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What Makes a Clause Unconscionable?

June 26, 2020

Uber Technologies Inc. v. Heller 2020 SCC 16 (June 26 2020) 

The Supreme Court of Canada had a case before them in 2020, Uber Technologies Inc. v. Heller, that dealt with an employment contract with an “unconscionable arbitration clause.” 

The case focused on an employment contract that Heller entered into with Uber; Heller had to agree to the terms of the contract without negotiation in order to begin working. As part of the employment contract, Heller would not be able to commence a legal proceeding against Uber in the courts, and was instead obligated to resolve any potential issues through mediation and arbitration – in the Netherlands. However, in order to do so, Heller would have to pay US$14,500 in legal fees among other costs. 

By 2017, Heller was attempting to commence an action against Uber because, by not recognizing their drivers as employees, they went against Ontario’s Employment Standards Act. 

The Ontario Superior Court granted Uber a stay of proceedings and referred Uber and Heller to arbitration. The court found that under the Ontario laws governing referrals to arbitration, the agreement was not unconscionable, and Heller was not taken advantage of by Uber. The Ontario Court of Appeal disagreed, finding that an Ontario court would be able to look at Heller’s concerns with the arbitration clause in the agreement. In addition, the appeals court found the clause unconscionable as it established an uneven approach to bargaining and conflict resolution that would benefit Uber at the cost of the other party. 

The Supreme Court of Canada upheld the decision reached by Ontario’s Court of Appeal, finding that “there is a real prospect that if the matter is sent to be heard by an arbitrator, H’s challenge to the validity of the arbitration agreement may never be resolved.” The Supreme Court also outlined what constitutes unconscionability and its resulting improvidence, where the former refers to “inequality of bargaining power” and the latter refers to the disproportionate advantage to a “stronger party” and the disadvantage to a “more vulnerable” party.  

From the court document: 

 Unconscionability is an equitable doctrine that is used to set aside unfair agreements that resulted from an inequality of bargaining power. When the traditional assumptions underlying contract enforcement lose their justificatory authority, this doctrine provides relief from improvident contracts. The purpose of unconscionability is the protection of those who are vulnerable in the contracting process from loss or improvidence in the bargain that was made.
                    Unconscionability requires both an inequality of bargaining power and a resulting improvident bargain. An inequality of bargaining power exists when one party cannot adequately protect its own interests in the contracting process. A bargain is improvident if it unduly advantages the stronger party or unduly disadvantages the more vulnerable. Improvidence is measured at the time the contract is formed and must be assessed contextually. The question is whether the potential for undue advantage or disadvantage created by the inequality of bargaining power has been realized. Although one party knowingly taking advantage of another’s vulnerability may provide strong evidence of inequality of bargaining power, it is not essential for a finding of unconscionability. Unconscionability does not require that the transaction was grossly unfair, that the imbalance of bargaining power was overwhelming, or that the stronger party intended to take advantage of a vulnerable party.

                    The doctrine of unconscionability has particular implications for standard form contracts. The potential for such contracts to create an inequality of bargaining power is clear, as is the potential to enhance the advantage of the stronger party at the expense of the more vulnerable one, particularly through choice of law, forum selection, and arbitration clauses that violate a party’s reasonable expectations by depriving them of remedies.

The Supreme Court thus found the arbitration to be invalid.

Why You Need an Arbitration Lawyer

When dealing with disputes that require parties to solve and settle disputes outside of court, an arbitration lawyer can help navigate the complexities of the agreement. Skilled mediation and arbitration lawyers are meant to advocate for your rights, whereas an arbitrator is meant to be neutral. Working with a leading arbitration lawyer will help ensure your rights remain protected throughout arbitration. When a decision is made, your arbitration lawyer can guide you on the next best steps for your best interests.

Why Seek Karrass Law for Contract Matters

At Karrass Law, we specialize in handling a wide range of contract matters, including those involving complex arbitration clauses. Our civil litigation lawyers have extensive experience in dealing with various contract disputes, ensuring that your case is handled with the utmost professionalism and expertise. Our commitment to excellence ensures that you receive the best possible representation, making us the ideal choice for all your contract and civil litigation needs. To learn more and tailored legal advice, contact our team today.

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