More and more employers are requiring employees to sign employment agreements that in many cases significantly reduce employees’ rights or impose significant restrictions on their ability to compete after they leave their employer. As readers of this blog will know an employer may be able to reduce an employee’s common law right to reasonable working notice to the minimum standards under the Employment Standards Act (“ESA”): see Machtinger v HOJ Industries Ltd., 1992 CanLII 102 (SCC). So for example an employee who would be entitled to 24 months’ notice might sign an agreement that reduces her rights to 8 weeks’ notice or severance pay. Employee counsel often try to undermine the validity of such restrictive contracts in a variety of ways by arguing:
The contract is too ambiguous;
The contract did not provide for the minimum standards under ESA and is thus void
The employee moved to a different position so the restriction no longer applied;
The contract was not supported by “legal consideration”;
The contract should be struck down as being unconscionable.
The law in BC at least is pretty well settled with respect to the first 4 of these defenses. However the law with respect to the 5th ground to attack a contract, unconscionability, has been muddied a great deal by the Supreme Court of Canada’s (“SCC”) decision in Uber Technologies Inc. et al v David Heller 2020 SCC 16 (CanLii). Once again employers are left with uncertainty in organizing their affairs and legal relationships.
Mr. Heller provided food services in Toronto using Uber’s software applications. He had to accept Uber’s standard contract that provided, inter alia, that any dispute with Uber had to be resolved by mediation and arbitration in the Netherlands. The up-front administrative and filing fees were US $14,500 plus legal fees and costs of participation which represented most of Mr. Heller’s annual income. Mr. Heller brought a class action against Uber for violations of the employment standards legislation. Uber obtained a stay order successfully arguing that the issue had to be decided in arbitration in the Netherlands. That of course would have effectively ended the law suit.
Mr. Heller argued that the arbitration clause was unconscionable and therefore invalid. The majority of the SCC stuck down the arbitration clause and lifted the stay order. Based on both the financial and logistic disadvantages faced by Mr. Heller in his ability to protect his bargaining interests and on the unfair terms that resulted, the arbitration clause was found to be unconscionable and therefore invalid. Brown J issued a concurring decision but did not rely on the doctrine of unconscionability. In fact Brown J pointed out that the expansion by the majority of the doctrine of unconscionability set a dangerous precedent in contract law.
A fundamental cornerstone of our common law is the ability of parties to enter into binding contracts. However “equity” tempers the common law. “Unconscionability” is an equitable doctrine that is used to set aside unfair agreements that resulted from inequality of bargaining power.
The Majority held that unconscionablity requires both an inequality of bargaining power and a resulting improvident bargain. Inequality of bargaining power exists when one party cannot adequately protect its own interests in the contracting process. A bargain will be improvident if it unduly advantages the stronger party or unduly disadvantages the more vulnerable. While one party knowingly taking advantage of another’s vulnerability may provide strong evidence of inequality of bargaining power, it is not essential for a finding of unconscionability. In fact unconscionability, according to the Majority, does not require that the transaction be grossly unfair, that the imbalance of bargaining power be overwhelming or that the stronger party intend to take advantage of a vulnerable party.
Brown J in a concurring opinion struck down the arbitration clause but did so on different grounds. His opinion strongly disagreed with the Majority’s reliance on the doctrine of unconscionablity. The concurring opinion provides a very detailed analysis of the doctrine of unconscionability a complete review of which is beyond this article. However Brown J’s opinion regarding the Majority’s analysis and expansion of the doctrine is seen in this passage: –>
“ It is therefore important to elaborate on the criteria that form the basis for reaching the conclusion that a contract or contractual provision should be set aside. Attempting to jam multiple grounds for setting aside contracts and contractual terms into one single principle serves only to obfuscate those criteria. To move forward in a coherent and rational way, “it is absolutely imperative, in connection with the doctrine of unconscionability, to resist appeals to unreasoned intuition” … Courts must not develop contract doctrines that invite “ad hoc judicial moralism or ‘palm tree’ justice” (Bhasin v. Hrynew, 2014 SCC 71,  3 S.C.R. 494, at para. 70).
 But unreasoned intuition and ad hoc judicial moralism are precisely what will rule the day, in my respectful view, under the analysis of my colleagues Abella and Rowe JJ. In their view, 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 (para. 78, quoting L. I. Rotman “The ‘Fusion’ of Law and Equity?: A Canadian Perspective on the Substantive, Jurisdictional, or Non-Fusion of Legal and Equitable Matters” (2016), 2 C.J.C.C.L. 497, at p. 535). As Professor Bigwood writes:
. . . acceptance of such a “free‑wheeling” approach is also acceptance of the risk that those subject to Canadian law in this area will lose the very virtues of guidance, transparency and accountability that come with forced specificity in application, justification and analysis. To the extent the test bypasses such natural controlling phenomena of the common law method, it certainly risks decline into unprincipled and undisciplined judicial decision‑making, and thus could rightly be viewed as an “enemy” of reason, discipline and the rule of law. [Footnote omitted.]”
UNCONSCIONABILITY DOCTRINE AND EMPLOYMENT CONTRACTS
As noted the SCC has sanctioned the use of what might be considered Draconian employment contracts that can effectively reduce an employee’s entitlement in the extreme case from 24 months’ notice or pay in lieu to 8 weeks. But in doing courts have noted this caveat:
Similarly, in Brown v. Utopia Spas and Salons Ltd., 2014 BCSC 1400, the court commented specifically on incorporating the ESA into an employment contract:
 Absent unconscionability, an employer can make contracts with employees that “referentially” incorporate the minimum notice periods in the ESA. Such contractual notice provisions are enough to displace the presumption that the contract is terminable without cause only on reasonable notice. Machtinger at 1004-1005. See also: University of British Columbia v. Wong, 2006 BCCA 491 [UBC]. (Emphasis added).
BC courts have considered the doctrine of unconscionability in employment contracts and related documents.
For example in Saliken v Alpine Aerotech Limited Partnership 2016 BCSC 832 the court struck down a release signed by an employee on the grounds that the termination documents and the release were signed by the Plaintiff in circumstances of distress and concern for supporting his family and “in a situation of substantial unfairness such that it would be unconscionable to hold the plaintiff to the release.”
On the other hand courts in BC have been reluctant to strike down an employment agreement on the basis of unconscionability. For example in Finlan v Ritchie Bros. Auctioneers (Canada) Ltd. 2006 BCSC 291 the employee signed an employment agreement that limited his rights on termination to severance pay to the minimum requirements under the ESA. The Plaintiff argued the contract should be set aside as unconscionable and that he be awarded common law damages. The Court noted that a contract that includes a defined notice period in accordance with the ESA but not the reasonable notice that an employee could expect to receive at common law is not, by itself, grounds for finding a contract unconscionable. After setting out the legal elements of unconscionability the court rejected the Plaintiff’s argument and upheld the contract.
One of the most troubling things a business owner can hear from her lawyer is “Now that is an interesting question”. We have seen over recent years various doctrines incorporated especially in employment law that create uncertainty for employers. Doctrines such as “honesty and good faith performance of contractual obligations” (Bassin v Hrynew) or the duty of good faith at the time of termination (Honda v Keayes) or the requirement that courts take a “contextual approach” to the issue of just cause such that dishonesty will not always be cause for dismissal (McKinley) are fertile lawyer playgrounds that often result in expensive litigation or unsatisfactory settlements of disputes.
The issue of the status of Uber drivers as employees under the ESA or the Labour Relations Code will be a significant battle going forward. But the Uber decision should be viewed as a wake up call for employers generally in dealing with their employees. Coming out of COVID 19 many employers are looking to protect their businesses by requiring employees to enter into written employment agreements that significantly restrict their rights. In my view the expansion of the doctrine of unconscionability by the SCC in Uber makes the task of crafting enforceable agreements that employers can rely even more difficult and uncertain.
Michael Weiler provides 40 years of experience in employment law with a delicate mix of humour and attention to detail.
Michael was instrumental in assisting our organization on several occasions involving sound pragmatic legal advice, mediation, arbitration, and union negotiations. Staff enjoy working with Michael for he understands rural local governments and their distinct challenges.
Town Manager, District of Sicamous
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