An unconscionable contract is a legal agreement that is so unfair, one-sided, or oppressive that it becomes unenforceable under the law. In employment law, an unconscionable contract takes advantage of the employee’s vulnerability or the unequal bargaining power between the employer and employee, leading to terms that are unjust or highly disadvantageous to the employee.

Employment contracts govern the relationship between an employer and an employee and are crucial legal documents. They outline the terms of employment and are binding in the event of disputes. However, for an employment contract to be enforceable, it must comply with both statutory employment laws and common law principles.

One such common law principle is the concept of “Freedom of Contract,” which allows individuals to enter into agreements freely. Yet, when the terms of a contract are so unreasonable that they shock the conscience, a court may intervene. This is where unconscionable contracts come into play. While courts generally hesitate to interfere with agreements between consenting parties, they will strike down or modify an unconscionable contract.

This article explores unconscionable contracts in employment law and what options are available to those who are bound by such agreements.

What is Unconscionability in Employment Contracts?

Unconscionability occurs when a contract is so one-sided that it is deemed unfair or oppressive. In the context of employment contracts, this typically happens when the employer holds far greater bargaining power than the employee, leading to terms that exploit this imbalance. Even if both parties have signed the contract, a court may find it unenforceable if it is unconscionable.

For example, in the landmark case Uber Technologies Inc. v. Heller, the Supreme Court of Canada struck down an arbitration clause in Uber’s employment contracts. The clause required disputes to be settled in the Netherlands, creating a significant financial burden on Uber drivers, many of whom earned low wages. The court ruled that this clause was part of an unconscionable contract because it effectively prevented employees from seeking justice.

Why Do Unconscionable Contracts Arise?

In most cases, unconscionable contracts arise because of the inherent imbalance in bargaining power between employers and employees. Employment contracts are usually drafted by employers and offered to employees on a “take it or leave it” basis, meaning there is often little room for negotiation.

This dynamic is particularly concerning when employees are pressured into signing contracts that contain unfair or unreasonable terms, such as:

• Non-compete clauses that severely limit future employment opportunities,
• Arbitration clauses that deny employees access to legal recourse, or
• Termination clauses that strip employees of basic rights like severance or notice.

Courts recognize the need for intervention when the power imbalance leads to unconscionable contract terms that exploit employees’ vulnerabilities. When such exploitation is proven, a court may declare the contract unenforceable.

Legal Implications of Unconscionable Contracts

When a court finds that a clause or an entire agreement is part of an unconscionable contract, that clause or contract can be struck down. This can have serious implications for both employers and employees.

• Severability of Terms: If the court determines that only a specific clause in the employment contract is unconscionable, it may strike down that clause while leaving the rest of the contract intact. However, if the unconscionable clause is fundamental to the nature of the contract, the entire agreement may be declared unenforceable.
• Damages and Remedies: Employees who are bound by unconscionable contracts may be able to seek remedies such as wrongful dismissal damages, severance pay, or other compensation if the contract is found invalid. Courts will also assess whether an employee was coerced or pressured into signing the agreement and consider the fairness of the terms.

What To Do If You Have Signed an Unconscionable Contract

If you believe you are bound by an unconscionable contract, the first step is to seek independent legal advice. Having a qualified employment lawyer review your agreement can help you identify whether any of its terms are unfair or legally unenforceable.

In some cases, a demand letter may be issued to your employer to renegotiate the terms of the contract. If the employer refuses to amend the agreement, employees may have grounds for a claim, such as constructive dismissal or wrongful termination.

For new or upcoming employment contracts, seeking legal advice before signing can protect you from agreeing to unfair terms and prevent the need for legal action later on.

Why Employers Must Be Careful with Employment Contracts

Employers must recognize that the courts are increasingly willing to scrutinize employment agreements for fairness, especially in situations where there is an imbalance of power. An employer who includes unfair terms in an agreement risks having the contract deemed unenforceable, leading to potential legal and financial consequences.

Taking proactive steps to draft clear, fair, and enforceable contracts is essential. Consulting with an employment lawyer to review or draft employment agreements can help mitigate the risk of unconscionable contract claims and ensure compliance with employment law.

Employers should avoid terms that could be seen as oppressive, such as restrictive termination clauses, unreasonable non-compete agreements, or arbitration clauses that deny employees fair access to dispute resolution.

Gaining Legal Support

The complexities of unconscionable contracts requires focused legal knowledge. Legal professionals can assist both employees and employers in various ways:

• For Employees: A lawyer can help identify unfair terms, advise on your rights, and represent you in any legal proceedings to contest an unconscionable contract.
• For Employers: A legal professional can assist in drafting fair and compliant employment contracts to avoid potential legal disputes and ensure all contract terms meet the standards of fairness and equity.

Conclusion

Unconscionable contracts pose significant challenges in the workplace, particularly when power imbalances lead to unfair or exploitative terms. Employees should remain vigilant when signing employment contracts and seek legal advice to ensure their rights are protected. Similarly, employers must draft contracts that adhere to principles of fairness to avoid legal consequences.

If you suspect you are bound by an unconscionable contract, contact an experienced employment lawyer to explore your options and protect your rights.

Need Help with an Unconscionable Contract?

If you believe you are bound by an unfair or unconscionable contract, or need help drafting fair employment agreements, our team at Achkar Law can provide the legal guidance you need.

Contact us today to discuss your situation:

• Phone: 1 (800) 771-7882
• Email: [email protected]

Our experienced employment lawyers are here to help you protect your rights and navigate the complexities of employment contracts. Reach out for a consultation and get the legal support you deserve.

 

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