When Does a Contract Violate Public Policy?

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When Does a Contract Violate Public Policy?

A contract that is contrary to public policy is not enforceable, but what exactly is public policy and how are violations determined?

Public policy is a system of laws, regulations, court decisions, and societal norms that citizens are expected to follow. Since public policy changes over time, the application of public policy to contract law varies. Put simply, public policy can be violated if something within the contract is illegal, injurious to other citizens, or is otherwise against the public good.

While courts apply public policy tests to contracts on a case-by-case basis, there are some clear examples of contracts that violate public policy:

  • An employment agreement that forbids employees from joining a union or taking medical leave.
  • Any inducement to commit a crime, fraud, or immoral act.
  • An agreement that unfairly disadvantages consumers or other companies.
  • A contract that obstructs or perverts justice.
  • A contract that would harm public services.
  • Any contract that affects the custody of a minor child.

Generally, contracts that are contrary to public policy are void and unenforceable. Thus, a court would dismiss an action to enforce a contract for indentured servitude. Other cases are less obvious. For example, if two parties decide to settle their litigation in a written agreement, a provision that one party will not report the other’s criminal offenses to law enforcement is contrary to public policy and unenforceable. Even though it is not illegal to keep another’s crime to oneself and not report it, a promise not to do so is contrary to Arizona public policy that encourages citizens to report crimes and to remain free to do so.

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