Uber Technologies Inc. v. Heller

2020 SCC 16 | Supreme Court of Canada | June 26, 2020

Parties

Appellants: Uber Technologies Inc., Uber Canada, Inc., Uber B.V. and Rasier Operations B.V.

Respondent: David Heller

Interveners: Attorney General of Ontario, Young Canadian Arbitration Practitioners, Arbitration Place, Don Valley Community Legal Services, Canadian Federation of Independent Business, Samuelson-Glushko Canadian Internet Policy and Public Interest Clinic, Income Security Advocacy Centre, Parkdale Community Legal Services, United Food and Commercial Workers Canada, Workers' Health and Safety Legal Clinic, Montreal Economic Institute, Canadian American Bar Association, Chartered Institute of Arbitrators (Canada) Inc., Toronto Commercial Arbitration Society, Canadian Chamber of Commerce, International Chamber of Commerce, Consumers Council of Canada, Community Legal Assistance Society and ADR Chambers Inc.

Coram

Wagner C.J. and Abella, Moldaver, Karakatsanis, Côté, Brown, Rowe, Martin and Kasirer JJ.

Joint Reasons for Judgment (paras. 1 to 100): Abella and Rowe JJ. (Wagner C.J. and Moldaver, Karakatsanis, Martin and Kasirer JJ. concurring)

Concurring Reasons (paras. 101 to 176): Brown J.

Dissenting Reasons (paras. 177 to 338): Côté J.

Background

[ 1 ] Abella and Rowe JJ. — In this appeal, the Court determines who has authority to decide whether an Uber driver is or is not an "employee" within the meaning of Ontario's Employment Standards Act, 2000, S.O. 2000, c. 41 ("ESA"): the courts of Ontario or an arbitrator in the Netherlands.

[ 2 ] David Heller provides food delivery services in Toronto using Uber's software applications. To become a driver for Uber, Mr. Heller had to accept, without negotiation, the terms of Uber's standard form services agreement. Under the terms of the agreement, H was required to resolve any dispute with Uber through mediation and arbitration in the Netherlands. The mediation and arbitration process requires up-front administrative and filing fees of US$14,500, plus legal fees and other costs of participation. The fees represent most of H's annual income.

[ 3 ] Mr. Heller started a class proceeding against Uber in 2017 for violations of the ESA. Uber brought a motion to stay the class proceeding in favour of arbitration in the Netherlands. In response, Mr. Heller took the position that the arbitration clause was invalid because it was unconscionable and contracted out of his rights under the ESA.

[ 4 ] We agree with the Court of Appeal. This is an arbitration agreement that makes it impossible for one party to arbitrate. It is a classic case of unconscionability.

Background Facts

[ 5 ] Uber operates a global business in more than 600 cities and 77 countries, with a customer base of millions of people and businesses. The company has been operating in Ontario for eight years.

[ 6 ] Uber's software applications are widely used to arrange personal transportation (the Rider and Driver Apps) and food delivery (the UberEATS App). Customers and drivers can download Uber's Apps onto their smartphones. Customers use the Apps to place orders for rides or food delivery, and receive ratings-based feedback about drivers. Drivers also receive ratings from customers.

[ 7 ] The first time drivers log on to an Uber App, they are presented with a standard form services agreement of around 14 pages. To accept the agreement, the driver must click "I agree" twice. Once the driver does so, the Uber App is activated and the driver can begin receiving offers to transport passengers or deliver food.

[ 8 ] The services agreement includes mandatory arbitration and choice of law clauses, which state:

Governing Law; Arbitration. Except as otherwise set forth in this Agreement, this Agreement shall be exclusively governed by and construed in accordance with the laws of The Netherlands, excluding its rules on conflicts of laws . . . . Any dispute, conflict or controversy howsoever arising out of or broadly in connection with or relating to this Agreement, including those relating to its validity, its construction or its enforceability, shall be first mandatorily submitted to mediation proceedings under the International Chamber of Commerce Mediation Rules ("ICC Mediation Rules"). If such dispute has not been settled within sixty (60) days after a request for mediation has been submitted under such ICC Mediation Rules, such dispute can be referred to and shall be exclusively and finally resolved by arbitration under the Rules of Arbitration of the International Chamber of Commerce ("ICC Rules"). . . . The place of arbitration shall be Amsterdam, The Netherlands . . . .

(C.A. reasons, at para. 11)

[ 9 ] The choice of law clause requires the agreement to be "governed by and construed in accordance with the laws of The Netherlands, excluding its rules on conflicts of laws". The arbitration clause requires all disputes to be submitted first to mandatory ICC mediation proceedings, and then to mandatory ICC arbitration proceedings in Amsterdam.

[ 10 ] The up-front cost to begin an arbitration at the ICC according to the ICC Rules amounts to about US$14,500. The fees do not include legal fees, lost wages and other costs of participation. The services agreement provides no information about the amount of fees that would be imposed.

[ 11 ] Mr. Heller is an Ontario resident who entered into contracts with corporations that are part of the Uber enterprise to be a driver. He earns approximately $400-$600 per week based on 40 to 50 hours of work, or $20,800-$31,200 per year, before expenses. Mr. Heller has a grade 12 education and had no legal assistance when he entered into the contract.

[ 12 ] Mr. Heller started this proposed class action against Uber in 2017. He seeks relief for four claims in this proceeding: a claim for breach of the ESA, a claim for breach of contract based on either implied terms or the duty of good faith, a claim of unjust enrichment, and a claim for breach of the Competition Act, R.S.C. 1985, c. C-34.

[ 13 ] Uber, relying on the arbitration clause in its services agreement with Mr. Heller, sought a stay of proceedings in favour of arbitration in the Netherlands. Mr. Heller argued that the arbitration clause was invalid on two grounds: it was unconscionable, and it contracted out of the ESA.

[ 14 ] The motion judge stayed the proceeding in favour of arbitration in the Netherlands. He began his analysis by determining which arbitration legislation applied: the Arbitration Act, 1991, S.O. 1991, c. 17 ("AA" or "Arbitration Act"), or the International Commercial Arbitration Act, 2017, S.O. 2017, c. 2, Sch. 5 ("ICAA" or "International Act"), and concluded the ICAA applied.

[ 15 ] He then determined that the arbitration agreement's validity had to be referred to arbitration in the Netherlands, in accordance with the principle that arbitrators are competent to determine their own jurisdiction (the "competence-competence" principle). In his view, a bona fide challenge to the validity of the arbitration agreement had not been established by Mr. Heller.

[ 16 ] The Court of Appeal allowed Mr. Heller's appeal, finding that the arbitration clause was void both because it was unconscionable and because it contracted out of the ESA. Writing for a unanimous court, Nordheimer J.A. concluded that Mr. Heller had clearly established a bona fide challenge to the validity of the arbitration agreement, so the challenge could be decided by the courts without referral to an arbitrator. After reviewing the merits, the Court of Appeal held that the clause was unconscionable and therefore void.

[ 17 ] As a result, the Court of Appeal allowed Mr. Heller's appeal, and set aside the order of the motion judge granting Uber's motion to stay.

Analysis

I. Which Arbitration Statute Applies?

[ 18 ] Throughout these proceedings, the parties have disagreed on the arbitration statute applicable to their dispute. Uber argued that the ICAA applies and Mr. Heller argued that the applicable legislation is the AA.

[ 19 ] We agree with Mr. Heller. The parties' dispute is fundamentally about labour and employment. The ICAA was not meant to apply to such cases.

[ 20 ] The ICAA and AA are exclusive. If the ICAA governs this agreement, the AA does not, and vice versa (AA, s. 2(1)(b)). As the Superior Court correctly identified, whether the ICAA governs depends on whether the arbitration agreement is "international" and "commercial".

[ 21 ] The ICAA implements two international instruments: the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Can. T.S. 1986 No. 43, adopted by the United Nations Conference on International Commercial Arbitration in New York on June 10, 1958 (the "New York Convention"), and the UNCITRAL Model Law on International Commercial Arbitration, U.N. Doc. A/40/17, Ann. I, June 21, 1985 (the "Model Law").

[ 22 ] Section 5(3) of the ICAA states that the Model Law applies to "international commercial arbitration agreements and awards made in international commercial arbitrations". The meaning of "commercial" in this section of the ICAA must be the same as in the Model Law.

[ 23 ] While the Model Law does not define the term "commercial", a footnote to art. 1(1) provides some guidance:

The term "commercial" should be given a wide interpretation so as to cover matters arising from all relationships of a commercial nature, whether contractual or not. Relationships of a commercial nature include, but are not limited to, the following transactions: any trade transaction for the supply or exchange of goods or services; distribution agreements; commercial representation or agency; factoring; leasing; construction of works; consulting; engineering; licensing; investment; financing; banking; insurance; exploitation agreement or concession; joint venture and other forms of industrial or business cooperation; carriage of goods or passengers by air, sea, rail or road.

(Model Law, art. 1(1), fn. 2)

[ 24 ] The Analytical Commentary on Draft Text of a Model Law on International Commercial Arbitration: Report of the Secretary-General further explains that "labour or employment disputes" are not covered by the term "commercial""despite their relationship to trade and commerce in a broad sense."

[ 25 ] Two points emerge from this commentary. First, a court must determine whether the ICAA applies by examining the nature of the parties' dispute, not by making findings about their relationship. A court can more readily decide whether the ICAA applies by asking: what is being disputed?

[ 26 ] The second point to draw is that an employment dispute is not covered by the word "commercial". The question of whether someone is an employee is the most fundamental of employment disputes. It follows that if an employment dispute is excluded from the scope of "commercial" in the Model Law, then Mr. Heller's claim — which depends on the allegation that he is an employee — is not "commercial".

[ 27 ] This result is consistent with what courts have held (Patel v. Kanbay International Inc., 2008 ONCA 867, 93 O.R. (3d) 588, at paras. 11-13; Borowski v. Fiedler (Heinrich) Perforiertechnik GmbH (1994), 158 A.R. 213 (Alta. Q.B.)).

[ 28 ] Employment disputes, in sum, are not covered by the ICAA. The AA therefore governs.

II. Should the Court Resolve the Validity of the Arbitration Agreement or Refer It to the Arbitrator?

[ 29 ] The AA directs courts, on motion of a party, to stay judicial proceedings when there is an applicable arbitration agreement:

Stay

7 (1) If a party to an arbitration agreement commences a proceeding in respect of a matter to be submitted to arbitration under the agreement, the court in which the proceeding is commenced shall, on the motion of another party to the arbitration agreement, stay the proceeding.

[ 30 ] But a court has discretion to retain jurisdiction and decline to stay proceedings in five circumstances enumerated in s. 7(2):

Exceptions

(2) However, the court may refuse to stay the proceeding in any of the following cases:

1. A party entered into the arbitration agreement while under a legal incapacity.
2. The arbitration agreement is invalid.
3. The subject-matter of the dispute is not capable of being the subject of arbitration under Ontario law.
4. The motion was brought with undue delay.
5. The matter is a proper one for default or summary judgment.

The only relevant exception here is para. 2 of s. 7(2), which gives a court discretion to refuse to grant a stay if the court determines that the arbitration agreement is invalid.

[ 31 ] The AA is silent on what principles courts should consider in exercising their discretion to determine the validity of an arbitration agreement under s. 7(2). But some criteria were set out in Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34, [2007] 2 S.C.R. 801, and Seidel v. TELUS Communications Inc., 2011 SCC 15, [2011] 1 S.C.R. 531.

[ 32 ] Under the Dell framework, the degree to which courts are permitted to analyse the evidentiary record depends on the nature of the jurisdictional challenge. Where pure questions of law are in dispute, the court is free to resolve the issue of jurisdiction. Where the challenge involves questions of fact or questions of mixed law and fact, the court should ordinarily refer the challenge to an arbitrator, unless it can be resolved through a superficial review of the documentary evidence.

[ 33 ] In setting out this framework, Dell adopted an approach to the exercise of discretion that was designed to be faithful to what the international arbitration literature calls the "prima facie" analysis test as regards questions of fact and questions of mixed law and fact.

[ 34 ] The doctrine established in Dell is neatly summarized in its companion case, Rogers Wireless Inc. v. Muroff, 2007 SCC 35, [2007] 2 S.C.R. 921, at para. 11:

The majority of the Court held that, when an arbitration clause exists, any challenges to the jurisdiction of the arbitrator must first be referred to the arbitrator. Courts should derogate from this general rule and decide the question first only when the challenge to the arbitrator's jurisdiction raises a pure question of law, or when it can be resolved based on a superficial review of the documentary evidence in the record.

[ 35 ] The parties agree that the framework from Dell and Seidel applies to Ontario's Arbitration Act. We agree, based on the similarities between the arbitration regimes in Ontario, British Columbia and Quebec. The two exceptions to arbitral referral recognized in Dell — pure questions of law and questions that can be decided by a "superficial review of the documentary evidence" — apply here.

[ 36 ] Neither Dell nor Seidel fully defined what is meant by a "superficial" review. The essential question, in our view, is whether the necessary legal conclusions can be drawn from facts that are either evident on the face of the record or undisputed. If so, then a court can resolve a challenge to the jurisdiction of an arbitrator before referring the matter to arbitration.

[ 37 ] Although it is possible to resolve the validity of Uber's arbitration agreement through a superficial review of the record, we are of the view that this case also raises an issue of accessibility that was not raised on the facts in Dell and justifies departing from the general rule of arbitral referral.

[ 38 ] The underlying assumption made in Dell is that if the court does not decide an issue, then the arbitrator will. As Dell says, the matter "must be resolved first by the arbitrator" (para. 84). Dell did not contemplate a scenario wherein the matter may never be decided by anyone.

[ 39 ] One way (among others) in which the validity of an arbitration agreement may not be determined is when an arbitration is fundamentally too costly or otherwise inaccessible. This could occur because the fees to begin arbitration are significant and the claimant cannot pay them, or because the forum is so geographically remote that travel to it is unrealistic.

[ 40 ] These situations were not contemplated in Dell. The core of Dell depends on the assumption that if a court does not decide an issue, the arbitrator will.

[ 41 ] Against these real risks of staying an action in favour of an invalid arbitration, one could pit the risk of a plaintiff seeking to obstruct an arbitration by advancing spurious arguments against the validity of the arbitration. This concern animated Dell's caution about departing from the general rule of arbitral referral. We acknowledge that risk, but do not believe it warrants referring the matter to arbitration in this case.

[ 42 ] In our view, there are ways to mitigate this concern that make the overall calculus favour departing from the general rule of referring the matter to the arbitrator in these situations. Courts have many ways of preventing the misuse of court processes, such as adverse cost awards.

[ 43 ] Moreover, Dell itself makes clear that courts may refer a challenge to arbitral jurisdiction to the arbitrator if it is "a delaying tactic", or would unduly impair the conduct of the arbitration proceeding (para. 86). This provides an additional safeguard against tactical delays.

[ 44 ] How is a court to determine whether there is a bona fide challenge to arbitral jurisdiction that only a court can resolve? First, the court must determine whether, assuming the facts pleaded to be true, there is a genuine challenge to arbitral jurisdiction. Second, the court must determine if there is a real prospect that the challenge to the arbitrator's jurisdiction may never be resolved.

[ 45 ] While this second question requires some limited assessment of evidence, this assessment must not devolve into a mini-trial. The only question at this stage is whether there is a real prospect, in the circumstances, that the arbitrator may never decide the merits of the jurisdictional challenge. A single affidavit will suffice to establish that this threshold is met.

[ 46 ] As a result, therefore, a court should not refer a bona fide challenge to an arbitrator's jurisdiction to the arbitrator if there is a real prospect that doing so would result in the challenge never being resolved. In these circumstances, a court should resolve the challenge rather than refer it.

[ 47 ] Turning to the appeal before us, we would first observe that Mr. Heller has made a genuine challenge to the validity of the arbitration agreement. The clause is said to be void because it imposes prohibitive fees for initiating arbitration and because it contracts out of the ESA. These are genuine, bona fide challenges to the validity of the arbitration clause.

[ 48 ] We would therefore resolve the arguments Mr. Heller has raised against the validity of Uber's arbitration agreement rather than refer those arguments to arbitration in the Netherlands.

[ 49 ] We observe, incidentally, that departing from the general rule of arbitral referral in these circumstances has beneficial consequences. It will prevent contractual drafters from evading the result of this case through a choice of law clause. As the CFIB submitted, this Court should presume that parties intend to contract in compliance with Canadian law. This presumption can only have effect if a Canadian court makes a determination about Canadian law.

[ 50 ] This is a significant loophole for contractual drafters to exploit. Indeed, Uber's contract here includes a foreign choice of law clause. As the intervener Canadian Federation of Independent Business ("CFIB") submitted, this Court should presume that parties intend to contract in compliance with Canadian law.

[ 51 ] As well, even though this case could have been resolved based on undisputed facts, such an approach may not be sustainable in future cases. An approach to arbitral referral that depends on undisputed facts would invite parties to dispute facts in order to force a referral to arbitration, thereby blocking the challenge from ever being heard.

III. Is the Arbitration Agreement Valid?

[ 52 ] We turn finally to the validity of the arbitration agreement. As mentioned, Mr. Heller raised two independent arguments as to why the arbitration agreement with Uber is invalid: first, the clause is void for unconscionability; and, second, the clause contravenes the ESA.

[ 53 ] We agree with Mr. Heller that the arbitration agreement is unconscionable. The parties and interveners focused their submissions on unconscionability in accordance with this Court's direction in TELUS Communications Inc. v. Wellman, 2019 SCC 19, [2019] 2 S.C.R. 144.

A. The Doctrine of Unconscionability

[ 54 ] Unconscionability is an equitable doctrine that is used to set aside "unfair agreements [that] resulted from an inequality of bargaining power" (John D. McCamus, The Law of Contracts (2nd ed. 2012), at p. 424). Initially applied to protect young heirs from spendthrift dealings, the doctrine now protects a much wider range of parties in a variety of circumstances.

[ 55 ] Unconscionability is widely accepted in Canadian contract law, but some questions remain about the content of the doctrine, and it has been applied inconsistently by the lower courts.

[ 56 ] The classic paradigm underlying freedom of contract is the "freely negotiated bargain or exchange" between "autonomous and self-interested parties" (McCamus, at p. 24). This paradigm assumes, among other things, that (1) both parties are rational; (2) both parties have access to perfect information about the consequences of their choices; (3) both parties have a meaningful choice between different contracts or contracting parties; and (4) both parties are able to understand what they are agreeing to.

[ 57 ] In cases where these assumptions align with reality, the arguments for enforcing contracts carry their greatest weight. But these arguments weaken as the underlying assumptions become less accurate.

The proposition that a person is always the best judge of his own interests is a good starting-point for laws and institutional arrangements, but as an infallible empirical proposition it is an outrage to human experience. The parallel moral argument that people ought to be held to their agreements even in cases where these conditions are not satisfied is not really an argument for freedom of contract at all, but for something else, namely enforcement of transactions to which free consent was not given.

(P. S. Atiyah, Essays on Contract (1986), at p. 30)

[ 58 ] Courts have never been required to take the ideal assumptions of contract theory as "infallible empirical proposition[s]". Equitable doctrines have long allowed judges to "respond to the individual requirements of particular circumstances . . . [and] to impose a standard of conduct that reflects a greater sensitivity to the variety of human interactions than [can] be expressed in abstract propositions and strict rules" (Hodgkinson, at p. 405). Unconscionability is one such doctrine.

[ 59 ] In these kinds of circumstances, where the traditional assumptions underlying contract enforcement lose their justificatory authority, the doctrine of unconscionability provides relief from improvident contracts. When unfair bargains cannot be explained by free and equal negotiation, they may be void.

[ 60 ] This Court has often described the purpose of unconscionability as the protection of vulnerable persons in transactions with others (Hodgkinson v. Simms, 1994 70 (SCC), [1994] 3 S.C.R. 377, at pp. 405 and 412; Hunter Engineering Co. v. Syncrude Canada Ltd., 1989 129 (SCC), [1989] 1 S.C.R. 426, at p. 462, per Wilson J.).

[ 61 ] Openly recognizing a doctrine of unconscionability also promotes fairness and transparency in contract law. As Sopinka J. noted in Norberg v. Wynrib, 1992 65 (SCC), [1992] 2 S.C.R. 226:

In my view, there is much to be gained by addressing directly the protection of the weak from over-reaching by the strong. . . . There is little value in cloaking the inquiry behind a construct that takes on its own idiosyncratic traits, sometimes at variance with the doctrine that it is meant to supplement.

(p. 292)

[ 62 ] Most scholars appear to agree that the Canadian doctrine of unconscionability has two elements: ". . . an inequality of bargaining power, stemming from some weakness or vulnerability affecting the claimant and . . . an improvident transaction" (McCamus, at p. 427).

[ 63 ] This Court has long endorsed this duality. In Hunter, Wilson J. observed that

[t]he availability of a plea of unconscionability in circumstances where the contractual term is per se unreasonable and the unreasonableness stems from inequality of bargaining power was confirmed in Canada over a century ago . . . . [Emphasis in original.]

(p. 462)

[ 64 ] In Norberg, La Forest J. described proving the elements of unconscionability as "a two-step process", involving "(1) proof of inequality in the positions of the parties, and (2) proof of an improvident bargain" (p. 256). The concurring judgment of McLachlin J. endorsed this approach, and added:

Two elements are required for the doctrine of unconscionability to apply: inequality of bargaining powers and unfairness. Prof. McCamus describes them as follows:

. . . one must establish both inequality of bargaining power in the sense that one party is incapable of adequately protecting his or her interests and undue advantage or benefit secured as a result of that inequality by the stronger party. [Emphasis in original.]

[ 65 ] We see no reason to depart from the approach to unconscionability endorsed in Hunter, Norberg and in Douez. That approach requires both an inequality of bargaining power and a resulting improvident bargain.

B. Inequality of Bargaining Power

[ 66 ] An inequality of bargaining power exists when one party cannot adequately protect their interests in the contracting process (see McCamus, at pp. 426-27 and 429; Crawford, at p. 143; Chen-Wishart (1989), at p. 31; Morrison, at p. 713).

[ 67 ] There are no "rigid limitations" on the types of inequality that fit this description (McCamus, at p. 429). Differences in wealth, knowledge, or experience may be relevant, but inequality encompasses more than just those attributes. As Mitchell McInnes explains in The Canadian Law of Unjust Enrichment and Restitution (2014):

Equity is prepared to act on a wide variety of transactional weaknesses. Those weaknesses may be personal (i.e., characteristics of the claimant generally) or circumstantial (i.e., vulnerabilities peculiar to certain situations). The relevant disabilities need not be so serious as to negate the capacity to enter a technically valid contract.

[ 68 ] In many cases where inequality of bargaining power has been demonstrated, the relevant disadvantages impaired a party's ability to freely enter or negotiate a contract, compromised a party's ability to understand or appreciate the meaning and significance of contractual terms, or both.

[ 69 ] One common example of inequality of bargaining power comes in the "necessity" cases, where the weaker party is so dependent on the stronger that serious consequences would flow from not agreeing to a contract. This imbalance can impair the weaker party's ability to freely enter into the contract.

[ 70 ] The classic example of a "necessity" case is a rescue at sea scenario (see The Medina (1876), 1 P.D. 272). The circumstances under which such agreements are made indicate the weaker party did not freely enter into the contract, as it was the person's only real choice in the circumstances.

[ 71 ] The second common example of an inequality of bargaining power is where, as a practical matter, only one party could understand and appreciate the full import of the contractual terms, creating a type of "cognitive asymmetry".

[ 72 ] These examples of inequality of bargaining power are intended to assist in organizing and understanding prior cases of unconscionability. They provide two examples of how weaker parties may be vulnerable to exploitation in the contracting process. They are not exhaustive or rigid. As with any equitable doctrine, whether a party was unable to protect its interests must be assessed contextually, taking into account all of the circumstances.

C. Improvident Bargain

[ 73 ] This leads us to the second element of unconscionability: an improvident bargain.

[ 74 ] A bargain is improvident if it unduly advantages the stronger party or unduly disadvantages the more vulnerable (see McCamus, at pp. 426-27; Chen-Wishart (1989), at p. 51; Benson, at p. 187; see also Waddams (2017), at p. 303).

[ 75 ] Improvidence must be assessed contextually (McInnes, at p. 528). In essence, the question is whether the potential for undue advantage or disadvantage created by the inequality of bargaining power has been realized. An undue advantage may only become apparent in light of how the terms of a contract actually operate.

[ 76 ] For a person who is in desperate circumstances, for example, almost any agreement will be an improvement over the status quo. In these circumstances, the emphasis in assessing improvidence should be on whether the stronger party has been unduly advantaged.

[ 77 ] Where the weaker party did not understand or appreciate the meaning and significance of important contractual terms, the focus is on whether they have been unduly disadvantaged by the terms they did not understand or appreciate. These terms are improvident if there is a significant difference between what the weaker party believed they were agreeing to and the contractual terms as they actually operate.

[ 78 ] Because improvidence can take so many forms, this exercise cannot be reduced to an exact science. When judges apply equitable concepts, they are trusted to "mete out situationally and doctrinally appropriate justice" (Rotman, at p. 535). Fairness "is not subject to the mechanical application of precise rules" (ibid.). The nature of the weaker party's vulnerability is part of the context in which improvidence is assessed.

[ 79 ] Unconscionability, in sum, involves both inequality and improvidence. The nature of the flaw in the contracting process is part of the context in which improvidence is assessed. And proof of improvidence may, in turn, bolster evidence of inequality.

D. Uber's Proposed Four-Part Test

[ 80 ] Uber argues, however, that the Court should abandon the classic two-part approach to unconscionability and adopt a stringent test consisting of four requirements:

• a grossly unfair and improvident transaction;
• a victim's lack of independent legal advice or other suitable advice;
• an overwhelming imbalance in bargaining power caused by the victim's ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility, or similar disability; and
• the other party's knowingly taking advantage of this vulnerability.

(See Phoenix Interactive Design Inc. v. Alterinvest II Fund L.P., 2018 ONCA 98, 420 D.L.R. (4th) 335, at para. 15.)

[ 81 ] This higher threshold requires that the transaction was "grossly" unfair, that there was no independent advice, that the imbalance in bargaining power was "overwhelming", and that there was an intention to take advantage of a vulnerable party.

[ 82 ] We reject this approach. This four-part test raises the traditional threshold for unconscionability and unduly narrows the doctrine, making it more formalistic and less equity-focused. Unconscionability has always targeted unfair bargains resulting from unfair bargaining. Elevating these additional factors to rigid requirements distracts from that inquiry.

[ 83 ] Independent advice is relevant only to the extent that it ameliorates the inequality of bargaining power experienced by the weaker party. But one's exposure to independent legal advice is not always determinative, and its absence is not always the relevant consideration.

[ 84 ] Unconscionability, moreover, can be established without proof that the stronger party knowingly took advantage of the weaker. Such a requirement is closely associated with theories of unconscionability that focus on wrongdoing by the defendant, but unconscionability has also been understood as a plaintiff-sided doctrine.

[ 85 ] We agree. One party knowingly or deliberately taking advantage of another's vulnerability may provide strong evidence of inequality of bargaining power, but it is not essential for a finding of unconscionability. Such a requirement improperly conflates unconscionability with fraud or duress.

E. Applying Unconscionability to This Case

[ 86 ] Uber's arbitration agreement is unconscionable.

[ 87 ] There was clearly an inequality of bargaining power between Uber and Mr. Heller. The arbitration agreement was part of a standard form contract, and a person in Mr. Heller's position had no ability to negotiate its terms. He was presented with a contract that he either had to sign or refuse, and refusing meant he could not work as an Uber driver. The fact that he could theoretically have chosen not to enter the contract at all does not negate the inequality of bargaining power that existed.

[ 88 ] Mr. Heller is a low-income earner — the fees alone to initiate arbitration amount to approximately 1/3 of his annual net income. On top of that, he would face the prospect of legal fees, other costs, and the expense of either travelling to the Netherlands or retaining a lawyer in the Netherlands.

[ 89 ] Moreover, Mr. Heller had no way of knowing, when he signed the contract, what it would cost to initiate arbitration. The services agreement provides no information about the amounts involved and a driver in his position would likely have no knowledge of the ICC Rules and their associated costs.

[ 90 ] There was also clearly an improvident bargain. The arbitration clause removed Mr. Heller's access to the courts without giving him any realistic alternative means of resolving disputes. Uber, on the other hand, retained the practical benefit of preventing drivers from having any meaningful access to dispute resolution.

[ 91 ] The result is an arbitration clause that effectively prevents Mr. Heller from resolving a dispute with Uber. The clause is therefore unconscionable.

[ 92 ] Arbitration, properly understood, provides a cost-effective and efficient method of resolving disputes. When arbitration is realistically unattainable, it amounts to no dispute resolution mechanism at all. By requiring arbitration in the Netherlands pursuant to the ICC Rules, while providing no information about what that would cost and giving no financial assistance to cover those costs, Uber created a dispute resolution mechanism that is illusory.

[ 93 ] In these circumstances, the arbitration clause is void for unconscionability. We would therefore dismiss the appeal.

Concurring Reasons — Brown J.

[ 101 ] Brown J. — I agree with my colleagues Abella and Rowe JJ. that the appeal should be dismissed. I also agree that the mandatory arbitration requirement is invalid, that this Court should resolve the issue of validity rather than refer it to an arbitrator, and that the arbitration clause creates such a significant obstacle to any dispute resolution that, to uphold it, would be inimical to the rule of law.

[ 102 ] Where I respectfully differ is on the reason for invalidating the arbitration agreement. I would resolve the appeal by relying on the public policy doctrine rather than unconscionability.

A. Public Policy as the Basis for Invalidating the Arbitration Clause

[ 103 ] The majority vastly expands the scope of the doctrine of unconscionability's application. This is unnecessary, because the law already contains settled legal principles outside the doctrine of unconscionability that provide the appropriate basis for the result in this case.

[ 104 ] I say nothing about how the majority chooses to dispose of this case on the merits. I take issue only with its choice of vehicle. The law of unconscionability, as I have explained in these reasons, is a procedural doctrine focused on deficiencies in the contracting process, not a general tool for setting aside contractual provisions merely because a court finds them to be unfair or improvident.

[ 105 ] The public policy doctrine is fundamental to Canadian contract law and provides grounds for setting aside specific types of contractual provisions including those that harm the integrity of the justice system or undermine the rule of law.

[ 106 ] Courts refuse to enforce contracts or contractual provisions that are contrary to public policy. Public policy has been described as "a principle of judicial legislation or interpretation founded on the current needs of the community" (Fender v. St. John-Mildmay, [1938] A.C. 1 (H.L.), at p. 12, per Lord Atkin). Its application is to be assessed contextually — with reference to the specific type of contractual provision at issue — rather than as a unitary doctrine.

[ 107 ] The most relevant application of public policy for this appeal concerns provisions that limit access to legally determined dispute resolution. Courts will not allow parties to exclude access to legally determined dispute resolution where doing so would undermine the rule of law.

[ 108 ] I agree with Côté J. that access to courts must be considered alongside access to arbitration, and that arbitration is a legitimate and valuable means of resolving disputes. However, arbitration must in fact be available as a means of resolving disputes. When an arbitration clause makes arbitration practically unavailable, it operates not as an alternative to litigation, but as a complete bar to any form of dispute resolution.

[ 109 ] A provision that limits access to legally determined dispute resolution must be assessed by asking whether the limitation is reasonable between the parties, or instead causes undue hardship to one party. Where arbitration fees are prohibitively high for one party, arbitration becomes illusory, and the clause that requires it imposes undue hardship.

[ 110 ] That is precisely this case. On the uncontested facts, Mr. Heller cannot afford to initiate arbitration. The fees amount to approximately one-third of his annual income and the services agreement gives him no information about what arbitration would cost. The arbitration clause therefore imposes undue hardship on Mr. Heller and is contrary to public policy.

[ 111 ] In my view, this basis for invalidating the clause is preferable to the majority's approach, because it is grounded in settled principles and provides clearer guidance.

[ 176 ] The arbitration agreement between Mr. Heller and Uber effectively bars Mr. Heller from accessing a legally determined dispute resolution, thereby imposing undue hardship on Mr. Heller and undermining the rule of law. The arbitration agreement is unenforceable. I would dismiss the appeal, with costs to Mr. Heller in this Court and the courts below.

Dissenting Reasons — Côté J.

[ 177 ] Côté J. (dissenting) — One of the most important liberties prized by a free people is the liberty to bind oneself by consensual agreement: Hofer v. Hofer, 1970 161 (SCC), [1970] S.C.R. 958, at p. 963. Although times change and conventional models of work and business organization change with them, the fundamental conditions for individual liberty in a free and open society do not. Party autonomy and freedom of contract are the philosophical cornerstones of modern arbitration legislation. They inform the policy choices embodied in the Arbitration Act, 1991, S.O. 1991, c. 17, and the International Commercial Arbitration Act, 2017, S.O. 2017, c. 2, Sch. 5 ("International Act"), one of which is that the "parties to a valid arbitration agreement should abide by their agreement": TELUS Communications Inc. v. Wellman, 2019 SCC 19, [2019] 2 S.C.R. 144, at para. 52.

[ 178 ] The parties to the agreement at issue in this appeal have bound themselves to settle any disputes arising under it through arbitration. My colleagues Abella and Rowe JJ. and Brown J. advance competing theories which impugn, to varying degrees, the choice of the law that governs the parties' contractual arrangements, the designated seat of the arbitration, and the selection of an international arbitral institution's procedural rules. My colleagues do not impeach the parties' agreement to submit disputes to arbitration, yet they find that the parties' commitment to do so is invalid. I cannot reconcile this result with the concepts of party autonomy, freedom of contract, legislative intent, and commercial practicalities. These important considerations — which ought to be taken into account — are disregarded in the majority's reasons.

[ 179 ] As I explain below, the Arbitration Act, the International Act, this Court's jurisprudence and compelling considerations of public policy require this Court to respect the parties' commitment to submit disputes to arbitration. I would therefore allow the appeal.

A. The International Act Applies

[ 180 ] The appellants, Uber Technologies Inc., Uber Canada, Inc., Uber B.V. and Rasier Operations B.V. (collectively"Uber"), form part of a corporate group with strong connections to the Netherlands, including the corporate headquarters of Uber B.V. and Rasier Operations B.V. The corporate group has global operations in what has been styled the "sharing economy".

[ 181 ] Uber develops and operates software applications ("Apps" or an "App") for users of GPS-enabled smartphones, which connect ride-seeking passengers with drivers and allow customers to have food delivered from restaurants. The food delivery business is known as "UberEATS", and the App developed for it is known as the "UberEATS App".

[ 182 ] Uber licenses another App — the "Driver" App — to David Heller, the respondent. Mr. Heller delivers food from restaurants to customers who have ordered food through UberEATS and is paid through the Driver App. A person in his position is commonly referred to as an "Uber driver". He earns CAN$400 to CAN$600 per week driving for 40 to 50 hours.

[ 183 ] To become an Uber driver, Mr. Heller was required to enter into a service agreement with Rasier Operations B.V. through the Driver App. He was periodically required to agree to new versions of the service agreement and of an agreement subsequently signed with Uber Portier B.V., which is not a party to this appeal. To accept the service agreement, Mr. Heller was required to scroll through the entire contract and to click two buttons to indicate his acceptance. The Driver App does not limit the time an Uber driver may take to review the service agreement before accepting.

[ 184 ] The parties do not suggest that there were any meaningful substantive differences between the various service agreements for the purposes of this appeal. I refer to the agreements collectively throughout these reasons as the "Service Agreement".

[ 185 ] The Service Agreement includes a clause that provides that any dispute, conflict or controversy arising in connection with the agreement is to be first submitted to mediation and, if mediation is unsuccessful, is to be finally resolved by arbitration ("Arbitration Clause"). The Arbitration Clause adds that the International Chamber of Commerce's ("ICC") Arbitration Rules, Mediation Rules developed by the International Court of Arbitration ("ICA") and the International Centre for ADR, as amended from time to time ("ICC Rules"), are to apply, and designates Amsterdam, the Netherlands, as the place of arbitration ("Place of Arbitration Clause"). The Service Agreement also includes a clause that provides that it is to be governed by and construed in accordance with the laws of the Netherlands ("Choice of Law Clause").

[ 186 ] Uber offers a free internal dispute resolution mechanism which connects Uber drivers to customer support representatives. Ontario-based drivers may also visit a local support centre referred to as a Greenlight Hub to resolve disputes. It is noteworthy that Mr. Heller has raised over 300 complaints through Uber's internal procedure, most of which were resolved within 48 hours.

[ 187 ] The selection of the ICC Rules in a mediation or arbitration agreement entails the administration of the proceedings by the ICC's autonomous dispute resolution bodies: the ICA and the International Centre for ADR. The ICC Rules provide for the payment of mandatory fees to these dispute resolution bodies for the administration of mediation and arbitration proceedings, which total US$14,500 for a claim under US$200,000 ("ICC Fees").

[ 188 ] Mr. Heller commenced a proposed class proceeding in Ontario for CAN$400,000,000, alleging that Uber drivers such as himself have been misclassified by Uber because they are employees who are entitled to the benefits and protections of Ontario's Employment Standards Act, 2000, S.O. 2000, c. 41 ("ESA").

[ 189 ] Uber brought a motion to have Mr. Heller's proceeding stayed in favour of arbitration pursuant to the Arbitration Clause and the International Act or, alternatively, the Arbitration Act.

[ 190 ] Applying the International Act, the Ontario Superior Court stayed Mr. Heller's action in favour of arbitration: 2018 ONSC 718, 41 D.L.R. (4th) 343. The Court of Appeal allowed the appeal and set the stay aside, holding that, if the drivers are employees, as is alleged, then the Arbitration Clause illegally contracted out of an employment standard. In addition, the Arbitration Clause was found to be unconscionable at common law. Either conclusion meant that the Arbitration Clause is invalid under s. 7(2) of the Arbitration Act such that the mandatory stay does not apply.

B. Position of the Dissent

[ 191 ] The ESA includes the following provisions:

Definitions

1 (1) In this Act,

"employment standard" means a requirement or prohibition under this Act that applies to an employer for the benefit of an employee; . . .

No contracting out

5 (1) Subject to subsection (2), no employer or agent of an employer and no employee or agent of an employee shall contract out of or waive an employment standard and any such contracting out or waiver is void.

Greater contractual or statutory right

(2) If one or more provisions in an employment contract or in another Act that directly relate to the same subject matter as an employment standard provide a greater benefit to an employee than the employment standard, the provision or provisions in the contract or Act apply and the employment standard does not apply.

No treating as if not employee

5.1 (1) An employer shall not treat, for the purposes of this Act, a person who is an employee of the employer as if the person were not an employee under this Act.

Complaints

96 (1) A person alleging that this Act has been or is being contravened may file a complaint with the Ministry in a written or electronic form approved by the Director.

When complaint not permitted

98 (1) An employee who commences a civil proceeding with respect to an alleged failure to pay wages or to comply with Part XIII (Benefit Plans) may not file a complaint with respect to the same matter or have such a complaint investigated.

[ 192 ] The Arbitration Act includes the following provisions:

Court intervention limited

6 No court shall intervene in matters governed by this Act, except for the following purposes, in accordance with this Act:

1. To assist the conducting of arbitrations.
2. To ensure that arbitrations are conducted in accordance with arbitration agreements.
3. To prevent unequal or unfair treatment of parties to arbitration agreements.
4. To enforce awards.

Stay

7 (1) If a party to an arbitration agreement commences a proceeding in respect of a matter to be submitted to arbitration under the agreement, the court in which the proceeding is commenced shall, on the motion of another party to the arbitration agreement, stay the proceeding.

Exceptions

(2) However, the court may refuse to stay the proceeding in any of the following cases:

1. A party entered into the arbitration agreement while under a legal incapacity.
2. The arbitration agreement is invalid.
3. The subject-matter of the dispute is not capable of being the subject of arbitration under Ontario law.
4. The motion was brought with undue delay.
5. The matter is a proper one for default or summary judgment.

Arbitral tribunal may rule on own jurisdiction

17 (1) An arbitral tribunal may rule on its own jurisdiction to conduct the arbitration and may in that connection rule on objections with respect to the existence or validity of the arbitration agreement.

Independent agreement

(2) If the arbitration agreement forms part of another agreement, it shall, for the purposes of a ruling on jurisdiction, be treated as an independent agreement that may survive even if the main agreement is found to be invalid.

Review by court

(8) If the arbitral tribunal rules on an objection as a preliminary question, a party may, within thirty days after receiving notice of the ruling, make an application to the court to decide the matter.

[ 193 ] The International Act includes the following provisions:

Application of Model Law

5 (1) Subject to this Act, the Model Law on International Commercial Arbitration, adopted by the United Nations Commission on International Trade Law on 21 June 1985, as amended by the United Nations Commission on International Trade Law on 7 July 2006, set out in Schedule 2, has force of law in Ontario.

Stay of proceedings

9 (1) If a party to an arbitration agreement commences a proceeding in respect of a matter to be submitted to arbitration under the agreement, the court in which the proceeding is commenced shall, on the motion of another party to the arbitration agreement, stay the proceeding.

[ 177 ] I would therefore allow the appeal. The appropriate remedy is a conditional stay of proceedings, requiring Uber to advance the fees needed to initiate the arbitration proceedings. In addition, if the arbitration clause is found by the arbitrator to exclude ESA benefits, that clause should be severed, and the remainder of the arbitration clause should be enforced.

Result

Appeal dismissed. Costs to the respondent in this Court and in the courts below.

Solicitors

For the appellants: Torys, Toronto.

For the respondent: Wright Henry, Toronto; Samfiru Tumarkin, Toronto.

For the intervener the Attorney General of Ontario: Attorney General of Ontario, Toronto.

For the intervener the Young Canadian Arbitration Practitioners: Perley-Robertson, Hill & McDougall, Ottawa.

For the intervener the Arbitration Place: Borden Ladner Gervais, Vancouver.

For the intervener Don Valley Community Legal Services: Monkhouse Law, Toronto.

For the intervener the Canadian Federation of Independent Business: Canadian Federation of Independent Business, Ottawa.

For the intervener the Samuelson-Glushko Canadian Internet Policy and Public Interest Clinic: Samuelson-Glushko Canadian Internet Policy and Public Interest Clinic, Ottawa.

For the interveners the Income Security Advocacy Centre and Parkdale Community Legal Services: Income Security Advocacy Centre, Toronto.

For the intervener the United Food and Commercial Workers Canada: Goldblatt Partners, Toronto.

For the intervener the Workers' Health and Safety Legal Clinic: Workers' Health and Safety Legal Clinic, Toronto.

For the intervener the Montreal Economic Institute: Osler, Hoskin & Harcourt, Toronto.

For the intervener the Canadian American Bar Association: Caza Saikaley, Ottawa.

For the interveners the Chartered Institute of Arbitrators (Canada) Inc. and the Toronto Commercial Arbitration Society: Blake, Cassels & Graydon, Vancouver.

For the intervener the Canadian Chamber of Commerce: Davies Ward Phillips & Vineberg, Toronto.

For the intervener the International Chamber of Commerce: Norton Rose Fulbright Canada, Montréal.

For the intervener the Consumers Council of Canada: Sotos, Toronto.

For the intervener the Community Legal Assistance Society: Allen/McMillan Litigation Counsel, Vancouver.

For the intervener ADR Chambers Inc.: Bennett Jones, Toronto.