An Equitable Remedy

Relief from a contractual term that is unconscionable is founded in equity. Cases succeeding in an employment context are rare. As stated in cases cited below, this plea presents a high hurdle to leap.

The Cornerstone

The test of this concept was stated by Lord Denning in Lloyd’s Bank v Bundy, as referenced in Dolter v Media House, decision of the Saskatchewan Queen’s Bench :

Lord Denning in Lloyd’s Bank v. Bundy, described the essential elements of unconscionability:

Gathering all together, I would suggest that through all these instances there runs a single thread.  They rest on ‘inequality of bargaining power’.  By virtue of it, the English law gives relief to one who, without independent advice, enters into a contract on terms which are very unfair or transfers property for a consideration which is grossly inadequate, when his bargaining power is grievously impaired by reason of his own needs or desires, or by his own ignorance or infirmity, coupled with undue influences or pressures brought to bear on him by or for the benefit of the other.  When I use the word ‘undue’ I do not mean to suggest that the principle depends on proof of any wrongdoing.  The one who stipulates for an unfair advantage may be moved solely by his own self-interest, unconscious of the distress he is bringing to the other.  I have also avoided any reference to the will of the one being ‘dominated’ or ‘overcome’ by the other.  One who is in extreme need may knowingly consent to a most improvident bargain, solely to relieve the straits in which he finds himself.  Again, I do not mean to suggest that every transaction is saved by independent advice.  But the absence of it may be fatal.

The Test - Pre-Heller

Prior to the Supreme Court decision in Heller, the test for determining unconscionability was set out as follows: ¹

1.                     Significant inequality in bargaining position exists between the parties based on factors such as the relative knowledge and education of the parties, the financial needs of the weaker party, or other circumstances that coerced the weaker party;

2.                     The stronger party has used its position of power in an unconscionable manner to achieve a material advantage over the weaker party.  If it has not, then the bargain should not be interfered with even though it may be viewed as improvident, provided that it does not otherwise offend the third threshold factor hereinafter stated.

3.                     The bargain arrived at has given the one party a grossly unfair advantage over the other, or otherwise is sufficiently divergent from community standards of commercial morality to warrant it being set aside.  Thus, if the bargain is fair the fact the one of the parties was at a material disadvantage because of ignorance, need or other distress is of no moment.

This test was reviewed by the Ontario Court in a 2019 decision, setting aside the motion's court decision to find for the plaintiff. The case arose due to a release signed by the plaintiff. ²

At the time the plaintiff signed it, he had been on disability, which was denied due to the adjuster's decision that he did not qualify for "any occupation" benefits. Following this denial, the plaintiff appealed this decision. Before the appeal was finalized, he was terminated and offered a severance payment. He negotiated for a higher sum and signed a full release of all claims, including disability entitlements. He continued with the appeal of the denial of benefits. The employer, who was self-insured, did not then raise the issue of the release. That defence was not raised until the lawsuit for such disability benefits was commenced.

The test was stated:

At para. 38 of Titus, this court endorsed four elements necessary for unconscionability:

1. a grossly unfair and improvident transaction;

2. the victim's lack of independent legal advice or other suitable advice;

3. an overwhelming imbalance in bargaining power caused by the victim's ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility, or similar disability; and

4. the other party knowingly taking advantage of this vulnerability.

The motions decision denying the employer's request to dismiss the claim was set aside. The final decision on this matter was left to the trial judge hearing the case.

Heller

The first two components of these tests, as set out above in the Alberta Court of Appeal decision, were applied in Heller. As to the third component, it was determined that “a grossly unfair advantage” was not the correct test, indeed, as Uber had submitted.

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 such employment.

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”.