Employment settlement agreements are legally binding contracts that resolve disputes between employers and employees. These agreements often include terms related to severance pay, confidentiality, non-disparagement, and the waiver of legal claims. However, not all settlement agreements are fair. In some cases, they may be unconscionable, meaning they are so one-sided or unfair that they should not be enforced.

Understanding when an employment settlement agreement is unconscionable is crucial for employees who may be pressured into signing an unfair deal. This article explores the legal framework for unconscionability, key factors courts consider, and what employees should do if they believe their settlement agreement is unfair.

What makes an employment settlement agreement unconscionable?

In Ontario, an employment settlement agreement may be unconscionable if it meets the following criteria:

1. Inequality of bargaining power – The employer holds significantly more power than the employee, creating a situation where the employee has little choice but to accept the terms.
   
2. Unfair or oppressive terms – The agreement contains terms that heavily favour the employer while offering little to no benefit to the employee.
   
3. Lack of informed consent – The employee did not fully understand the agreement, either due to misleading information, complex legal language, or insufficient time to review it.
   
4. Duress or coercion – The employee was pressured or threatened into signing the agreement under unfair conditions.
   

If these factors are present, a court may find the agreement unconscionable and refuse to enforce it.

Inequality of bargaining power in employment settlement agreements

Employment relationships often involve a significant power imbalance, especially when an employee is terminated. Employers may use this imbalance to pressure employees into signing agreements quickly without legal advice.

Common indicators of inequality of bargaining power include:

• The employee was not given sufficient time to review the agreement.
  
• The employer insisted that the agreement must be signed immediately.
  
• The employee did not have access to independent legal advice before signing.
  
• The employer threatened the employee with worse consequences if they did not sign.
  

Ontario courts recognize that employees are often vulnerable when negotiating severance or settlement agreements. If an employer takes advantage of this vulnerability, the agreement may be considered unconscionable.

Unfair or one-sided terms in settlement agreements

An employment settlement agreement should provide fair and reasonable compensation in exchange for an employee waiving their legal claims. However, some agreements heavily favour employers by including:

• Unreasonably low severance pay that does not reflect the employee’s length of service, role, or entitlements under the Employment Standards Act, 2000.
• Overly broad non-compete or non-solicitation clauses that severely limit the employee’s future job opportunities.
• Unfair confidentiality or non-disparagement clauses that only restrict the employee but not the employer.
  

If the terms of the agreement are so unfair that no reasonable person would accept them, a court may declare the agreement unconscionable and unenforceable.

Lack of informed consent in employment settlement agreements

For a settlement agreement to be valid, the employee must fully understand its terms and implications. However, an agreement may be unconscionable if:

• The employee did not have enough time to review the document.
• The employer used legal jargon that made it difficult for the employee to understand.
• The employer misrepresented what the agreement meant.
  

Ontario courts have ruled that if an employee did not fully understand what they were agreeing to, the settlement may not be enforceable. Employees should always seek legal advice before signing any employment settlement agreement.

Coercion, duress, and pressure tactics in settlement agreements

An employment settlement agreement may be invalid if an employee was forced to sign it under duress. Coercion can take many forms, including:

• The employee did not have enough time to review the document.
• The employer used legal jargon that made it difficult for the employee to understand.

The employer misrepresented what the agreement meant.

Employees must be able to make decisions freely. If an employer uses threats, intimidation, or undue pressure, the agreement may be deemed unconscionable.

What should employees do if they suspect their settlement agreement is unconscionable?

Employees who believe their employment settlement agreement is unconscionable should take the following steps:

1. Do not sign under pressure – Employees should request more time to review the agreement before making a decision.
   
2. Seek legal advice – Consulting an employment lawyer can help determine whether the agreement is fair.
3. Gather evidence – Employees should document any pressure tactics, misleading statements, or unfair conditions.
4. Challenge the agreement – If an agreement is unconscionable, an employment lawyer can negotiate better terms or pursue legal action.

Challenge the agreement – If an agreement is unconscionable, an employment lawyer can negotiate better terms or pursue legal action.

Courts in Ontario have ruled against unfair settlement agreements in cases where employers took advantage of employees’ vulnerability. Employees should never feel forced into signing an agreement that violates their rights.

Conclusion

An employment settlement agreement can be an effective way to resolve disputes, but it must be fair and reasonable. If an agreement is unconscionable due to power imbalances, unfair terms, lack of informed consent, or coercion, it may not be legally enforceable.

Employees should always seek legal advice before signing a settlement agreement to ensure their rights are protected. If an agreement seems one-sided or unfair, an employment lawyer can help renegotiate better terms or challenge its validity.

Contact Achkar Law for employment settlement agreement advice

If you believe your employment settlement agreement is unfair or you are being pressured into signing one, consult an employment lawyer at Achkar Law. We can review your agreement, negotiate better terms, and ensure that your rights are protected.

Call toll-free: 1-800-771-7882 | Email: [email protected]

Do not sign an agreement that could limit your future. Contact Achkar Law today for expert legal guidance.