Arbitration clauses under fire in Canada

Amsterdam NL Begijnhof

Oh, Canada.

Last month, the Canadian Supreme Court issued an opinion in Heller v Uber, a case brought by an Uber driver in Canada seeking classification as an employee rather than an independent contractor. There are a lot of those cases around the world and, while interesting, Uber’s somewhat controversial business model isn’t normally a relevant subject for this blog. What is interesting for the rest of us, however, is the court’s treatment of the arbitration clause, and the no-so-faint signs of life of the “unconscionability” clause in Canada.

You see, the arbitration clause for this California-based company contained a requirement that disputes with drivers be subject to arbitration in the Netherlands. Does that seem reasonable to you? No? Well, apparently the court didn’t think much of it either, so rather than exercise the deference courts often have for these types of agreements, they decided to delve a little deeper. You can read about the details here or in the court’s opinion, but the real takeaway for companies doing cross-border business with Canada is the court’s analysis of the applicability of arbitration clauses in international transactions and the doctrine of unconscionability. The court reached two important conclusions:

  • First, the court decided that it had jurisdiction to review bona fide challenges to the arbitration clause if the question was otherwise unlikely to be resolved. In reaching this decision, the court noted that upfront costs of $14,500 US and the burden of arbitrating a relatively small claim thousands of miles away meant that the plaintiff’s challenge to the arbitration clause would probably never be heard.
  • Second, the court reviewed whether the transaction was “unconscionable,” in other words, whether there was a significant difference in bargaining power and whether that difference was likely to significantly disadvantage the weaker party. Perhaps unsurprisingly, the court did in fact decide that a single Uber driver was the weaker party, and was disadvantaged in his deal with the multinational Uber Technologies Inc., given that the fees alone equalled his annual income from his contract with Uber.

We have to be careful in applying this case to normal e-commerce transactions, since it is on some level employment-related, and both courts and laws are tend to be very protective of a person’s livelihood. That being said, it’s a reminder that arbitration clauses are already viewed with some skepticism by courts and lawmakers, so it’s important to make sure the arbitration clause offers a realistic avenue to resolve disputes.

I can’t help but think that the nail in Uber’s coffin here was choosing the Netherlands as a place of arbitration rather than the neighboring United States, since that smacks of a decision to make the already unpalatable prospect of arbitration in a faraway place completely unrealistic. Unfortunately for the rest of us, in choosing the Netherlands, Uber might have opened the door to other challenges to cross-border arbitration clauses. Indeed, the dissenting justice makes this exact point, noting that this exception to the general rule that decisions on arbitration be left to the arbitrator will undoubtedly lead to more attempts to undermine that general rule. To the extent those challenges succeed, they will also limit the usefulness of arbitration clauses in Canada, particularly in cross-border transactions.

Hat tip to Ryan Flewelling of DS Avocats in Ottawa, Canada for pointing me in the direction of this decision. Or maybe, since it’s Canada, hat trick? Go Flyers!

Image courtesy of Dietmar Rabich, Amsterdam (NL), Begijnhof — 2015 — 7215-8, CC BY-SA 4.0 (Wikimedia Commons)

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