Supreme Court Seeks to Provide Balance to Contracting Parties

The use of arbitration as a means to settle family disputes is quite common. In fact, many parties prefer this method over litigation, for a variety of reasons, including the potential to save time and/or money, and the privacy this method offers over traditional litigation. Some couples may go so far as to include a mandatory arbitration clause in a domestic contract, such as a marriage agreement or cohabitation agreement. This enables a couple to predetermine the resolution method from the outset, saving an argument down the road in the event of a divorce or separation.

However, a recent decision of the Supreme Court of Canada decided on the fairness and enforceability of an arbitration clause in an employment agreement, potentially setting a national precedent for similar clauses in family agreements across the country.

Uber Technologies Inc. v. Heller

In the case at hand, a driver for Uber’s food delivery arm, Uber Eats, sought to bring a class action against the company, forcing it to treat drivers as employees rather than independent contractors. Ultimately, the goal is to force the company to extend statutory employment rights, such as vacation time or sick leave, to its drivers. When the class action began, Uber objected and sought to dismiss the matter on the basis that all of its driver contracts contain a clause stating that any disputes arising under the contract must be brought before an arbitrator, rather than litigated in court. The catch is that the arbitrator listed in the contract is located in the Netherlands, making the process prohibitively expensive and inconvenient for drivers seeking to exercise their rights under their contracts.

Uber’s application to dismiss has now wound its way through all levels of court, with varying results. In the original decision, the court sided with Uber, finding that the drivers who had singed the agreement were bound by the arbitration clause and required to take any dispute to the appointed arbitrator, including the question of the clause’s enforceability.

On appeal, the Ontario Court of Appeal overturned the lower decision, finding that the clause prevented the drivers from exercising their statutory right to bring labour concerns before the Ministry of Labour. Uber was granted the right to appeal the decision to the Supreme Court, which again found in favour of the drivers on the basis of ‘unconscionability’.

What is an ‘Unconscionable’ Clause in a Contract?

This finding by the SCC will likely have an impact on contracts of all kinds going forward, and so it is crucial to understand the concept of unconscionability and how it is determined. Failure to do so will more than likely result in a clause, or even an entire contract, being tossed out.

The test for unconscionably, as stated by the SCC in this case, is twofold. First, there must be a degree of imbalance in the bargaining power between the parties. Second, the resulting agreement must be unfair in some way.

When a couple enters into a domestic contract, it may be possible that one person has more sophisticated knowledge of a family business or complex finances such as family trusts or financial investments. If the other person lacks the same level of knowledge, it could be possible for the more knowledgable party to take advantage of this imbalance and create unfair terms. This is a key reason that independent legal advice is mandatory with respect to certain family law matters in Alberta. It is key that both parties are fully aware of the rights and obligations they are agreeing to prior to signing an agreement.

Further, in some relationships that may be considered abusive, one party may be too fearful to object even if they are aware that a clause is unfair. In mediations or arbitrations involving abusive partnerships, often the parties will remain in separate rooms throughout the proceeding, specifically to prevent a party from being afraid to speak up on their own behalf.

Moving on to the second part of the test, the agreement must be found to be unfair in some way. In the Uber case, the arbitration clause, if upheld, would have required drivers to spend over $14,000 USD of their own money, often more than they earned in a year, to initiate the arbitration process. In addition, they would have had to bear the expense and time of travelling to the Netherlands to participate. This was deemed wholly unfair, enabling the Court to find the clause to be unconscionable and therefore invalid. Similarly, if a family contract or clause resulted in an obviously unfair outcome for one party, a court would be more inclined to invalidate it rather than allow the inequity.

At Mincher Koeman, our family law lawyers have considerable experience in advising and advocating for clients in mediation and arbitration. We also regularly advise clients on their rights under a variety of domestic contracts, providing drafting services or independent legal advice.

We will always provide honest and practical advice with respect to the best method for any family matter to proceed in order to minimize cost and inconvenience for each of our clients. Please contact our office to make an appointment to discuss your matter with one of our lawyers today by calling us at 403-910-3000 or by contacting us online.