outsiders, particular businesses from outside the state.  I wrote about that in The Alabama Story: Arbitration shows law’s connection to politics, culture, DISP. RESOL. MAG. 24 (Summer 2001), reprinted as Arbitration: A License to Steal, 12 WORLD ARB. & MED. REP. 316 (Dec. 2001).

Arbitration Clauses, Jury-Waiver Clauses and Other Contractual Waivers of Constitutional Rights

Consenting to a contract containing an arbitration clause or a jury-waiver clause alienates or waives the Seventh Amendment jury-trial right in federal court. The standards of consent in arbitration law, however, tend to be lower than the standards of consent in the federal caselaw governing jury-waiver clauses. The Federal Arbitration Act (FAA) requires courts to apply contract law's standards of consent to arbitration agreements, while certain commentators argue that courts are instead constitutionally required to apply the higher standards of consent (knowing consent) found in the caselaw governing jury-waiver clauses. This article responds to these commentators and argues that the FAA's contract-law standards of consent are constitutional.

Consumer Arbitration as Exceptional Consumer Law

Consumer Arbitration as Exceptional Consumer Law.  This article (part of a symposium on arbitration held by the McGeorge School of Law) defends the contractual approach to arbitration law.

Arbitration and Unconscionability

Wake Forest Law Review.

This article advocates the contractual approach over competing approaches to issues of unconscionability in arbitration.