The Manitoba Court of Appeal (the “Court”) in Pokornik v. SkipTheDishes Restaurant Services Inc., 2024 MBCA 3, recently upheld a lower court decision dismissing a large online meal delivery service’s motion to stay a class proceeding in favour of arbitration, although it did not accept the lower court’s finding with respect to agreement “under protest”. The decision reinforces the high level of scrutiny that courts may apply to standard form contracts in the “gig” economy and, in particular, to arbitration clauses.

Background

The plaintiff courier (the “Plaintiff”) brought an action against SkipTheDishes Restaurant Services Inc. (“Skip”), seeking a declaration that she was an employee of Skip and not an independent contractor, that Skip had breached the terms of applicable employment standards legislation, and for damages. The Plaintiff also applied for an order that the claim proceed as a class action and filed a motion for certification.

Skip applied to stay the Plaintiff’s action based on the arbitration clause in Skip’s new standard service agreement with couriers (the “New Agreement”), which required disputes to be submitted to individualized arbitration.

When the Plaintiff began working as a courier in 2014, her relationship was governed by an agreement (the “2014 Agreement”) that did not contain an arbitration clause, but rather conferred jurisdiction on the Manitoba Court of Queen’s Bench (as it then was). When Skip emailed the Plaintiff to inform her it was implementing the New Agreement, the Plaintiff was required to click “I Accept” to the New Agreement on the Skip application before she could continue working. To keep working, the Plaintiff, who was also a single mother with a high school education, sent an email back saying, “I do not agree with the new terms, but will indicate ‘Agree’ so I can continue to get shifts because I want to work. I am doing this under protest.”

Decision of the Manitoba Court of King’s Bench

The motion judge held that there was no arbitration agreement between the parties (see our discussion of the case here) and found, among other things, as follows:

• the arbitration clause in the New Agreement was forward-looking and did not encompass a pre-existing court action;
• as the Plaintiff clicked “I Agree” under protest so she could keep working, the Plaintiff had not accepted the terms of the New Agreement; and
• even if the New Agreement could apply, the arbitration agreement was invalid for unconscionability and lack of consideration (i.e., continued ability to perform services was not consideration).

In finding the arbitration agreement unconscionable, the motion judge applied the two-step test from Uber v. Heller, 2020 SCC 16 (“Uber”): (i) was there inequality in bargaining power?; and (ii) was the resulting bargain improvident? Ultimately, the motion judge held that:

• there was significant inequality of bargaining power between the parties; and
• the bargain was improvident, because the arbitration clause (if applied as interpreted by Skip) would benefit Skip at the expense of the Plaintiff “by retroactively removing her ability to access the courts”.

Grounds of Appeal

Skip appealed the motion judge’s decision on the grounds that the motion judge had erred (i) in undertaking an analysis of what agreement governed rather than referring the matter to an arbitrator, and (ii) in finding that the New Agreement did not govern the parties’ relationship.

Decision of the Court of Appeal of Manitoba

The Court of Appeal upheld the motion judge’s decision in part, affirming that the mandatory arbitration clause was void for unconscionability, and quashed Skip’s appeal.

However, the Court held that the motion judge had erred in finding that the Plaintiff was governed by the 2014 Agreement (without an arbitration clause), rather than the New Agreement (with the arbitration clause). The 2014 Agreement clearly stated that the terms of the agreement could be amended at any time, and that the continued provision of services after notice of new terms would constitute consent to be bound by them. According to the Court, it was not enough for the Plaintiff to rely on sending an email to Skip stating “I do not agree” as an objective outward manifestation of assent, especially since she clicked “I agree” in the Skip platform and continued to provide services after the 2014 Agreement was amended. Therefore, the Court found that the Plaintiff was bound by the New Agreement that contained the mandatory arbitration clause.

Finding that the New Agreement applied, the Court then examined whether the motion judge erred in refusing to stay the action because the New Agreement was invalid by virtue of either unconscionability or lack of consideration. The Court affirmed the motion judge’s findings that the two elements of unconscionability – an inequality of bargaining power and a resulting improvident transaction – were present in this case, and thus, the Agreement was invalid. Specifically, the Court found that the nature of the contract (one of adhesion that left no opportunity to negotiate), and the presence of the class action waiver, were the two main factors that made the arbitration clause unconscionable.

While the Court acknowledged that arbitration can be an appropriate and acceptable alternative to litigation, it also reiterated the important role that class actions play in upholding principles of efficiency and access to justice, especially in circumstances where there is the possibility of many similarly situated claimants. The Court also noted that any disputes likely to arise would concern relatively small amounts, and that, while the New Agreement provided that Skip would pay the reasonable arbitration costs, the Plaintiff would still have to pay for her legal costs to advance the claim through arbitration, which would work out to be “grossly disproportionate” compared to the monetary value of her claim. Given this context, the Court concluded that the practical effect of the mandatory arbitration clause was to make arbitration realistically unattainable, so as to functionally preclude resolution altogether.

Key Takeaways

• This decision is another example of Canadian courts applying high scrutiny to standard form contracts in the “gig” economy and, in particular, to arbitration clauses. It underscores how companies using standard form contracts will want to be cautious in drafting arbitration clauses that are enforceable.
• Inequality of bargaining power and the resulting unfairness of the contract are factors that will inform whether a mandatory arbitration clause should be voided for public policy reasons. A court may find a mandatory arbitration clause unenforceable if the practical effect of the clause makes arbitration unrealistic or unattainable, so as to functionally preclude resolution altogether.
• The decision paves the road for the Plaintiff’s class action to move forward through the courts, where ultimately a determination may be made as to the classification of couriers as independent contractors or employees. We will keep readers informed of further developments.