Arbitration clauses in commercial agreements

Arbitration clauses in commercial agreements

Posted November 25, 2019 Category: Businesses

Many drafters of commercial agreements include an arbitration clause, often as an afterthought. Such clauses typically provide that disputes arising between the parties to the agreement proceed by way of private arbitration rather than to court. Arbitration is generally considered to be a more cost effective and efficient means of resolving commercial disputes than proceeding to court (although that is not always the case!).

However, as the ongoing saga of Heller v. Uber Technologies Inc.* highlights, arbitration clauses do require careful drafting considerations.

In Heller, the representative plaintiff brought a proposed class action lawsuit against Uber on behalf of all Uber drivers in Ontario to seek a declaration (plus $400 million in damages) that Uber’s drivers are employees, not independent contractors, and as such, are entitled to the rights and protections afforded under the Employment Standards Act, 2000 (Ontario) (“ESA”). Uber brought a preliminary motion to stay the action in favour of its driver services agreement which contained an arbitration clause that required any dispute arising under the agreement to be resolved by non-binding mediation, or failing that, by binding arbitration in the Netherlands.

The motions judge granted Uber’s stay in favour of arbitration. The Court of Appeal overturned, accepting the plaintiff’s arguments that the arbitration clause was both:

  1. Illegal, since it represented an unlawful contracting out of the ESA; and
  2. Unconscionable, since there was evidence of a grossly unfair and improvident transaction, lack of independent legal advice, an overwhelming imbalance of bargaining power and a ‘reasonable inference’ that Uber was knowingly taking advantage of these vulnerabilities.

As Heller highlights, arbitration clauses in commercial agreements require some careful thought (including whether to include one at all!) and regard to the context in which the agreement arises, in order to be enforceable. Such considerations include:

  1. What issues should proceed by arbitration or mediation or court (i.e. court ordered injunctions)?
  2. How many arbitrators will be selected and how will they be selected?
  3. What qualifications or credentials should the arbitrator(s) have?
  4. How will costs of the arbitration be allocated between the parties?
  5. What rules or procedures will apply to the arbitration?
  6. What timelines will apply?
  7. Where will the arbitration take place?

*Note: The Heller case is presently on appeal before the Supreme Court of Canada. A decision from that Court is expected soon.

Posted November 25, 2019 Category: Businesses

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