Degree of Unfairness – Old Law

Many cases have commented upon the nature of the advantage that has been taken by the party in power, which is most often the employer, over the other. The vocabulary may change from case to case, but the common thread is that there has been a dramatic and unfair consequence demonstrated. The analysis is a contextual one, taking into account all factors in play at the time of the creation of the contract.

An Offence to Community Standards

Pisoney v London Life also considered this plea and noted the degree of disadvantage that must be shown by the plaintiff. The plaintiff had asserted that a contractual term adversely effecting his commission entitlements due to his disability was unenforceable.  His claim failed. The agreement must be shown to have departed from the “community standards of commercial morality” for rescission to follow:

In my opinion, questions as to whether use of power was unconscionable, and advantage was unfair or very unfair, a consideration was grossly inadequate, or bargaining power was grievously impaired, to select words from both statements of principle, the Morrison case and the Bundy case, are really aspects of one single question.  That single question is whether the transaction, seen as a whole, is sufficiently divergent from community standards of commercial morality that it should be rescinded.

Fridman’s text on Contract Law, second edition, 1986, at page 307, speaks of the test being akin to a moral fraud:

..the traditional view of unconscionability is that it involves conduct that is tantamount to fraud in a moral, if not strictly legal sense.

Foolhardy, Burdensome, Undesirable or Improvident..Not Enough

Prior to Heller, the test of an improvident bargain was not enough to succeed in this plea. The string of cases below is no longer the law. It should be noted for future reference.

Titus v William F. Cooke was an Ontario Court of Appeal decision of 2007 which also dealt with this argument in a case in which a settlement agreement was contested by the plaintiff.

At trial, Titus was successful.  The Court of Appeal disagreed. The sole issue on appeal was that of unconscionability, one which the appellate court found the trial judge did not address. The Court of Appeal concluded that an agreement may be “foolhardy, burdensome, undesirable or improvident” but this does not suffice. The case again repeated the same fourfold test and added the reference below to Black v Wilcox.

 “So Gross”

[37]         In Black v. Wilcox, Evans J.A. discussed the foundations of unconscionability in a similar fashion:

In order to set aside the transaction between the parties, the Court must find that the inadequacy of the consideration is so gross or that the relative positions of the parties are so out of balance in the sense of gross inequality of bargaining power or that the age or disability of one of the controlling parties places him at such a decided disadvantage that equity must intervene to protect the party of whom undue advantage has been taken.

¹ Nothing is directly said about being blind, infirm or otherwise vulnerable, but the direction was then manifest.

Termination Cause Seen as “Harsh”

While the word unconscionable specifically was not used, the Alberta Supreme Court in its 1975 decision in Allison v Amoco, the Court refused to apply a clause allowing termination on 30 days’ notice, in part due to its assessment as a “harsh” clause:

The words used do not clearly state that the contract would terminate on 30 days' notice but only that if the company desires to terminate it it shall give 30 days' notice. These words I do not consider sufficient to abrogate the doctrine of law that reasonable notice must be given. I would consider that the 30-day notice provision if applied would be a harsh term. The case of W. H. Milsted & Son Ltd. v. Hamp & Ross & Glendinning Ltd. (1927), 71 Sol, J. 845, is authority for the proposition that harsh terms will not be enforceable.

A Contextual View – So Onerous or Blatantly Unfair

The Ontario Court of Appeal in Wallace v TD Bank made this obiter comment on the standard of unfairness which must be shown:

In determining fairness or conscionability, the primary concern must be with the terms of the contract considered in light of the total circumstances existing when it was made. With respect to an employment relationship, a contract between an employer and an employee may, in a given factual situation, contain terms so onerous or blatantly unfair as to warrant judicial intervention. But, in this case, it is not seriously contended that an agreement giving either party the right to terminate on four weeks’ notice was unreasonable or unfair in 1971 at the outset of the plaintiff’s employment. When all is said and done, the reality of the plaintiff’s complaint is not that there was anything wrong with the termination provisions at that time or, indeed, for some time later, but rather that having worked for the bank until 1978, he ought in fairness to be entitled to lengthier notice.

In Heller, Uber made the very submission that the test was “grossly unfair”, which was rejected by the Court.

Heller

The Supreme Court did a considerable revision to the law on this question. It significantly lowered the threshold tests.

Heller, an Uber driver in Toronto, earning between $400 to $600 was met with a defence to a proposed class action that the arbitration agreement must be followed. This contract required mediation and arbitration in the Netherlands and that Heller post a up-front administrative fee of $14,500 plus legal fees and other costs. This agreement was mandatory and non-negotiable for him to accept "employment" with Uber.

The motions judge had determined that he lacked authority to decide the validity of the agreement and stayed the proceeding. The Court of Appeal reversed and found the agreement unconscionable based on the inequality of bargaining power and the costs of arbitration.

The Supreme Court noted the fundamental purpose of the doctrine, namely, to protect vulnerable persons in the contracting process from an improvident bargain:

This Court has often described the purpose of unconscionability as the protection of vulnerable persons in transactions with others ……. We agree. Unconscionability, in our view, is meant to protect those who are vulnerable in the contracting process from loss or improvidence to that party in the bargain that was made ……Although other doctrines can provide relief from specific types of oppressive contractual terms, unconscionability allows courts to fill in gaps between the existing “islands of intervention” so that the “clause that is not quite a penalty clause or not quite an exemption clause or just outside the provisions of a statutory power to relieve will fall under the general power, and anomalous distinctions . . . will disappear” (S. M. Waddams, The Law of Contracts (7th ed. 2017), at p. 378).

The historic tests were noted, such being an inequality of power which arose from “some weakness or vulnerability” which have led to an “improvident transaction”.