Inherent Vulnerability
This branch of the test of unconscionability test is advantaged in the employment context.
Employment agreements have been given a unique classification which distinguishes them form typical commercial contracts. They “rarely result from an exercise of free bargaining power in the way that the paradigm commercial exchange between two traders does”. 1
This circumstance pervades a review of the employment relationship as “power imbalance is not limited to the employment contract itself. Rather it informs virtually all facets of the employment relationship”. 2
The special relationship between employer and employee was repeated in the 2004 Superior Court of Ontario decision of Geluch v. Rosedale Golf Association, Ltd. Madam Justice Himel stated :
¶ 80 The "special relationship" and the "unique characteristics" of the employment contract thus inform the law of wrongful dismissal. "The power imbalance between employer and employee has been said to differentiate employment contracts from `ordinary commercial contracts'"
Many cases have continued this theme of the inherent weakness of the employee which arguably could lead to a presumption of unequal bargaining power. The cases below, although the following words are not used, treat the above concept as a rebuttable presumption.
Not a Presumption – Manitoba C.A.
This issue was reviewed in the Manitoba Court of Appeal decision in Boisonault v Block Bros. Realty. 3 The plaintiff argued that a term of the contract which denied him payment of commissions on resignation or termination was unenforceable.
Ignorance, Need or Distress
The Court disagreed, stating that there must be inequality due to “ignorance, need or distress” and that the fact of an employment relationship alone was not enough. There was not a presumption of unconscionability, but, rather, there had to be something more to show that that unfair advantage was taken of his circumstance, namely his need to be employed and his inability to bargain:
In discussing this case and others involving the relationship of employer and employee, Fridman (supra) p. 309 stated that the mere fact that the parties were employer and employee and the obvious inequality of their respective situations did not, of itself, raise any presumption of unconscionability, but that there had to be something that indicated that unfair advantage was being taken of the employee’s situation, in particular, his need to be employed and his inability to bargain.
The context of the situation was a compelling one in Adamson v Watts & Henderson. The case arose due to the release signed by the employee.
The plaintiff, when presented with the settlement offer, had moved from Halifax where his house in this location remained unsold, and had just become unemployed. The words of the decision speak to the plaintiff’s inability to think clearly, which would really go to a non est factum issue, but nonetheless the sentiment of the reasons are evident:
This inequality can arise out of ignorance, need or distress. A prime example of this is where the employee is under undue financial pressure. In Adamson v. Watts & Henderson (Atlantic) Ltd. reflex, (1987), 16 C.C.E.L. 74 (Ont. H.C.) [Tab 6 – Plaintiff's Authorities], the Court found that the defendant knew that the plaintiff was under undue financial pressure because his house in Halifax had not been sold, he had rented a home in the Ottawa area and he was out of work with no immediate prospect of employment. In Stephenson v. Hilti (Canada) Ltd., supra, Hallett J. held (at p. 87):
I am satisfied on the evidence that there was an inequality of bargaining position between the plaintiff and the defendant because of the plaintiff's distress, lack of sophistication in business matters and the genuinely felt need of the plaintiff to have his pay continued that put him in a position that he was not thinking as clearly as he should have been at the time when he was discussing his termination with the defendant.
A Rebuttable Presumption ?
The Alberta Queen’s Bench decision in Anstead v Park Royal Homes considered this issue but like the above decision of the Manitoba Court of Appeal concluded that this was not to be applied on the facts before it.
[27] Addressing first the question of an overwhelming imbalance in bargaining power, there is a large body of case law that acknowledges the inherent inequality of bargaining power in an employment relationship: see Elsley v. J.G. Collins Insurance Agencies Ltd. 1978 CanLII 7 (SCC), [1978] 2 S.C.R. 916; Globex Foreign Exchange Corp. v. Kelcher, 2005 ABCA 419 (CanLII), 2005 ABCA 419, 376 A.R. 133.
In Anstead, the court found that the plaintiff was quite able to negotiate and represent her interests and found there was no such inequality on the facts before it.
The issue of inequality of bargaining power was referenced in a 2002 Alberta Provincial Court decision in A.S.M. Corrosion Control Limited v George. The employer sued Mr. George for expenses incurred by the employee for a trip to Texas. A contractual term in an employee manual required the expenses to be reimbursed where the employee resigned employment within 12 months after the trip. The defence was the plea of unconscionability, given the finding that the manual had become a contractual term.
The Court noted that in a non-unionized work environment, there exists an unequal bargaining relationship in which individual employees lack the bargaining power and information necessary to obtain any more favorable contract provisions than those offered by their employers. The employer is seen as having a superior position with respect to employment agreements. The decision continued:
As a result, claims by employees that terms of the employment contract are unconscionable, and therefore unenforceable, have met with considerable success. The rational for upholding the unconscionability argument has usually been based on inequality of bargaining position, an unconscientious use by the employer of the upper hand to achieve advantage, and a term of the employment contract which is substantially unfair to the employee who is recognized to be in the weaker position.
The court, however, found in favour of the employer and granted it judgment, holding that the employee was not in a weaker position.
As noted above, in Daley v Golden Child Care, the court found that the severance term was unenforceable based on this plea of unconscionability.
Independent Legal Advice
The Alberta Court of Appeal in Cain v. Clarica Life Insurance Co, noted, in the course of its reasons in setting aside the trial decision and dismissing the plaintiff’s argument, that typically the presence of independent legal advice is a death knell to the plea:
Where unconscionability (or undue influence) is alleged, independent legal advice is usually a complete answer to the claim.
The Ontario Court of Appeal in Titus v William F. Cooke added a fourth element to the then test, this being the absence of independent legal or other suitable advice:
In a recent case dealing with the doctrine of unconscionability in a wrongful dismissal context, Cain v. Clarica Life Insurance Co., supra, Côté J.A. reviewed the leading cases and academic commentary and concluded, at para. 32:
Those authorities discuss four elements which appear to be necessary for unconscionability…
- a grossly unfair and improvident transaction; and
- victim’s lack of independent legal advice or other suitable advice; and
- overwhelming imbalance in bargaining power caused by victim’s ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility, or similar disability; and
- 4. other party’s knowingly taking advantage of this vulnerability.
All of the above highlighted passages were reversed by the Supreme Court.
This is no longer the law the following the Supreme Court of Canada 2020 decision in Heller v Uber. Independent advice is relevant only to the extent that it may reduce the inequality of bargaining power. It may be of aid to a party to understand the contract yet have no impact on the inherent dependence or desperation. Further, ineffective or “pro forma” advice will be of no utility.