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Unfair and Unreasonable Associate Agreements – Don’t Sign ‘Em!

By August 29, 2012January 19th, 2022Employment Law

I’ve come across some pretty one-sided, unfair and unreasonable dentist associate agreements. I’m asked to comment and negotiate a more fair resolution on behalf of the associate, and I do try my best. Still, sometimes the other side (or their lawyer) is being stubborn to the point that they push away the associate. From these experiences, here’s what I’ve learned.

First, there’s a power imbalance typically in favour of the Principal. The Principal can demand the world, and they also think they can get away with it. Why? Because there’s an abundance of associates out there, so if it doesn’t work out with this one it will with another. This power imbalance is really disguised as something else, though. It’s very clever what you’ll hear the Principal dentist say. Sometimes, it’s something like “Oh, my lawyer says it’s legal, so I’m sticking with it” or “We never modify our contracts because we want to maintain consistency among all of our associates” or “All previous associates signed it, so the candidate associate should have no problem signing it”. Well, these arguments just aren’t that good. Why? Well, lawyers are not always right; that’s what going to court and having a judge make a decision on a matter is for. Second, if you’re not willing to accommodate someone because of your standard, then that’s your choice; just realize the bad reputation you’ll have as a result of being unfair and unreasonable. Finally, just because some associates (who may have never fully read or understood the agreement or had independent legal advice) signed the contract in the past doesn’t mean the candidate associate should do so now. The past mistakes and liabilities of those associates should not be “shared” or “in common” with the new candidate associate. So the bottom line is that there is a power imbalance, and so long as Principals have a pool of associates to choose from, they will try to impose their Will on new associates to the utmost degree.

The next lesson to be learned is that the power imbalance translates into terms and conditions which are likely unenforceable. Things like non-competes and non-solicitations have been held by various Ontario courts to be INVALID right from the beginning. They are against public policy. In fact, the Principal needs to justify them in order to make them enforceable. And the only way to justify them is to make them reasonable. If they are not reasonable, they are unenforceable. And Ontario courts have even gone so far as to say that, in certain circumstances, non-competes are illegal in the context of an associate agreement. Principal dentists like to include them because they look good on paper, and a lawyer representing the principal can always waive them around in a threatening manner, but they’ve been tested in court and have failed for unreasonableness – particularly when a clearly defined and restricted non-solicitation clause would have sufficed! Also, we sometimes see “pre-estimate of damages” clauses. These basically say: if you breach a part of this agreement, you agree to pay these amounts; sure, they can be legal so long as they are not seen as punishment. But the idea is clearly to punish the associate! I’ve never seen them enforced or seen a dentist pay them (but that’s just been my experience). Again, Principal dentists like to ask for them because they CAN AND MAY get away with having them.

But there’s also a fundamental flaw that Principal Dentists may not appreciate. And that’s the idea of unconscionable bargains. Basically, if one side has so much power over the other that results in the contract being substantively unfair, then the whole contract may be invalid. This power imbalance may arise from a difference in economic power, age, education, etc. And the contract itself is examined to determine if this power imbalance created it.

So given all of this, in my experience, it’s best for both parties to try to reach an agreement where each party gets a little bit of what they want but also gives in to the other side’s demands. This way, the agreement is entered into properly, negotiated fairly by two parties of somewhat equal bargaining power, and stands a better chance of being upheld in court.

Just my thoughts.

DMC