In June, the Supreme Court of Canada released its decision in Uber Technologies Inc. v Heller, dismissing an appeal of a decision by the Ontario Court of Appeal that held that the arbitration clause contained in Uber’s standard form service agreement was invalid due to unconscionability and because it contracted out of the Employment Standards Act.

Contrary to many misconceptions and mischaracterizations about the decision, the issue before the court was the validity and enforceability of the arbitration clause, not the classification of Uber drivers as employees.

In 2017, David Heller, an Uber food delivery services driver, started a proposed class proceeding against the company, alleging violations of the Employment Standards Act and other related damages. His argument was predicated on the position that he was an employee within the meaning of the act, rather than an independent contractor, and he should therefore be entitled to the protections and entitlements provided by the act.

Read: Supreme Court sides with Uber driver seeking better pay, benefits

In response, Uber brought a motion to stay the proposed class proceeding in favour of arbitration in the Netherlands, as provided for in the arbitration clause contained in the standard form agreements Uber had with its drivers. That clause required any disputes between the parties to be resolved through mediation and arbitration in the Netherlands.

The motion judge stayed the proposed class proceeding, finding that he didn’t have authority to decide on the validity of the arbitration clause, that the International Commercial Arbitration Act applied rather than the Ontario Arbitration Act and that it’s for an arbitrator in the Netherlands to determine whether they have the jurisdiction to decide on the validity of the agreement. In the alternative, he held that the arbitration clause wasn’t invalid.

The court of appeal set aside the motion judge’s decision and found that an Ontario court could determine the validity of the arbitration agreement and that the arbitration clause was unconscionable because of the inequality of bargaining power between the contracting parties and because of the prohibitive cost of the arbitration process, which required an upfront administrative filing fee of US$14,500, as well as legal fees and other related costs.

Read: New Uber contract could have chilling effect on class action, says lawyer

Importantly, the court of appeal also found that requiring mandatory arbitration for dispute resolution deprived the right of an employee to file complaints to the Ministry of Labour as provided for in the Employment Standards Act, thus improperly contracting out of the provincial minimum standards legislation.

Contrary to the motion judge’s decision, the Supreme Court of Canada held that the Ontario Arbitration Act applied, rather than the International Commercial Arbitration Act, which is only meant to govern international and commercial agreements, and that the present dispute was employment-related.

On motion of a party, the arbitration act directs courts to stay judicial proceedings in favour of an arbitration agreement, except where the court has determined that the agreement is invalid. The Supreme Court of Canada decided this wasn’t a situation where it should refer a challenge to an arbitrator’s jurisdiction to the arbitrator due to the prohibitive costs associated with going to arbitration and proceeded with its analysis of unconscionability.

Courts can exercise the equitable doctrine of unconscionability to set aside an unfair agreement where they’re satisfied there’s: (a) an inequality of bargaining power in the contracting process; and (b) a resulting improvident bargain.

Read: Uber Toronto drivers unionizing for minimum wage, sick and vacation days

The majority of the Supreme Court of Canada determined there was a clear inequality of bargaining power present in these facts. While the majority was clear in stating that standard form agreements aren’t inherently flawed and unconscionable, in these circumstances, Heller was powerless to negotiate any terms, there was a significant “gulf of sophistication,” there was no information about mediation and arbitration costs in the standard form agreement and the rules for arbitration weren’t attached.

The upfront costs associated with arbitration in the Netherlands also provided a clear result of an improvident bargain in the eyes of the majority. Having found the agreement was unconscionable, the majority of the court deemed it unnecessary to determine whether or not the agreement constituted an improper contracting out of the Employment Standards Act. It’s worth noting that Justice Côté, in dissent, placed great emphasis on the freedom of parties to enter into contracts.

It remains to be seen how this decision might impact employers and employment agreements more generally. Although the majority of the Supreme Court of Canada referenced the importance of freedom of contract and stated that standard form agreements aren’t inherently flawed and that arbitration clauses can be considered separately from the contract as a whole, employers should review their standard form agreements and any arbitration clauses that they use in their agreements to ensure that they’re valid and enforceable in light of the decision.