Canada’s highest court ruled that costly, distant arbitration processes found in contracts may not be valid if there is an inequality of bargaining power between the two parties, a decision with wide implications for persons bound by contracts found to take one-sided approaches to dispute resolution.

The Supreme Court of Canada’s June 26 ruling involved ride share firm Uber Technologies and a former driver pursuing a class action suit.

Consumers Council of Canada, represented by Mohsen Seddigh and David Sterns of Sotos LLP, intervened in the case on the issue of unconscionability. The Court’s decision ruled an arbitration clause in the standard Uber agreement was unconscionable, providing a framework for Canadian courts to assess similar contract clauses in future.

Uber contracts have included language that disputes were to be resolved through arbitration. However, the arbitration process required an administration fee of US$14,500 to be paid in advance, and the process to occur in the Netherlands. An Ontario appeals court ruled that unenforceable, and Uber appealed to the Supreme Court.

That lower court ruling came as part of an effort from an Uber driver to launch a class action lawsuit to require Uber to recognize its drivers as employees rather than independent contractors. That case now can go forward as a result of the Supreme Court ruling. It has yet to be certified in Ontario.

The majority opinion of the Supreme Court concluded that there was an inequality of bargaining power because “the arbitration clause was part of an negotiated standard form contract, there was a significant gulf in sophistication between the parties, and a person in [driver’s] position could not be expected to appreciate the financial and legal implications of the arbitration clause…. As a result, the arbitration clause is unconscionable and therefore invalid.”
The Court further noted that: “arbitration is based on its being a cost-effective and efficient method for resolving disputes. When arbitration is realistically unattainable, it amounts to no dispute resolution mechanism at all.”

Lior Samfiru, attorney for the former Uber driver told CBC before the decision: “If the court agrees with Uber, then every company can have its workers sign a document that says the same thing. That would mean that companies can do whatever they want with impunity.”