Many routine business agreements, such as contracts of employment, may be considered by the courts to be contracts of adhesion as they may not be freely negotiated. When a contract is thus qualified, it becomes possible to review the reasonableness of any provision therein which is found to be unfair. The person who signed the contract without being able to negotiate beforehand, also known as the adherent, can challenge the validity of such provisions when the latter are abusive. In other words, the party imposing the unfair provision must live with the risk that it be canceled or reduced by the courts on the grounds that it is excessive or unreasonable. What is the meaning of « abusive »? Section 1437 of the Civil Code of Québec states that « An abusive clause is a clause which is excessively and unreasonably detrimental to the consumer or the adhering party and is therefore not in good faith; in particular, a clause which so departs from the fundamental obligations arising from the rules normally governing the contract that it changes the nature of the contract is an abusive clause. » The determination of the unfairness of a clause is, however, a matter of fact.
The recent case Latreille c. Industrielle Alliance (L ‘), compagnie d’assurance vie, 1, involving an employee having signed an employment contract imposed by his employer, which contract included a non-competition undertaking, offered the Court of Appeal of Quebec the opportunity not only to state that a contract of employment may be qualified as a contract of adhesion, but also outline the criteria to be considered for to qualify a provision as abusive, if applicable.
Pierre Latreille (hereinafter « Latreille ») works as a personal insurance agent for L’Industrielle Alliance, compagnie d’assurance-vie (hereinafter « Alliance »). Latreille and Alliance are bound by an agent contract which establishes a payment mechanism. Alliance agents receive, when they sell a new insurance policy, a commission which is paid in advance on the revenue generated by the insurance policy. Furthermore, the contract also includes the following clause:
Latreille is dissatisfied with his position, which has been transformed from an employee position to a service provider, and wishes to become a broker. Following the refusal of Alliance to give him this promotion, he quits his position. Following his departure, Latreille works as a broker, in violation of his non-competition undertaking.
Alliance launches proceedings against Latreille to stop the contravention and to obtain compensation for the damage suffered. Latreille counterattacks by initiating proceedings to obtain payment of amounts that he would have been paid in the absence of clause 14 of the contract. He receives assistance from the Fonds d’aide aux recours collectifs and launches a class action against Alliance.
The Court of Quebec ruled in Alliance on the issue of the non-competition undertaking. The Superior Court examines the various issues raised by the class action, including the validity of clause 14 of the agent contract, and concludes that clause 14 of the contract is not abusive.
Positions of the parties
On appeal, Latreille essentially argues that the judge erred in law by not declaring clause 14 of the contract to be abusive. Alliance claims the contrary.
The Court of Appeal dismisses the appeal of Latreille, and reiterates the criteria for determining whether a term is unfair. The Court analyzes the provision claimed to be abusive by using four criteria.
The first criterion is the question of commercial usage of the field of activities in which the parties operated. The evidence shows that in the field of insurance, in agent contracts, it is not uncommon to find similar clauses to Clause 14 of the contract between Alliance and Latreille. The Court of Appeal considers that, without being the sole criterion, commercial customs are a consideration in determining whether a term is unfair. In this case, the trial judge stated that the contract between Latreille and Alliance is consistent with customary business practices – it is actually, according to analysis by an expert, an insurance agent contract that is very advantageous to the agent. The Court of Appeal sees no error in that decision.
Secondly, the Court examines the duties of Latreille toward Alliance. The trial judge in his ruling establishes that the duties imposed to Latreille pursuant to the contract are not excessive. They are simply normal duties related to the function of insurance agent. In addition, Alliance supports the costs resulting from the departure of its agents. The Court of Appeal respects the analysis of the trial judge regarding this criterion.
The third criterion analyzed is the ease of understanding of the supposedly abusive provision of the contract. The trial judge considers that the clause is sufficiently clear and understandable to allow Latreille to understand the scope of his undertaking. The Court of Appeal confirms once again that analysis.
The last criterion considered is the existence of an imbalance between the respective obligations of each party. The trial judge believes that Latreille had not established that such an imbalance exists, and the Court of Appeal sees no error in that decision.
In the absence of error in the decision of the Superior Court, the Court of Appeal dismisses the appeal of Latreille and confirms the decision of the trial judge.
Even though the Court of Appeal did not rule on the nature of the disputed contract, namely whether the contract was a contract of employment or a service contract, the ruling nonetheless reminds us that a mere insurance agent contract may be a contract of adhesion, whose content may be revised, if the reasonableness criteria are not met. Consequently, it is vital for the creator of such contracts to keep the aforementioned four criteria in mind and to ensure that they are complied with so that the content of the agreement will be respected by the courts.
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- 2009 QCCA 1575 ↩