Are Employment Contracts With Unenforceable Terms Unethical?

Would it be ethical for a lawyer to draft an employment contract in which a fast food worker is paid not with money, but only in burgers and fries? What if the lawyer’s client—the employer—asked for it?

Most lawyers would balk at fulfilling such a blatantly illegal request. Unfortunately, for years, many lawyers have done something very similar: They’ve routinely included clearly illegal or unenforceable terms—like bogus noncompete agreements—in worker contracts.

Fortunately, someone is now asking questions about this practice. On Wednesday, the Center for Public Interest Law at the University of San Diego School of Law submitted a letter to the California State Bar requesting an ethics ruling to stop lawyers from writing employment contracts with clearly unenforceable terms. The California Bar’s Committee on Professional Responsibility and Conduct should swiftly respond that such conduct is unethical.

The Center’s letter gives a solid basis for such a conclusion. Noncompete agreements—which prohibit workers from getting a job with their employer’s competitor—have long been unenforceable in California, and courts and state law there make it illegal to include them in employment contracts. A California ethical rule prohibits “conduct involving dishonesty, fraud, deceit, or reckless or intentional misrepresentation.” Another rule prohibits “counsel[ing] a client to engage, or assist[ing] a client in conduct that the lawyer knows is … fraudulent, or a violation of any law.” California law on noncompetes, combined with these ethical rules, leads to the conclusion that it’s unethical to include such terms in employment contracts there.

Even without any outside request, other state bars should also provide guidance on this topic. After all, many states limit use of noncompetes. In some jurisdictions, like New York, longstanding case law disallows noncompetes unless they protect an employer’s legitimate business interest and are narrowly drawn. Other states (Illinois, Massachusetts and Washington) recently enacted statutes proscribing the use of noncompetes in certain circumstances, like for low-wage workers.

Lawyers in all of these states would benefit from instruction from their state bars on the ethical problems resulting from including unenforceable or prohibited terms in employment contracts. After all, if a court would never give a clause legal effect, how can its inclusion advance a client’s legitimate and legal interests? The only rationale for including such terms is their effect nondrafting parties, who often assume they are enforceable. That conduct is inherently deceptive.

Indeed, this conduct is far from harmless. It’s not just poor drafting or excess verbiage. These agreements are often the definition of an adhesion contract: The employer’s attorney carefully crafts the language, while the unrepresented worker has no time to review the contract and no choice but to sign if he wants the job. And employers can benefit considerably from unenforceable terms, because workers often believe—or their employer tells them—that they are bound by that noncompete. After all, how would ordinary workers know the contours of their state’s contract law? In this way, workers may end up trapped even by a prohibited or unenforceable noncompete, chilling their ability to get a better job and reducing their leverage to seek better wages or working conditions in their current position.

And in rare instances when these cases go to court, many judges simply sever the offending term from the contract or even edit the provision to make it enforceable—leaving the employer no worse off for trying.

This problem is not theoretical. For example, even though noncompete agreements have long been unenforceable in California, nearly 20% of all workers there have had to sign them. Forty percent of signers reported that this had been a factor in turning down other job offers. In other words, on millions of occasions, the black-letter laws of California have been effectively circumvented by management counsel. Some attorneys in other states do the same: They routinely draft noncompetes in a broad-brush manner, covering all employees from CEO to janitor, evincing no apparent analysis of whether the particular noncompete in that situation would even pass the laugh test.

This conduct isn’t limited to noncompetes. For example, sometimes lawyers include other illegal terms, like arbitration agreements letting the employer choose the arbitrator (also unenforceable in California). But lawyers draft these provisions and employers include them: They know that workers don’t know the law and may just stay quiet if they think the boss gets to pick the referee.

The California bar, and state bars elsewhere, should send a clear message to attorneys. It may be tempting or time efficient to instinctually include noncompetes, or other unenforceable terms, in every employment contract that passes your desk. But if you know they would never hold up in court, it’s plainly unethical to do so.

Terri Gerstein is director of the Project on State and Local Enforcement at Harvard Law School’s Labor and Worklife Program.

Brian Shearer is Legal Director for Justice Catalyst Law.