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Class action waiver clauses and arbitration clauses: factors courts consider

Canadian courts continue to rule on the enforceability of class action waiver clauses and arbitration clauses following Heller (summarized here). In brief, a class action waiver clause requires parties to litigate disputes individually basis. An arbitration clause requires parties to arbitrate instead of proceeding to court. Courts have identified a variety of factors that often determine the enforceability of these clauses when challenged. This post summarizes the main ones.

Since Heller, many class action waiver clauses and arbitration clauses have been enforced, staying class actions entirely—or at least limiting them to certain claims that cannot be arbitrated (e.g., certain claims under provincial consumer protection legislation). In other cases, courts have found arbitration and class action waiver clauses unenforceable because of unconscionability or public policy challenges. Unconscionability challenges turn on whether there was (i) an inequality of bargaining power and (ii) a resulting improvident bargain. Public policy challenges generally consider whether the clause(s) prevent a party from accessing independent dispute resolution.

The factors courts consider when evaluating the enforceability of class action waiver and arbitration clauses often include:

  1. Any vulnerability of the claimant, including any dependence on the defendant: For example, in Pearce, summarized here, the court emphasized that the claimants were distressed persons on the verge of insolvency who had sought assistance from the defendants. The court in Pearce declined to enforce the class action waiver clause. But in Williams (where the clauses were enforced), summarized here, the same court found that consumers were not dependent on access to a large retailer.
  2. The location and law of arbitration: Dispute resolution methods that take place outside Canada and under foreign laws are less likely to be enforced, as in Lochan, summarized here. Courts have also considered whether arbitration clauses permit proceeding by videoconference or phone.
  3. The clarity of the clause(s): Class action waiver and arbitration clauses are more likely to be enforced if their practical effects can be understood without legal training or assistance.
  4. Any exceptions: Courts have considered whether arbitration clauses or class action waivers allow some claims to proceed in court (e.g., small claims matters or certain statutory claims), and whether claimants can opt-out of an arbitration agreement by a certain deadline.
  5. Costs: Courts have considered whether the costs of arbitration or individual proceedings would effectively prevent access to dispute resolution. Arbitration clauses are more likely to be enforced where the claimant’s procedural costs are small or recoverable.



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