Amanda DeMatteis: Hi, Josh.
Josh Goodbaum: Hi, Amanda. What are we talking about today?
DeMatteis: Let’s imagine that an employee comes to you. Their employer, before or during the course of their employment, presents them with a restrictive covenant, such as a non-compete or confidentiality agreement. It’s a contract that the employer tells the employee they must sign. Otherwise, they are either not going to be hired by this company or their employment is going to be terminated.
So, they come to you, Josh, and they say, “Look, isn’t this duress? I didn’t want to sign this document. I don’t even know what the document said. But if I didn’t, I was going to lose my job. Help.”
Goodbaum: We hear this a lot, Amanda, from employees who signed contracts that, in retrospect, they wish they had not signed, and they’re hoping that duress will offer them an opportunity to void the contract. And typically, that’s not a path that’s going to be fruitful for them.
Duress is a legal doctrine that is a defense to the enforcement of a contract. Basically, the idea is that the person who signed the agreement did so without any free will. They had no reasonable alternative to signing the contract.
The classic example of duress is the gun-to-the-head scenario. Literally, someone is holding a gun to your head and saying, “Sign this document or I’m going to pull the trigger.” And a threat of death or serious physical violence certainly does constitute duress and would void the contract.
There is such a thing as economic duress. There can be economic circumstances that are so dire, in combination with other factors, that they void a contract. But the dire economic straits alone are insufficient. In general, in order for economic duress to invalidate a contract, the person seeking the contract – here, the employer – needs to be engaged in some wrongful act. They cannot just be taking advantage of the employee’s dire economic circumstances. They have to be doing so in a wrongful way.
What would that mean? Well, let’s imagine the employer and the employee already have a contract that’s binding where the employer has promised to continue the employee’s employment and the employer says, “You know what? I’m going to breach this agreement and I’m going to fire you even though I’m not allowed to unless you sign this better contract that is better for me as the employer.” That would be a wrongful act, and there the threat might constitute economic duress in combination with some other elements.
But in general, if you’re an at-will employee or you are being offered a position of at-will employment and your employer or potential employer says, as a condition of employment, that you must sign this document, then that does not constitute economic duress. And even those circumstances will not allow you to void the contract after you have already signed it because the courts will say that you did have an option there. You could have turned down the employment or you could have left your employment and found another job. Now, even if that’s not a realistic option for you given your personal circumstances or given the job market, the courts are still going to say that that is not sufficient to void a contract that you entered as a person who was of sound mind.
DeMatteis: Tough advice for a lot of employees, but better to know. Thank you so much for watching. Take care.