Understanding the Enforceability of Contracts in California

Many people believe that if two parties sign a contract, it is automatically enforceable. In reality, the law is more nuanced. While California strongly supports the freedom to contract, courts will not enforce agreements that violate public policy.

What is Public Policy?

In simple terms, public policy represents society’s core legal and moral standards. If a contract undermines those standards, a court may refuse to enforce it.

California law explicitly recognizes this limitation. Under Civil Code §1667, a contract is unlawful if it is:

• Contrary to an express provision of law
• Contrary to the policy underlying a law
• Contrary to good morals

Additionally, Civil Code §1668 prohibits contracts that attempt to shield a party from liability for fraud, intentional wrongdoing, or violations of law.

When an Illegal Term Can Void an Entire Contract

Illegal agreements cannot be enforced under California law. According to Civil Code §1608, if part of a contract’s consideration is unlawful, the entire contract may be void. Courts can even raise this issue on their own. This rule exists for an important reason: courts do not want to become instruments for enforcing unlawful arrangements.

If a contract encourages conduct that violates the law or harms the public, judges have the authority and responsibility to refuse enforcement.

In practical terms, this means parties cannot rely on a contract if it requires illegal actions, facilitates wrongdoing, or conflicts with established public policy.

1. Liability Waivers and Exculpatory Clauses

Businesses frequently attempt to limit liability through contractual clauses. However, California places strict limits on such provisions. Under Civil Code §1668, contracts cannot exempt a party from responsibility for:

• Fraud
• Willful injury to another person
• Violations of law

Even attempts to waive liability for negligence may be invalid if the activity affects the public interest.

The Tunkl Factors

The California Supreme Court in Tunkl v. Regents of University of Cal. (1963) identified several factors courts consider when determining whether a liability waiver violates public policy. These include:

• The business is subject to public regulation
• The service is important to the public
• The business offers services to the general public
• One party has significantly stronger bargaining power
• The contract is presented on a take-it-or-leave-it basis
• The consumer’s safety or property is placed under the provider’s control

When these factors are present, courts are far more likely to invalidate a waiver.

Fiduciary Duties Cannot Be Contracted Away

Courts have also applied this rule to fiduciary relationships. For example, in Neubauer v. Goldfarb (2003), an LLC manager attempted to have investors waive fiduciary duties. The court rejected the waiver, holding that fiduciary obligations serve a broader policy purpose and cannot simply be disclaimed through a contract.

2. Unconscionable Contracts

When a Contract Becomes Too Unfair to Enforce

Another major limitation on enforceability is unconscionability. Civil Code §1670.5 authorizes courts to refuse to enforce any contract or clause if it is unconscionable.

The party challenging enforcement must show both:

• Procedural unconscionability, meaning oppression or surprise in how the contract was formed
• Substantive unconscionability, meaning harsh or one-sided terms

California courts apply a sliding scale: the more extreme one factor is, the less evidence is needed for the other.

Example: Arbitration Agreements

In Ramirez v. Charter Communications (2024), the California Supreme Court invalidated an arbitration agreement that imposed shortened filing deadlines, unequal claim coverage, and attorney-fee provisions that deterred claims. The court ruled the arbitration clause was substantively unconscionable and refused to enforce it.

3. Restrictive Covenants in Employment Contracts

California’s Strong Policy Favoring Worker Mobility

California has one of the strictest policies against restraints on employment. Business and Professions Code §16600 provides that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”

This means that traditional non-compete agreements are unenforceable in California.

4. Non-Disparagement Clauses and NDAs

The Silenced No More Act

California has also taken strong steps to prevent confidentiality agreements from silencing victims of workplace misconduct. Under SB 331, commonly known as the Silenced No More Act, settlement agreements cannot prevent employees from disclosing facts relating to workplace discrimination, harassment, and retaliation.

The law requires separation agreements to include a clear statement affirming that employees may discuss unlawful workplace conduct. Employees must also be given at least five business days to consult an attorney before signing.

5. No-Rehire Clauses in Settlement Agreements

When Settlement Terms Go Too Far

Some employers previously required employees settling disputes to promise they would never apply for work at the company again. California law now largely prohibits this practice. Under Code of Civil Procedure §1002.5, settlement agreements cannot include provisions preventing an employee from seeking future employment with the same employer.

There is a narrow exception where the employer has made a good-faith determination of serious misconduct, such as sexual harassment or workplace violence.

6. Overlooked Contracts That Are Automatically Void

Some contractual provisions violate public policy even though people rarely think about them.

Contracts Restricting Marriage

Under Civil Code §1669, contracts that attempt to prevent someone from marrying, or impose penalties for marrying, are void. For example, a clause that discourages remarriage or imposes financial penalties for doing so will generally not be enforced.

Advice for Businesses and Individuals

Contracts remain one of the most powerful tools in business and employment relationships. However, enforceability depends not only on mutual agreement but also on compliance with public policy and statutory law.

When drafting or reviewing a contract, it is important to consider whether the agreement:

• Attempts to waive liability for misconduct
• Restricts employment mobility
• Silences reporting of unlawful activity
• Imposes unfair or one-sided obligations
• Includes penalties disguised as damages

Even carefully drafted contracts may fail if they conflict with California’s public policy. For that reason, legal review before signing or enforcing an agreement can prevent costly disputes and make the difference between a contract that holds up in court and one that is struck down.

At Sari Law Firm, we help clients navigate complex contract disputes, protect their rights, and pursue fair outcomes. Contact us today to schedule a free consultation. Let’s make things right.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. Every case is different. If you believe your rights have been violated, consult a qualified California attorney.