Class action prevails over arbitration in Pokornik v. SkipTheDishes
When can parties unilaterally implement arbitration clauses “after the fact” to cover existing claims?
Earlier this year, a class action was certified against Uber despite a late-breaking amendment to the underlying agreement that would have included an arbitration clause. In that case, the court left the effect of the arbitration clause to the common issues judge. More recently, a Manitoba court concluded that part of the “specific purpose” of such an arbitration clause was to prevent putative class action proceedings, and the defendant company “would obtain an unfair advantage” if the arbitration clause was enforced to terminate the plaintiff’s proposed class action: Pokornik v. SkipTheDishes Restaurant Services Inc., 2022 MBKB 178. Justice Chartier specifically noted the arbitration provision did not permit class arbitration.
Pokornik illustrates that courts will permit class actions to proceed in the face of arbitration clauses if those clauses are unconscionable. Pokornik follows in the wake of a 2020 Supreme Court of Canada decision which found that an arbitration clause that would have required a proposed class of Uber drivers to dispute their claims at great cost (and seemingly in the Hague) was unconscionable and unenforceable: Uber Technologies Inc. v. Heller, 2020 SCC 16 (Uber). (Osler reviewed that decision here and the certification decision, mentioned above, here.)
The plaintiff started working as a courier for SkipTheDishes (Skip), a restaurant delivery service, in 2014. Her original courier agreement did not contain an arbitration clause.
In July 2018, the plaintiff was notified by email that Skip was implementing a new courier agreement which, for the first time, contained a mandatory arbitration clause. The new agreement was to take effect a week later, and couriers had to agree to keep driving for Skip.
One day before the new agreement took effect, the plaintiff filed her class action claim.
The Court of King’s Bench of Manitoba held that the original courier agreement governed the relationship between the parties. Even though the new agreement said it governed disputes arising under “any previous agreement”, the plaintiff brought her claim before the new agreement came into effect, and the arbitration clause did not expressly cover an existing court action (paras 28–29).
Moreover, and in any event, Justice Chartier concluded that the plaintiff had not agreed to the terms of the new agreement. The plaintiff informed Skip that she did not agree to the terms of the agreement and was doing so only under protest to continue to work — and so advised before clicking “I Agree”. Because Skip never responded or objected to her email, the court considered the defendant to have acquiesced to the plaintiff’s position (paras 30–31).
Justice Chartier, applying the framework in Uber, held in the alternative that the arbitration agreement was invalid on the grounds of unconscionability due to the absence of consideration (para 32). Justice Chartier was satisfied that there was a clear inequality of bargaining power, and that, under the circumstances, the arbitration agreement constituted an improvident bargain (paras 34 and 39). (This is in tension with the Court’s earlier finding that the arbitration clause in the new agreement would not have barred Ms. Pokornik’s class proceeding.)
Interestingly, factoring into this analysis was that Justice Chartier inferred that part of the “specific purpose” of the arbitration agreement was to prevent putative class action proceedings. Justice Chartier looked to Skip’s 2020 Annual Report, which stated that the arbitration clause could “…significantly reduc[e] the size of any class action and the related risks” (para 40). As such, Justice Chartier held that “the defendant would obtain an unfair advantage if the arbitration provisions were found to be valid” (para 40).
Justice Chartier noted that, while arbitration should be respected as a cost-effective and efficient method of dispute resolution, clauses that preclude the possibility of class arbitration — such as the one in Skip’s new agreement — “undermine that principle of efficient adjudication of claims on a class basis” (para 41).
Finally, Justice Chartier considered the arbitration clause invalid under Section 7(2) of the Act because there was no consideration to the plaintiff for entering the new courier agreement. The removal of a class action would benefit the defendant rather than the plaintiff, and the mandatory arbitration provision precludes class arbitration. Additionally, there was particular detriment in this instance, given the plaintiff had already filed an action.
Courts have emphasized respect for arbitration clauses because parties may have a legitimate interest in arbitrating disputes. However, Pokornik suggests that courts will carefully consider arbitration clauses in the class action context. Standalone class action waivers have been sharply criticized, and Pokornik suggests arbitration clauses may be less likely to be enforced where there is specific evidence the clauses were intended to circumvent class proceedings.
Pokornik also suggests courts may be reluctant to enforce arbitration clauses that apply retroactively. This may have factored into the Uber certification decision.
Pokornik continues to develop case law following the Uber decision in the class action context, and when arbitration agreements are contained in contracts of adhesion specifically. Following Uber, Pokornik suggests that arbitration clauses may not be enforced on the basis of unconscionability when there is unequal bargaining power and when the bargain was improvident. Requiring the parties to arbitrate would — as the court held in this case — disadvantage one party by prohibiting class arbitrations. While post-Uber case law is still developing, parties may wish to keep this analysis in mind when drafting arbitration provisions.