When does an agreement “drive too hard a bargain for a court of conscience to assist”?1 Recently, in Uber Technologies Inc. v. Heller,2 the Supreme Court of Canada confronted this question in the context of Uber’s attempts to quash court proceedings brought by one of its drivers and compel arbitration in accordance with the contract he had signed. The Court rejected Uber’s efforts after finding the arbitration clause unconscionable and, therefore, unenforceable — a predictable result in light of the steep upfront costs arbitration would have imposed on the driver. Yet the concurring and dissenting opinions raised important questions about the majority’s wide-ranging denunciation of Uber’s standard form contract. The Court justified its treatment of the contract in part by pointing to the presence of a link between standard form contracts and unconscionability in U.S. unconscionability doctrine. In doing so, however, it overlooked divergent approaches to such contracts within the United States, an omission that underscores criticisms that charge the majority with crafting an overbroad decision.
On January 19, 2017, David Heller, a thirty-five-year-old resident of Ontario who used the UberEats app to earn money delivering food, commenced a proposed class action against Uber,3 alleging that it had violated Ontario’s Employment Standards Act4 by not recognizing its drivers as employees.5 Heller, who worked forty to fifty hours a week using the app and earned CAD 400–600 a week doing so,6 had entered into a driver services agreement with Uber in order to use the app.7 The agreement was governed by the laws of the Netherlands and stated that any disputes would be subject to mediation and binding arbitration,8 a process entailing upfront costs to Heller of USD 14,500.9
The Ontario Superior Court of Justice heard Heller’s claim and granted Uber’s request for a stay of proceedings in favor of arbitration.10 The court explained that cases where an arbitrator prima facie has jurisdiction should be referred to the arbitral authority to determine “what, if anything,” falls outside of her jurisdiction.11 Turning to the exceptions in Ontario law from the rule on referring disputes to arbitration, the court found that the agreement was not unconscionable,12 and thus not excepted from referral, because the court “[did] not see how it can be said that Uber preyed [on] or took advantage of Mr. Heller.”13
The Court of Appeal for Ontario reversed the order.14 The court expressed some uncertainty about the appropriate test for unconscionability but concluded that the arbitration clause was unconscionable under either the four-part test employed by Ontario courts15 or the two-part test applied by the concurring and dissenting Justices in Douez v. Facebook, Inc.,16 and that Uber “chose this Arbitration Clause in order to favour itself and thus take advantage of its drivers.”17
The Supreme Court of Canada upheld the court of appeal’s decision. Writing for the majority, Justices Abella and Rowe18 affirmed the unconscionability of the arbitration clause.19 The Court, after determining which legislation governed the agreement,20 examined the applicability of its prior holding in Dell Computer Corp. v. Union des Consommateurs21 that challenges to arbitral authority should generally be resolved by arbitrators.22 The Court reiterated that where only questions of fact are in dispute, courts should generally refer the case to arbitration, and that mixed questions of fact and law should be referred unless the issues can be resolved through a “superficial” consideration of the record.23 However, it added that Heller’s case raised an issue of accessibility that justified a departure from that general rule of arbitral referral, which “did not contemplate a scenario wherein the matter would never be resolved if the stay were granted.”24 The Court thus established that a closer review of the record may be warranted where a bona fide challenge to arbitral jurisdiction exists and there is a “real prospect” that referral would leave the challenge unresolved.25
Turning to the merits of Heller’s claim, the majority adopted a two-part test for unconscionability that “requires both an inequality of bargaining power and a resulting improvident bargain.”26 With respect to the first prong, the Court noted that the inequality in question need not adhere to “rigid limitations,”27 but may result from “[d]ifferences in wealth, knowledge, or experience”28 or “the presence of dense or difficult to understand terms” giving rise to “cognitive asymmetry.”29 With respect to the second prong, the Court noted that “[i]mprovidence must be assessed contextually.”30 Where the weaker party did not understand important terms in the contract, “the focus is on whether they have been unduly disadvantaged by [those terms].”31 Finally, the Court emphasized that a finding of unconscionability need not rest on proof of one party knowingly taking advantage of the other.32
The Court then applied this standard to Heller’s claim. In finding inequality of bargaining power, the majority pointed to the fact that Heller was powerless to negotiate the contract he signed, which was offered on a take-it-or-leave-it basis.33 Though it noted that the presence of a standard form contract does not, “by itself, establish an inequality of bargaining power,”34 the Court suggested that “[r]especting the doctrine of unconscionability has implications for boilerplate or standard form contracts”35 because such contracts “can impair a party’s ability to protect their interests[,] . . . mak[ing] them more vulnerable.”36 It also found that other qualities of standard form contracts render them susceptible to a finding of unconscionability, including that they are “drafted by one party without input from the other and . . . may contain provisions that are difficult to read or understand.”37 Characterizing its extension of the doctrine of unconscionability to standard form contracts as “not radical,” the Court noted that the link between such contracts and unconscionability has been suggested in lower courts and in academia for some time, and has been present in American jurisprudence for decades.38 The result, the Court found, was an improvident agreement with upfront costs that were roughly equal to Heller’s annual income,39 placing arbitration out of reach and rendering Heller’s contractual rights “illusory”40 and the agreement unconscionable.41
Justice Brown concurred in the finding that the arbitration clause was invalid, but on the basis of public policy.42 Casting the agreement as one “not to arbitrate,”43 Justice Brown found that it closed off access to the courts without providing a comparable measure of justice.44 Underscoring the narrow nature of his opinion, he noted “[i]t will be the rare arbitration agreement that . . . acts as an effective bar to adjudication,”45 given the Court’s acceptance of reasonable limitations on access to justice and the efficiency advantages offered by most arbitration agreements.46 Justice Brown suggested that the doctrine of unconscionability was ill-suited to resolve the dispute at hand because it was intended to redress significant procedural deficiencies in the contract formation process, and because the only procedural shortcomings uncovered by the majority related to the presence of a standard form contract.47 Finally, he cautioned that the absence of a knowledgeable-exploitation requirement in the majority’s unconscionability test,48 and its embrace of “subjective, even idiosyncratic”49 analysis with respect to the improvident-transaction prong, would create significant commercial uncertainty in Canada.50
Justice Côté dissented, suggesting that Uber’s request for a stay of proceedings should be granted provided that the company advance Heller the funds necessary to enter into arbitration,51 and disagreeing in the first instance with the majority’s derogation from the rule that challenges to arbitral tribunal jurisdiction should be decided by the tribunal itself.52 Justice Côté criticized the majority for setting the threshold for inequality “so low as to be practically meaningless in the case of standard form contracts,”53 while overestimating Heller’s vulnerability and the degree to which the costs of arbitration amounted to a barrier as compared to those associated with judicial proceedings.54
The majority’s finding that the arbitration agreement was unconscionable is perhaps unsurprising — the agreement presented a seemingly insurmountable obstacle to Heller’s ability to vindicate his contractual rights. Yet in the Court’s desire to shift its jurisprudence toward a “modern application” of the unconscionability doctrine to standard form contracts, where “the normative rationale for contract enforcement . . . [is] stretched beyond the breaking point,”55 it painted with a broad brush, an approach that was the subject of compelling critiques from the concurrence and dissent. And while the majority was right to note that U.S. unconscionability doctrine generally recognizes a link between standard form contracts and unconscionability, it overlooked significant diversity in state approaches, an oversight that seems to accentuate the critiques leveled by the concurrence and dissent.
The majority framed the development of unconscionability doctrine in connection with standard form contracts as “not radical,” disclaiming any attempt to issue a blanket opinion on standard form contracts.56 Yet the concurring and dissenting Justices rightly observed that, in crafting its new standard, the majority lumped commonplace characteristics of standard form contracts, like the absence of negotiation and presence of dense language, into its doctrinal analysis.57 The broad sweep of that approach was further amplified by the Court’s “contextual” assessment of the improvident-transaction prong58 and the seemingly ineffable quality of an inquiry into whether one party has been “unduly disadvantaged” by terms produced by unequal bargaining power.59 The majority justified linking standard form contracts with unconscionability by pointing to developments in Canadian legal academia and in lower courts. While some commentators had indeed called for the Court to take a sterner approach to such contracts,60 others were quick to criticize the move as lacking definitional clarity.61 Nor was the Court’s reliance on Canadian precedent immune to criticism: the majority’s opinion seemed to go beyond both the framing of unconscionability relied on by the lower courts it cited62 and the Court’s own precedent.63
In explaining its decision to link standard form contracts with unconscionability, the Court noted that such a link “has also been present in the American jurisprudence for more than half a century.”64 U.S. jurisprudence made for a seemingly persuasive comparison: Canada and the United States share many of the same common law traditions that underpin unconscionability doctrine, after all.65 The comparison also had a claim to established pedigree. The Uniform Commercial Code (U.C.C.) represented the first formal codification of the unconscionability defense in U.S. contract law,66 and standard form contracts were the focus of the principal drafter, Professor Karl Llewellyn, who “originally intended to . . . invalidate or weaken the force of many such contracts.”67 And since then, the doctrine of unconscionability has indeed been used to invalidate provisions in a wide variety of standard form contracts.68
Nevertheless, the Court’s cursory reference to the link in U.S. doctrine between standard form contracts and unconscionability belied a more complicated reality. To speak of U.S. contract law, and unconscionability doctrine in particular, in a manner that suggests homogeneity is to overlook the fact that both largely grew out of state law and are thus necessarily heterogeneous across jurisdictions.69 U.S. courts generally separate unconscionability into two elements: substantive and procedural.70 At varying levels, U.S. courts do find that the presence of a standard form contract contributes to procedural unconscionability, but few would declare such a contract procedurally unconscionable only because it is a standard form one.71 Instead, a vast array of extenuating and mitigating factors come into play.
Some courts, like the Heller majority, look to the presence of complex language beyond the ken of an ordinary consumer to determine whether procedural unconscionability exists.72 Yet, even in those jurisdictions, factors extending beyond difficult-to-understand terms to elements such as the time and opportunity available to read a contract are often taken into consideration.73 And the list goes on: courts have considered, among other factors, the “take-it-or-leave-it nature” of the contract and the presence of economic compulsion,74 unfair surprise,75 grossly unequal bargaining power,76 and monopoly power77 in assessing unconscionability in standard form contracts. Even the District Court for the District of Columbia, applying the D.C. Circuit’s archetypal consideration of unconscionability doctrine in a standard form contract setting relied upon by the Heller majority,78 has interpreted the doctrine as requiring “something more,” in the form of “greatly disparate” bargaining power, no negotiation, and great necessity.79 To different lengths, then, U.S. jurisdictions share the Court’s skepticism of verbiage in standard form contracts, but many look for more than a mere showing of difficult-to-read contractual language. Against this laundry list of contractual deficiencies, U.S. unconscionability analysis weighs “the practical utility and universality of [standard] form contracts,” which supports enforceability.80 Subjectivity is the norm in this jumbled landscape.81
The comparison drawn by the majority is therefore unlikely to inspire confidence in those who share the concerns of the concurrence and dissent that Heller “vastly expand[ed]” the scope of unconscionability doctrine82 or pointed to the creation of an “illusory” standard83 applicable to this extremely common species of contract.84 More likely, the majority’s casual reference to U.S. unconscionability doctrine will reinforce the concerns of those who worry that the opinion presages a shift in Canadian contract law back to a time “when equity was measured by the length of the Chancellor’s foot,”85 and further muddies the waters for courts of conscience trying to find the line between the hard bargain and the unconscionable.