Fair Bargains and the Gig Economy
By Douglas Brodie - Posted on 15 July 2021
Editorial credit: MOZCO Mateusz Szymanski / Shutterstock.com
In the UK, as is well known, Uber recently suffered a defeat in the Supreme Court (Uber v Aslam  UKSC 5) over their attempt to avoid their drivers gaining employment protection rights. In a decision that has been seen as having wider implications for the gig economy, the Court rejected Uber’s argument that the drivers were self-employed (as discussed in my earlier blog post, Facing Down the Gig Economy). Uber’s struggles in the courts have not been confined to the UK. In Uber Technologies v Heller 2020 SCC 16 the Canadian Supreme Court was asked to address a different issue, namely the fairness of the bargain. In the Canadian litigation the parties were at issue over a clause which provided that drivers resolve any dispute with Uber through mediation and arbitration in the Netherlands. The claimant (who earned between $400 and $600 a week) was understandably anxious to avoid dispute resolution being conducted in this way; not least because the mediation and arbitration process requires up-front administrative and filing fees of US$14,500, plus legal fees and other costs of participation. This meant that the costs of arbitrating a claim against Uber would equal all or most of the gross annual income a claimant would earn working full-time as an Uber driver.
The claimant argued that the arbitration clause was invalid because it was unconscionable but also because it contracted out of mandatory provisions of Canadian employment protection legislation. The Supreme Court found for the claimant on the former ground. This was a remarkable victory as the claimant faced a fundamental difficulty as there had been no procedural defect (e.g. fraud) as such in the formation of the contract. Whilst it could be said that the substance of the bargain was markedly disadvantageous, precedent was clear that did not suffice. Such a position has been commonly held in comparable jurisdictions including the UK. In a bold decision the view was taken that the substantive unfairness of the bargain sufficed to allow the conclusion that the clause was unconscionable and thereby unenforceable. The views of a leading Canadian academic writer (John D McCamus, The Law of Contracts) proved influential: ‘Unconscionability is an equitable doctrine that is used to set aside unfair agreements that resulted from an inequality of bargaining power’. The decision is a radical one. The existence of inequality of bargaining power allows a claimant to succeed where none of the traditional categories of procedural defect are present. The question then becomes ‘whether the potential for undue advantage or disadvantage created by the inequality of bargaining power has been realized’.
It is worthy of note that the disparity of power in the relationship does not appear to have been more pronounced than is the case with employment contracts (or analogous ones) in general: ‘The arbitration agreement was part of a standard form contract. Mr. Heller was powerless to negotiate any of its terms. His only contractual option was to accept or reject it’. The fact that the contract was standard form was highlighted but, again, that is a common feature of employment relations.
Workers in the UK and their representatives might be expected to view Heller as a very positive development. Again, the fact that the employment contract is now underpinned by the obligation of fair dealing and is also viewed as relational might be thought to raise the potential relevance of Heller to litigation in the UK. A relationship informed by mutual trust or fair dealing sits uneasily with contractual terms which might be thought to be the product of ‘snatching a bargain’. Relational contract theory also stresses the importance of reciprocity in exchange lest the relationship be damaged by exploitative conduct. Blatantly unfair terms are unlikely to be conducive to a relationship flourishing.
There is no doubt that greater employment protection rights would be a good thing in the UK but I think that Heller is problematic. The outcome in the case may seem appropriate at a certain level of generality but the wisdom of transforming the common law so radically is another question entirely. Were Heller to be followed here the courts would have to decide what gave rise to an unconscionable outcome and that would be no easy task. It would also be likely to be viewed as an unwelcome one given the tendentious nature of the exercise in an area such as employment relations. This is borne out by Richards LJ in Times Travel v Pakistan International Airlines  EWCA Civ 828, para 41 who offered a view very much at odds with that in Heller: ‘The common law and equity have not countenanced as grounds for setting aside contracts factors such as inequality of bargaining power or the exploitation of a monopoly position. Intervention in relation to these and other factors seen as going to the fairness of contractual terms and the relative positions of the parties has been through legislation, directed principally to consumer contracts and consumer credit.’
The position set out by Richards LJ is one that would be likely to be shared by the judiciary in the UK more widely. Particularly, since Johnson v Unisys  1 AC 518 change of this magnitude would be seen as one for the legislature. I would also suggest that there are a number of weaknesses in the judgment of the majority in Heller that would confirm judicial scepticism about the wisdom of abandoning the current approach here. It should be said that, in some ways, Heller very much follows in the footsteps of recent decisions. It pinpoints that adverse consequences may well result from an imbalance in power in a working relationship and that judicial intervention is called for. However, by going on to expose the substance of the agreement to judicial scrutiny, it requires that judges articulate what constitutes an unacceptable bargain. Heller offers little that is insightful in this regard: a bargain ‘is improvident if it unduly advantages the stronger party or unduly disadvantages the more vulnerable.’ This provides very little by way of guidance for judges in future cases. In a powerful judgment Brown J (concurring in the result but not the reasoning) stated that ‘judges applying unconscionability are to mete out justice as they deem fair and appropriate, thereby returning unconscionability to a time when equity was measured by the length of the Chancellor’s foot.’ This criticism strikes me as well founded; subjectivity and consequent inconsistency is a threat here. Brown J concludes (correctly in my view) that the approach of the majority would drastically expand the doctrine’s reach without providing any meaningful guidance as to its application.
Heller also takes the view that a specific clause can be regarded as unconscionable without regard to whether the bargain as a whole can be viewed as fair. This strikes me as unsound and I would suggest that it only makes sense to assess matters in the round. Brown J observes that the ‘overall exchange of value and assumption of risk…may very well justify what appears to be substantial “improvidence” solely from Mr. Heller’s perspective.’ I suspect that the majority were content to focus upon the individual term in dispute to avoid the complexities that would need to be tackled by a more holistic analysis. This approach was facilitated by the extreme nature of the clause in issue: ‘Effectively, the arbitration clause makes the substantive rights given by the contract unenforceable by a driver against Uber.’
Further analysis of this issues discussed in this post can be found in Professor Brodie’s recent article ‘Canadian Jurisprudence and the Employment Contract’, published in the Industrial Law Journal and currently available online as an advance article at https://doi.org/10.1093/indlaw/dwab017.