Standard Clauses and Noting the Fine Print: Divisional Court Weighs In

25 février 2014

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The Ontario Divisional Court, in two related cases  (7326246 Canada Inc. and Kevin Gardiner v. Ajilon Consulting and 2190322 Ontario Ltd. v. Ajilon Consulting, the Ajilon cases), recently considered the issue of the enforceability of entire agreement clauses in agreements entered into by unsophisticated parties.

An entire agreement clause is a standard clause, often found in the fine print of a contract, which is intended to reduce contracting parties’ rights and obligations solely to those contained in a single written agreement. These clauses ensure clarity and certainty of terms, which is particularly helpful when contractual negotiations have taken place over a period of time and via oral discussion or email. As the Ajilon cases demonstrate, the enforceability of entire agreement clauses may depend on the sophistication of the parties.

The Ajilon cases involved an IT firm (Ajilon Consulting), which entered into independent contractor agreements with two consultants, Gardiner and Langley (the consultants). Ajilon had recruited the consultants to work as business analysts for Loblaws on a per project basis. Both consultants were interviewed, offered positions and asked to sign Incorporated Contractor Agreements with Ajilon (the Agreements). The Agreements included identical entire agreement clauses which read as follows:

This Agreement constitutes the entire agreement between the Parties pertaining to the consulting engagement set forth herein and supersedes all prior negotiations, understandings and agreements between the Parties, written or oral ….

Following execution of the Agreements, the consultants turned down other work opportunities. Shortly thereafter, they were informed by Ajilon that Loblaws no longer required the services and that the Agreements were being terminated. It was later determined that Ajilon was aware that the project at Loblaws was not certain and required final approval.

In the circumstances, the consultants brought separate actions in Small Claims Court alleging negligent misrepresentation by Ajilon. Ajilon denied that there had been any negligent misrepresentation. It argued, further, that the entire agreement clauses prevented the consultants from relying on representations and operated as a bar to negligent misrepresentation claims. The Small Claims Court judge found in favour of the consultants, ordering damages against Ajilon in both cases. Both decisions were appealed.

Divisional Court Decision

The Divisional Court upheld the findings of the Small Claims Court judge, holding that entire agreement clauses found in contracts induced by negligent misrepresentation are not generally enforceable in the context of an unsophisticated party unless notice of the clause or notice of the clause’s intended effect is brought home to the unsophisticated party during bargaining. As such notice had not been provided to either consultant, the entire agreement clauses could not be enforceable.

In reaching this conclusion, the Divisional Court relied on the Supreme Court of Canada’s approach to exclusionary clauses, which focuses on unconscionability and public policy as part of a three part test (see Tercon Contractors Ltd. v. British Columbia). In applying this approach, the Divisional Court found that the entire agreement clauses in the Ajilon Agreements were unconscionable because of the inequality of bargaining power and the use of that inequality by Ajilon to secure the consultants’ consent to the Agreements. More specifically, Ajilon was in a “stronger informational position” than the consultants in that it controlled the access to information regarding the Loblaws project.

Our views

Although the Ajilon cases dealt specifically with entire agreement clauses in the context of independent contractors, the decisions serve as a general reminder to employers to exercise caution when asking employees to sign off on employment agreements. Where agreements contain restrictions or sophisticated legal concepts, those clauses may be overlooked or be misunderstood by unrepresented employees, especially where they are found in a contract’s fine print. To ensure that employees in such situations appreciate the implications of standard clauses, employers should draw their attention to same and provide employees with an adequate opportunity to consider such contractual terms and consult with counsel if necessary.

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