Uber Eats humble pie as restaurants are delivered from unfair contract terms

Restaurants under immense pressure due to COVID-19 impacts received slight reprieve with Uber Eats being forced to remove unfair contract terms.

Uber Eats can no longer have their cake and eat it too. The ACCC has forced the multinational company to remove “unfair contract terms” from their contracts with small restauranteurs.  It is no wonder that Uber’s contracts left a sour taste in the restauranteurs’ mouths when it included the following clauses:

  1. Restaurateurs party to the contract had to agree that Uber did not provide any delivery or logistics services. This lemon of a clause presents a pickle for contracting parties, not only does it present a legal fiction, but it is at odds with Uber’s website which is emblazoned with the words “we deliver”.
  2. The contract stated that the drivers were “agents” of the restaurant despite their workflow and pay being controlled by Uber, not the restaurant.
  3. In the event that the food became substandard, for instance if hot food became cold, Uber could demand that the restauranteur cover the customer refund.
  4. Uber Eats could unilaterally vary the contract at any time.

Here the proof was in the pudding, as the ACCC considered that these terms were manifestly unfair and placed a disproportionate amount of risk on local restaurants.

But what does it take for a term to be unfair?

Section 23 of the Australian Consumer Law (“ACL”) prohibits unfair contract terms. For a contract term to be unfair it must:

  • Cause significant imbalance in the parties’ rights and obligations;
  • Not be reasonably necessary to protect the legitimate interests of the party advantaged by the term; and
  • Cause detriment to a small business (a business with 20 employees or less) if it were applied or relied upon.

Uber’s terms outlined above from 1 – 4 contain all ingredients of unfair contract terms. For instance, consider terms two and three; here Uber essentially placed all risk associated with the standard of delivery on the restaurant. Despite the fact that these businesses have no control over delivery time, payment of delivery drivers or their workload. This is a classic example of how a ‘take it or leave it’ contract has caused a significant imbalance in the relationship between Uber and the restaurant. Uber would bear little to no risk under the contract, and restauranteurs would be liable under the agreement for issues of service outside of their control.

Further, in instances where Uber has contracted with restaurants who employ less than 20 employees, if Uber choses to rely upon terms three and four, this could place small operators at considerable disadvantage. For example, some small restaurants reported that if Uber demanded that the restaurant refund a disgruntled customer, the restaurant had essentially provided their product for free to Uber.

What are the consequences for an unfair contract terms?

In short, none. Including unfair contract terms in an agreement does not attract any penalty under law. Indeed, s 23 of the ACL merely enables the ACCC to challenge the offending term in court and have it declared “void”. In a nutshell, this means that the ACCC cannot obtain civil pecuniary penalties when a term of a contract is found to be unfair.

The lack of penalties in this area of law means that small businesses are at a great disadvantage when it comes to negotiating standard form contracts, as there is very little incentive for large corporations to comply with s 23. This was certainly the case here, as Uber Eats only agreed to change the terms of the contract so that restaurants would only be responsible for matters “within their control” after the ACCC intervened.

Even though restaurants have received a momentary reprieve from Uber’s unfair contract terms, any losses that they have incurred as a result of the unfair terms will not be reimbursed. Although the Silicon Valley giant can no longer contractually grind small restaurants to make their bread, the lack of penalties for unfair contract terms puts smaller businesses on the chopping block whilst big businesses board the gravy train free of risk and liability.

Written by Riley Berry with the assistance of Claudia Weatherall.