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Am. Software v. Ali - 46 Cal. App. 4th 1386, 54 Cal. Rptr. 2d 477 (1996)

Rule:

Substantive unconscionability is indicated by contract terms so one-sided as to shock the conscience.

Facts:

Ali was an account executive for American Software. Ali was hired to sell and market licensing agreements for software products to large companies. In exchange for her services, American Software agreed to pay Ali a base monthly salary plus a draw. If products were sold during the month, any commissions paid were reduced by the amount of the draw. However, the draw portion of the salary was paid regardless of whether or not the salesperson earned commissions to cover the draw. At the time of her resignation, Ali's annual guaranteed salary, exclusive of commissions, was $75,000. Her base monthly salary was $3,333 per month and her nonrefundable draw was $2,917. After Ali left American Software's employment, she sought additional commissions in connection with transactions with IBM and Kaiser Foundation Health Plan. American Software received payment from both companies more than 30 days after Ali's resignation. The employment contract stated: that "Commissions are considered earned when the payment is received by the Company... In the event of termination, the right of all commissions which would normally be due and payable are forfeited 30 days following the date of termination in the case of voluntary termination and 90 days in the case of involuntary termination." The trial court granted Ali her unpaid commissions, finding that a provision of a software salesperson's employment contract that terminated her right to receive commissions on payments received on her accounts 30 days after severance of her employment was unconscionable, and therefore, unenforceable.

Issue:

Was the provision on post employment commissions in the employment contract unconscionable?

Answer:

No

Conclusion:

The court reversed and held that the contract was conscionable, procedurally or substantively, at the time the parties agreed to its terms. The court found that there was no procedural unconscionability because respondent was aware of her obligations when she assumed them. Respondent was familiar with contracts, the salient provisions of the contract were straightforward, respondent had the benefit of counsel, and respondent was not presented with an absence of meaningful choice. The court found that the contract was not substantively unconscionable because it was not so unfair or oppressive in its mutual obligations so as to shock the conscience. The court found that there was not an overly harsh allocation of risks, as there were risks to both parties in the bargain.

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