Is Your Arbitration Clause Enforceable?

Arbitration Clause

With the start of a new year, direct selling companies might benefit from taking a new look at the arbitration clauses designed to protect them from class-action lawsuits.

Why? Last week, the Ontario Court of Appeal deemed Uber’s arbitration policy to take advantage of drivers. A panel of three judges ruled on Wednesday that Uber was improperly forcing its drivers in the province to resolve complaints about pay or other work issues through an international mediation process in the Netherlands. Drivers disputing even small complaints face a steep cost of $14,500 to initiate the process, the ruling said.

The clause, raised in the class action certification process, is both “unconscionable” and amounts to “illegal contracting out of an employment standard,” Justice Ian Nordheimer wrote, with Justices Kathryn Feldman and Gladys Pardu concurring in allowing the appeal.

Michael Wright, managing partner at Cavalluzzo LLP in Toronto, says the decision shows that if arbitration provisions are too onerous for one party, they may be set aside.

“What the court concluded was that Uber overreached fairly dramatically here,” says Wright, one of the lawyers who represented appellant David Heller in the case, Heller v. Uber Technologies Inc., 2019 ONCA 1.

The decision overturned that of the lower court and dealt a blow to the ride-hailing technology company, which now faces the prospect of a class-action lawsuit in Ontario.

The enforceability of arbitration clauses has been challenged in direct selling previously. In 1998, a group of Amway distributors filed suit alleging that the arbitration clause in their distribution agreement with Amway was unenforceable. The District Court held that the clause was. It found that the arbitration agreement was not unconscionable and further reasoned that the parties were sophisticated business people who were aware of the consequences of agreeing to such an arbitration clause.

Maybe now is a good time to start the new year by revisiting your arbitration policy to see if it would stand up in court.

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