What is an Unconscionable Employment Contract?

An unconscionable contract refers to a legally unenforceable agreement that is considered so one-sided, unfair, or oppressive that it shocks the conscience or goes against basic principles of fairness and equity. In essence, an unconscionable contract takes advantage of the vulnerability or unequal bargaining power of one of the parties, resulting in terms that are highly disadvantageous or unjust.

An employment contract governs the relationship between an employee and employer. It is an important document that has a legal bearing on the parties involved should a dispute or conflict arise in the workplace. When a dispute pertaining to a term of employment arises, the enforceability of the term or the whole contract is in question. 

An enforceable employment contract must not only abide by employment and labor statutes but also the common law precedents found in employment and contract law. This means that the principles within these areas of law will prevail and inform a court’s decision as to whether an employment contract is enforceable. One such principle is Freedom of Contract. This grant parties the freedom to enter into a contract whenever they wish and for whatever reasons. However, in some instances, a contract may be so unreasonable or one-sided that it warrants the intervention of a court. 

While courts are generally reluctant to intervene when a legally binding contract is entered, unconscionability may render it unenforceable. With the latest decision coming from Uber Technologies Inc. v Heller, 2020 SCC 16, it is clear that courts are still willing to intervene and strike down aspects of an employment contract when they stipulate unconscionable conditions. 

This article discusses the issue of unconscionability in employment law and the options that are available to individuals who have entered into such agreements. 

What is Unconscionability?

Unconscionability refers to an agreement that is wholly or in part unreasonable to enforce. When an employment agreement is deemed unconscionable, it means that despite the consent of the contracting parties, enforcement of the contract would be indefensible and unjust. Unconscionability can arise either because of circumstances surrounding the signing of the agreement or because of the specific terms of the agreement. That is, if an agreement is so obviously one-sided that no reasonable person would agree to it, a court may find it to be unconscionable as well. 

For example, in Uber v Heller, the employment contract in question included an arbitration clause that was held to be unconscionable. The clause stipulated that any disputes would have to be settled in the jurisdiction of the company’s headquarters in the Netherlands. Given the low annual salary of the Uber employees involved, the clause had the effect of disincentivizing any claims if not denying employees the arbitration process altogether. 

However, one may ask why an employee would enter into an employment contract that is wholly or in part unconscionable. 

Courts have clarified that employment contracts are distinct from business or commercial contracts because of the unique nature of the employment relationship. Generally, an employment contract is drafted unilaterally by the employer and there are often no negotiations involved. Therefore, employers may benefit from the imbalance of bargaining power. When this power dynamic is used to pressure employees into an unfavorable agreement, courts have recognized that there is a need for intervention.

What Are the Legal Implications of Unconscionability?

A term of an employment agreement that is unconscionable will be struck down as unenforceable. In some instances, the term or condition that is being disputed by an employee may be severable from the rest of the contract. This means that the employment contract will be enforceable with the exception of the unconscionable term or condition. However, if the term is one that is fundamental to the contract as a whole, then a court may find that its removal renders the whole contract unenforceable. 

What Can I do If I Have an Unconscionable Employment Contract?

When signing any subsequent or new employment contracts, one should always seek independent legal advice. While the absence of independent legal advice does not detract from a claim of unconscionability, it is a necessary precaution to take to avoid the costs and time commitment involved in seeking out recourse through a court. 

Employees that are currently employed under an unconscionable contract should also seek legal advice to explore the best course of action. A demand letter may be used to enter into negotiations with an employer regarding a new employment contract or to amend a current one. If such actions are unsuccessful in reaching a resolution then a termination or constructive dismissal claim may be available. 

• When should I create a new employment agreement?
• How do demand letters work? 
• What qualifies as constructive dismissal?

Why is this important for employers?

A fundamental premise in the development of employment law is that there is an imbalance of bargaining power between employers and employees. When faced with a claim of unconscionability, this premise may result in a court finding against the employer. To avoid the implications of such claims it may be prudent for employers to take a proactive approach. 

It may be beneficial for employers to seek legal advice and either draft or amend an employment contract that is enforceable. 

• The value of an enforceable employment agreement in Ontario

Seeking an experienced employment lawyer is an important step in ensuring that issues of unconscionability are not present within employment contracts. In doing so, an employer may be able to limit their legal risks and avoid having to pay any legal fees that result from litigation.  

If you are concerned that your employment contract or settlement agreement may be unconscionable and unenforceable, our team of experienced employment lawyers at Achkar Law can help. Contact us by phone toll-free at +1 (800) 771-7882 or email us at [email protected], and we will be happy to assist.

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