Introduction
If your business sells goods or services to consumers in Ontario, the terms of your contracts are not entirely within your control. Ontario’s Consumer Protection Act, 2002 (CPA) and the common law impose significant limitations on what you can include in consumer-facing agreements — and certain rights cannot be waived or contracted out of, no matter what the contract says.
Understanding these limitations is not optional. Businesses that include unenforceable or unconscionable terms in their consumer contracts face regulatory risk, litigation exposure, and reputational harm. This article explains what constitutes unfair or unconscionable contract terms under Ontario law, the mandatory consumer rights that cannot be waived, and practical compliance strategies for business owners.
The Consumer Protection Act, 2002: Key Provisions
The CPA is Ontario’s primary consumer protection statute. It applies to consumer transactions — agreements between a person acting for business purposes (the supplier) and a person acting for personal, family, or household purposes (the consumer). If your business deals with consumers, the CPA applies to you.
Unconscionable Representations (Section 15)
Section 15 of the CPA prohibits unconscionable representations in consumer transactions. The Act sets out a non-exhaustive list of factors that may indicate unconscionability, including:
• That the consumer is not reasonably able to protect their own interests because of disability, ignorance, illiteracy, inability to understand the language of an agreement, or similar factors.
• That the price grossly exceeds the price at which similar goods or services are readily available to like consumers.
• That the consumer transaction is excessively one-sided in favour of someone other than the consumer.
• That the terms of the consumer transaction are so adverse to the consumer as to be inequitable.
• That a misleading statement of opinion was made on which the consumer was likely to rely to their detriment.
A representation or term found to be unconscionable under section 15 can be challenged by the consumer and may result in rescission of the agreement or other remedies.
Mandatory Consumer Rights That Cannot Be Waived (Section 7(1))
Section 7(1) of the CPA provides that the substantive and procedural rights given under the Act apply despite any agreement to the contrary. This means that a business cannot use contractual language to waive, limit, or override the rights the CPA gives consumers. Any term in a consumer contract that attempts to do so is void to that extent.
This is a critical provision. It means, for example, that a business cannot use a waiver clause to eliminate a consumer’s statutory right to cancel certain types of contracts within the cooling-off period prescribed by the CPA, nor can it waive the consumer’s right to seek remedies for unfair practices or unconscionable representations.
Common Law Unconscionability
In addition to the CPA’s statutory provisions, Ontario’s common law recognizes the doctrine of unconscionability as a basis for setting aside or refusing to enforce contractual terms. The common law test for unconscionability generally requires the presence of two elements: an inequality of bargaining power between the parties, and a resulting improvident bargain — a contract or term that is substantially unfair to the weaker party.
Common law unconscionability is not limited to consumer transactions. It can apply in any contractual context where one party has taken unfair advantage of the other’s vulnerability. However, in practice, it is most frequently invoked in cases involving consumers, individuals with limited business sophistication, or parties who were under duress or undue influence at the time of contracting.
Good Faith Obligations After Bhasin v Hrynew
The Supreme Court of Canada’s decision in Bhasin v Hrynew, 2014 SCC 71, established that there is a general organizing principle of good faith that underlies and informs the performance of contracts in Canadian common law. The Court also recognized a specific duty of honest performance — a duty not to lie or knowingly mislead the other party about matters directly linked to performance of the contract.
While Bhasin was decided in the context of a commercial dispute, its implications extend to consumer contracts as well. A business that includes terms designed to mislead consumers or that exercises contractual discretion in bad faith may face claims based on the duty of honest performance. Subsequent decisions have continued to develop the scope of good faith obligations in Canadian contract law, and businesses should be aware that the legal landscape in this area is evolving.
Examples of Potentially Unenforceable Terms
The following types of terms in consumer contracts may be unenforceable or subject to challenge under the CPA, the common law, or both:
• Blanket liability waivers that attempt to eliminate all liability for the business, including liability for negligence causing personal injury.
• Terms that purport to waive the consumer’s statutory rights under the CPA, including cancellation rights and the right to seek remedies for unfair practices.
• Mandatory arbitration clauses that effectively prevent the consumer from accessing statutory complaint mechanisms or the courts. The enforceability of mandatory arbitration in Ontario consumer contracts has been the subject of significant judicial attention.
• Excessive cancellation penalties or termination fees that are disproportionate to the business’s actual losses.
• Automatic renewal clauses that lack adequate notice to the consumer and effectively lock them into ongoing obligations without meaningful consent.
• Terms buried in fine print that impose significant obligations or limitations that a reasonable consumer would not expect.
Impact on Standard Form Contracts
Standard form contracts — pre-drafted agreements presented to consumers on a take-it-or-leave-it basis — are the contracts most likely to contain unfair terms. Consumers typically do not read standard form contracts in detail and have no meaningful opportunity to negotiate individual terms.
Ontario courts have shown increasing willingness to scrutinize standard form contracts, particularly where they contain terms that are unexpected, onerous, or inconsistent with the reasonable expectations of the consumer. The CPA’s unconscionability provisions and the common law doctrine of unconscionability both provide grounds for challenging unfair terms in standard form contracts.
For business owners, this means that the terms of your standard form contracts must be fair, transparent, and consistent with the rights the CPA gives your customers. Hiding unfavourable terms in fine print or using complex legal language to obscure the effect of a provision is not an effective strategy — it increases your legal risk.
Compliance Strategies for Business Owners
Ontario businesses that deal with consumers should take the following steps to ensure their contracts comply with the CPA and the common law:
1. Audit your existing consumer contracts. Have a lawyer review your standard form agreements, terms of service, and any other consumer-facing contracts to identify provisions that may be unenforceable or that create legal risk.
2. Do not attempt to waive statutory rights. Any term that purports to waive, limit, or override a consumer’s rights under the CPA is void. Remove these provisions and replace them with terms that comply with the Act.
3. Use plain language. Write your contracts in clear, plain language that your customers can actually understand. Avoid unnecessarily complex legal jargon, fine print, and buried terms.
4. Ensure pricing transparency. Make sure that all costs, fees, penalties, and charges are clearly disclosed upfront. Hidden or excessive fees create unconscionability risk.
5. Provide adequate notice of significant terms. If your contract contains terms that impose material obligations or limitations on the consumer — such as cancellation fees, automatic renewal provisions, or liability limitations — bring these to the consumer’s attention clearly and prominently.
6. Train your staff. Ensure that employees who interact with consumers understand the CPA’s requirements and do not make representations that could be considered unconscionable or misleading.
7. Review and update regularly. Consumer protection law in Ontario continues to evolve. Review your consumer contracts at least annually to ensure ongoing compliance.
Frequently Asked Questions
Q: Can my business contract require consumers to waive their rights under the Consumer Protection Act?
A: No. Section 7(1) of the CPA provides that the rights given under the Act apply despite any agreement to the contrary. Any term in a consumer contract that attempts to waive or override CPA rights is void. Your contract must respect the statutory rights of your customers.
Q: What happens if a court finds that a term in my consumer contract is unconscionable?
A: Depending on the circumstances, the court may refuse to enforce the unconscionable term, sever it from the contract, or rescind the agreement entirely. Under the CPA, the consumer may also be entitled to damages or other remedies. Unconscionability findings can also attract regulatory attention and enforcement action.
Q: Does the duty of good faith under Bhasin apply to my business’s consumer contracts?
A: Yes. The organizing principle of good faith and the duty of honest performance recognized in Bhasin v Hrynew apply broadly to contractual relationships in Canada, including consumer contracts. Your business must not lie to or knowingly mislead consumers about matters related to the performance of the contract.
Q: Are mandatory arbitration clauses enforceable in Ontario consumer contracts?
A: The enforceability of mandatory arbitration clauses in Ontario consumer contracts is a complex and evolving area of law. The CPA and related case law impose limitations on the ability of businesses to require consumers to resolve disputes through arbitration rather than through the courts or statutory complaint mechanisms. You should consult Booni Law to assess whether an arbitration clause in your consumer contract is enforceable.
Contact Booni Law
If your Ontario business uses consumer-facing contracts, Booni Law can help you ensure compliance with the Consumer Protection Act, 2002, and the evolving common law of unconscionability and good faith. We review and draft consumer contracts that protect your business interests while respecting your customers’ statutory rights.
Booni Law serves clients across Ontario, including the Greater Toronto Area, Southwestern Ontario, and communities throughout the province. Email us at admin@boonilaw.com or call +1 (226) 271-1751 to get started.
Disclaimer: This article is provided for general informational purposes only and does not constitute legal advice. Reading this article does not create a solicitor-client relationship between you and Booni Law. The information in this article may not reflect the most current legal developments and should not be relied upon as a substitute for professional legal advice tailored to your specific circumstances. If you require legal advice, please contact Booni Law.
