Skip the arbitration: mandatory arbitration clause in standard-form contract found unconscionable

In Pokornik v. SkipTheDishes Restaurant Services Inc, 2024 MBCA 3 (Pokornik), the Manitoba Court of Appeal held that the arbitration clause in a standard form agreement was unconscionable and unenforceable. As a result, a proposed class action by drivers delivering food and beverages through SkipTheDishes may proceed — the Court refused to stay the action in favour of arbitration. This decision adds to the growing number of appellate cases analyzing whether mandatory arbitration clauses in standard form contracts are unconscionable.

We discussed the lower court decision, which was upheld, in a previous blog post.

Background

The proposed class representative, Ms. Pokornik, started working as a courier, delivering food and beverages to customers through SkipTheDishes, in 2014. Her original courier agreement in 2014 did not contain an arbitration clause (2014 Agreement).

In July 2018, SkipTheDishes informed Ms. Pokornik that it was adding a mandatory arbitration clause and a class-action waiver to the agreement (2018 Agreement). One day before the 2018 Agreement took effect, a class-action claim was filed against SkipTheDishes, with Ms. Pokornik as the proposed class representative. Ms. Pokornik also advised SkipTheDishes that while she did not agree to the terms of the 2018 Agreement, she would agree to it under protest in order to continue working as a courier. SkipTheDishes filed a motion to stay the class action in favour of arbitration.

The King’s Bench decision

The Court of King’s Bench of Manitoba denied SkipTheDishes’ stay motion, and allowed the class action to proceed, holding amongst other things, that

1. the 2014 Agreement, which did not contain an arbitration clause, governed the relationship between the parties
2. Ms. Pokornik had not agreed to the terms of the 2018 Agreement and there was a lack of consideration
3. in any event, the arbitration clause was unconscionable because there was a clear inequality of bargaining power between the parties and the resulting arbitration clause was an improvident transaction

The Court of Appeal’s decision

On appeal, SkipTheDishes argued that the motion judge erred by

• failing to refer the question of which agreement governed the parties’ relationship to arbitration
• finding that the 2018 Agreement did not govern the parties’ relationship
• determining that, if the 2018 Agreement applied, the arbitration clause was unconscionable

Jurisdiction

The Court of Appeal determined that, while arbitrators have the power to rule on their own jurisdiction, a court may consider jurisdictional issues where they involve questions of law, or of mixed fact and law that require only a superficial review of the evidence on the record. The Court found the decision of which agreement governed was a question of law, or at least a question of mixed fact and law where the decision could be made based on the face of the record, which allowed for a jurisdictional determination by the court.

Applicable agreement

The Court of Appeal held that the motion judge erred in finding that the 2014 Agreement governed the parties’ relationship.

The 2014 Agreement stated that it could be amended at any time and that couriers consented to such amendments by continuing to provide services for SkipTheDishes. Although Ms. Pokornik sent an email to SkipTheDishes in which she expressed disagreement with the terms of the 2018 Agreement, she nonetheless clicked “I Agree” on the platform and continued to provide courier services. The Court found that Ms. Pokornik’s actions amounted to both consent and consideration and that she was therefore bound by the 2018 Agreement.

Unconscionability

However, the Court found the arbitration clause to be unconscionable.

The motion judge had applied the two-step test from Uber Technologies Inc v. Heller, 2020 SCC 16 and considered whether there was inequality of bargaining power between the parties; and if there was a resulting improvident transaction (i.e., did the bargaining process unduly advantage one party at the expense of the other?).

The Court of Appeal agreed that the bargaining power between SkipTheDishes and Ms. Pokornik was clearly unequal. The Court also found that the transaction was improvident, noting in particular that there was a class-proceeding waiver (which would be to the advantage of SkipTheDishes) and that the contract was one for services (rather than a consumer contract). Additionally, the disputes likely to arise under the 2018 Agreement would be for relatively small amounts, while the costs for legal representation to successfully advance a claim would be unduly expensive (particularly for individual defendants such as Ms. Pokornik). The Court concluded that, in this context, the mandatory arbitration clause would effectively deny Ms. Pokornik access to any dispute resolution process whatsoever.

Key takeaways

Pokornik demonstrates that an unconscionability assessment of an arbitration clause in standard-form contracts is context-specific — it is closely tied to the nature of the underlying agreement and the relationship between the parties.

Pokornik may be contrasted with other recent decisions which have upheld the validity of arbitration clauses in standard-form contracts. For example, in two recent decisions by the British Columbia Court of Appeal, Williams v. Amazon.com Inc, 2023 BCCA 314 and Petty v. Niantic Inc, 2023 BCCA 315, the Court ruled that a mandatory arbitration clause was valid and enforceable (see here and here for our discussion of these B.C. cases).

The plaintiffs in the B.C. cases were not dependent upon the agreements for income, there was no element of trust involved, they could take their business elsewhere if they did not agree with the contractual terms, and the agreements were for goods rather than services. Judges may scrutinize income-related agreements (like Pokornik’s) more closely, particularly when there is a power imbalance between the contracting parties.

Additionally, the arbitration clauses at issue in the B.C. cases included terms that mitigated any power imbalance between the parties. Individuals would be reimbursed for their legal fees, they could opt out of the arbitration, and they could pursue small claims in court. The resulting bargain was not improvident. While the arbitration clause in Pokornik provided that legal costs would be reimbursed, it did not include these other additional benefits.

The decisions highlight the importance of a contextual analysis when evaluating mandatory arbitration clauses. This includes a consideration of both the nature of the agreement (i.e., is the agreement a consumer or service contract?) and the potential effects of the arbitration upon the other party (could the arbitration clause deny access to dispute resolution?).

Parties who include mandatory arbitration clauses in their standard-form contracts should carefully consider these unconscionability factors and draft them accordingly.