Written by Professor Claire Mumme, University of Windsor
Last week, the Supreme Court of Canada (SCC) issued its much-anticipated decision in Uber Technologies v Heller. Mr Heller commenced a class action against Uber, arguing, amongst other things, that Uber drivers were entitled to benefits provided by the Employment Standards Act (ESA). Uber sought to stay the class action, arguing that its contract with drivers required all issues to be resolved through private mediation and arbitration in the Netherlands. Before the SCC, Heller’s counsel argued that the arbitration clause was an attempt to contract out of the ESA’s claims process in violation of the Act. They also argued that the clause was unconscionable because it required a driver to pay $US 14 500.00 to file a claim in the Netherlands, an amount which did not include the driver’s transportation and accommodation costs while there. The majority of the SCC chose not to address the issue of contracting out and instead held that the clause was unconscionable and severed it from the contract. This allows the class action to move forward in Ontario, where the employment status of the drivers will next be argued. The following discussion offers some preliminary thoughts on the effect of the majority’s reasoning on the use of unconscionability in employment law.
Labour and employment lawyers may see Heller as an employment case, but the majority of the SCC frames it as an issue of consent in standard form contracts (SFCs). SFCs have received significant academic and judicial attention over the last 20 years, particularly because of the growth of online contracting. Debates have centred on whether or how to address illusory consent in such contracts. In Heller, the contract at issue was argued to be a standard form employment contract. Employment contracts often share features with SFCs, but the recent growth of employment SFCs appears due to the spread gig economy work for platforms owned by large multinationals, such as Uber. Justice Abella, writing for the majority, offers a new rationale for the doctrine of unconscionability, a rationale that positions it to address some of the problems of SFCs.
Although unconscionability is a well-established doctrine, its content has long been controversial because it is difficult to set a standard for unfairness in a market-based system predicated on adversarial negotiations. In an economic system expressly premised on the use of bargaining power, how to determine what amount or type of bargaining power inequality is too much? Heller offers a new answer to that question. Since at least the 19th century the common law courts have avoided assessing the fairness of contract terms because doing so interferes with freedom of contract. Freedom of contract assumes that contracts are private agreements negotiated between two equal, self-interested parties, who freely assume obligations towards one another. In Heller, the majority explains that where the traditional assumptions underlying freedom of contract are weakened, so too are the reasons not to assess the content of a contract. The majority holds that unconscionability will render a contract or contract term voidable where, at the time of contract, there is inequality of bargaining power resulting in an improvident transaction.
Inequality of bargaining power occurs where one party cannot adequately protect their interests in the contracting process (para 66), because their freedom to choose to enter or negotiate the contract is impaired, or their ability to understand or appreciate the meaning and significance of the contract terms is compromised. Often inequality of bargaining power will arise in the context of necessity, where one party would suffer significant detriment by not contracting, due to financial desperation or otherwise (at para 69). It also often occurs where there is cognitive asymmetry, meaning that only one party can fully understand and/or appreciate the content and significance of the contract terms (at para 71). Once inequality of bargaining power is demonstrated, the claimant must then show that the bargain was improvident, in the sense that it unduly advantages the stronger party, or unduly disadvantages the weaker party (at para 74-79). The majority notes that although not all SFCs are unconscionable, the one before them clearly was, due to the difference in power between an individual and Uber as a large multinational corporation, and the very significant costs associated with filing a claim for arbitration.
Heller’s most immediate employment impact is to address the unfairness of standard form employment contracts, typical in the gig economy, particularly as it relates to boilerplate clauses that affect workers’ ability to domestically enforce their rights. This may be of particular significance for class actions brought against multinational employers. And although it will depend on the particular facts of each case, Heller may also serve to forestall the growth of mandatory arbitration clauses in employment contracts, a practice which has been so contentious in the United States. Does the new test further expand the reach of unconscionability in the employment context?
In employment, the doctrine is often used to argue against the enforceability of release contracts, where a worker gives up their rights to sue for employment-related rights on the payment of a settlement sum or amount of notice. In the past, financial need was a factor to be considered when applying the Morrison test (see Kristy Milland’s post for a history and description of unconscionability case law), but it was only one factor amongst many. Heller, by contrast, appears to recognize that financial need can make it impossible for employees to adequately protect their interests in contracting and can push them to accept unfair contract terms. Desperate financial need, the majority holds, can give rise to unequal bargaining power. At least on the surface, Heller appears to broaden the definition of inequality of bargaining power.
If so, Heller is likely to be of most use to workers who are excluded from the coverage of the ESAs and other employment-related statutes. In particular, precariously employed professional employees, who do not earn the income or hold the job security of some of their counterparts, may benefit from Heller’s broader concept of unconscionability. Many types of unfair contract terms are already regulated by the ESA, but unconscionability could potentially be used to fill some of the perceived gaps in the Act. Could one argue, for instance, that misclassification, as a practice, is unconscionable? Is receiving your work schedule with one day’s notice unconscionable? Is it unconscionable to pay non-standard workers less than their permanent counterparts?
Despite Heller’s description of inequality of bargaining power, I suspect that the courts won’t use the doctrine to actively police contract fairness in employment. They will be wary of using it to address unfairness that is viewed as ‘normal’ in a competitive market system. I predict that the courts will interpret ‘financial desperation’ to require a very high degree of financial need, they will continue to rely on personal infirmities and vulnerability to find inequality of bargaining power, and will stick close to industry standards to determine what is ‘undue’ advantage or disadvantage. Most courts are unlikely to take the doctrine too far unless and until the SCC intervenes again and tells them to do so. Heller seems to get rid of the higher Cain standard for finding unconscionability, which is not nothing, but to my mind unconscionability will mostly be used, as Harry v Kreutziger explains, where contract terms depart markedly from community standards of commercial morality.
Finally, there are some access issues at play. In Ontario at least, for a worker to advance an unconscionability argument they will either have to bring a civil claim or appeal a decision of the Ministry of Labour to the Ontario Labour Relations Board. Most workers cannot afford to bring a civil claim unless on a contingency fee basis or through a class action, and appeals to the OLRB extend the time and increase the cost of an ESA claim. As such, unconscionability arguments may continue to arise primarily in claims by high earning employees, who suffer less from inequality of bargaining power than other workers. In other words, many workers may not be able to afford to make use of the doctrine’s expanded scope.
Uber v Heller elaborates a doctrine of unconscionability designed to address the problem of consent in SFCs, characterized as they are by asymmetrical power relations. Employment contracts hold many of the same characteristics as SFCs, and often depart from traditional freedom of contract assumptions. Heller suggests the possibility of tantalizing new arguments in the employment context, but the full development of its potential potential for workers’ rights will depend on a judicial willingness to depart from traditional notions of freedom of contract, a departure they may not be willing to undertake.
Claire Mumme, “Uber v Heller and the Fairness of Employment Contract Terms” Canadian Law of Work Forum (June 30 2020): http://lawofwork.ca/heller-mumme/
 Unconscionability is often found where an employee is presented a settlement offer immediately upon dismissal, creating distress in the employee from the dismissal, where the employee is pressured to make a fast decision, there is a financial need a “lack of sophistication” and knowledge of legal rights. See for example Alward v. Tandem Fabrics Inc., 2000 CanLII 17199 (NB QB), Blackmore v. Cablenet Ltd., 1994 CanLII 9078 (AB QB). Although the ‘changed substratum’ argument is now more prevalent, unconscionability has also been used to argue the unfairness notice periods contracted for when an employee first started with an employer, and that did not change as a worker advanced in position and seniority.