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An Unconscionable Employment Contract Explained
Signing an employment contract does not always mean you are bound by everything in it. In Ontario, courts have the authority to strike down contract terms or entire agreements that are so one-sided, oppressive, or exploitative that enforcing them would be fundamentally unfair. This is the doctrine of unconscionability. It is more commonly available than many employees realize, and more commonly misunderstood by employers who assume that a signed contract is always enforceable.
Both conditions must be present. The mere fact that an employer has more power than an employee which is almost always true is not sufficient on its own. The contract terms must also be genuinely oppressive, not merely unfavourable. But where both conditions are met, a signed contract provides no protection and courts will not enforce it.
Did you sign an employment contract in Ontario that included terms you did not understand, were not given time to review, or felt pressured to accept?
A signed contract is not always enforceable. If the terms are genuinely unfair and the circumstances of signing involved unequal bargaining power, courts may refuse to uphold them. Get your contract reviewed before you assume you are bound.
Call: 1-800-771-7882 Get Your Contract ReviewedThe two-part legal test for unconscionability in Ontario
Inequality of bargaining power
One party almost always the employer had significantly more power, knowledge, or resources than the other at the time the contract was signed. This can arise where the job was offered on a take-it-or-leave-it basis, where the employee lacked access to legal advice, where the employee faced financial pressure or urgency that limited their ability to negotiate, or where the employee did not fully understand the terms or their implications. The vulnerability of the employee at the time of signing is assessed objectively.
Resulting unfairness in the terms
The contract includes terms that are so harsh, unreasonable, or one-sided that enforcing them would shock the conscience of the court. Ontario courts use this threshold deliberately not all unfavourable terms are unconscionable. The unfairness must be gross, not merely one-sided. Common examples include termination clauses that fall below ESA minimums, arbitration clauses that effectively prevent access to justice, and non-compete provisions that are so broad they prevent the employee from working in their field at all.
Common contract provisions Ontario courts have found unconscionable
What courts can do when a contract is found unconscionable
Strike the offending clause and enforce the rest
Where only one clause is unconscionable such as a termination clause courts can remove it while keeping the remainder of the contract in place. Where the termination clause is struck, the employee's entitlement defaults to common law reasonable notice, which is typically significantly higher than what the clause would have provided.
Void the entire contract
Where the unconscionability is so fundamental to the agreement that it cannot be severed or where the entire arrangement was structured unfairly courts may treat the contract as void from the outset. The agreement is treated as if it never existed and the parties' rights are determined by statute and common law.
Award damages for claims arising from the unenforceable terms
Where an unenforceable contract resulted in underpayment of wages, improper deductions, or denial of statutory entitlements, employees may pursue claims for the amounts owed. Where a termination clause was unconscionable and the employee was terminated, wrongful dismissal damages based on common law reasonable notice may be available.
What employees and employers should do
If you are an employee with concerns about your contract
- Do not assume you are bound by a term simply because you signed signing a contract that contains an unconscionable provision does not make that provision enforceable
- Get legal advice on the specific terms you are concerned about a lawyer can assess whether any provision is void under statute, void for unconscionability, or otherwise unenforceable under current Ontario case law
- Do not resign without advice if you are considering leaving over the contract terms resignation may affect constructive dismissal and other claims
- Where you were terminated and the employer is relying on a termination clause to limit your severance, have that clause reviewed before accepting any offer or signing a release
If you are an employer reviewing your employment agreements
- Review your termination clauses against the current post-Waksdale and post-Dufault standard many clauses that appeared compliant several years ago are now void
- Avoid all-inclusive compensation language that purports to cover statutory entitlements within a fixed salary these clauses are consistently rejected by Ontario courts
- Ensure any dispute resolution or arbitration provisions do not create barriers to justice that would be found unconscionable under the Heller standard
- Have all employment agreements reviewed by an Ontario employment lawyer before using them a contract that appears protective may expose you to significantly greater liability when it fails
Concerned about an employment contract in Ontario as an employee or an employer?
A signed contract is not always enforceable. Get legal advice on whether the terms hold up under current Ontario law before you rely on them or assume you are bound by them.
Employee Contract Review Employer Contract Review Or call us: 1-800-771-7882Frequently asked questions about unconscionable contracts in Ontario
What makes an employment contract unconscionable in Ontario?
Canadian courts apply a two-part test: there must be a significant inequality of bargaining power between the parties at the time of signing, and the contract terms must be so grossly unfair or one-sided that enforcing them would shock the conscience. Both conditions must be present. The mere fact that an employer has more power than an employee which is almost always true is not sufficient without terms that are genuinely oppressive or exploitative.
Can you get out of an employment contract you already signed in Ontario?
Potentially, yes for the unconscionable provisions or for provisions that violate Ontario's Employment Standards Act, 2000. Signing a contract that contains an illegal or unconscionable term does not make that term enforceable. Courts will strike down void or unconscionable provisions, which may default the affected entitlement to a significantly more favourable outcome for the employee. A lawyer can assess which specific provisions in your agreement are at risk.
What did Uber v. Heller decide about unconscionable contracts?
In Uber Technologies Inc. v. Heller (2020 SCC 16), the Supreme Court of Canada found that Uber's arbitration clause requiring dispute resolution in the Netherlands with an upfront cost exceeding US$14,500 was unconscionable because it effectively prevented drivers from accessing justice. The Court applied the two-part test and found both significant inequality of bargaining power and terms so grossly unfair that they could not be enforced. The decision has been broadly applied to employment contract disputes across Canada, including disputes about termination clauses and other restrictive provisions.
Is a termination clause always enforceable in Ontario if I signed it?
No. Termination clauses must comply with Ontario's Employment Standards Act, 2000 they cannot limit notice or severance below the statutory minimum. Where a clause violates the ESA, it is void regardless of the employee's signature. Where a clause is ambiguous as to ESA compliance, courts will interpret the ambiguity against the employer and may void the clause entirely. A void termination clause defaults the employee's entitlement to common law reasonable notice, which is frequently significantly higher than what the clause would have provided.
Can an employer use an unconscionable contract to avoid paying severance in Ontario?
No. Where a termination clause is found unconscionable or void whether for violating the ESA, being ambiguous, or being grossly unfair the employer cannot rely on it to limit the employee's severance entitlement. The employee's entitlement defaults to common law reasonable notice, calculated on age, length of service, position, and job market conditions. For senior or long-service employees, this can represent significantly more compensation than the clause would have provided.
Questions about an employment contract in Ontario?
Our team advises both employees and employers across Ontario on employment contracts and employment agreement compliance. Contact us for a confidential consultation before relying on or challenging any contract provision.
Call us at 1-800-771-7882 or fill out the form below and we will be in touch.
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