SCJN Expands Judicial Scrutiny Over Contractual Penalties: Risk for NDAs, Employment and Service Agreements

Mexico’s Supreme Court (SCJN) has issued binding precedent expanding judicial review of contractual clauses that may result in a disproportionate economic benefit for one party.

Why does this matter for employers?

This applies not only to loan or credit agreements but to any type of contract —including employment agreements, non-disclosure agreements (NDAs), and contracts with independent or specialized service providers— that include contractual penalties, default interest, or similar provisions.

The new standard

While “usury” traditionally applies only to loan contracts, the SCJN ruled that the prohibition against the exploitation of one person by another (Article 21.3 of the American Convention on Human Rights) can be applied more broadly, allowing judges to review:

  • Default interest or late payment charges.
  • Contractual penalties deemed excessive.
  • Sanction clauses that create an undue economic advantage for one party.

If there is a significant imbalance between the parties’ obligations that affects one party’s dignity, the court may invalidate or reduce the clause, even if it was freely agreed upon.

Impact on employers

  1. Employment contracts and NDAs: Penalties for breaching confidentiality, non-compete, or performance obligations may be challenged if found to be excessive or disproportionate.
  1. Independent and specialized service agreements: Penalties for delays or non-performance may be scrutinized under this new standard.

Recommended preventive measures

  • Review all contracts to ensure penalty and default interest clauses are proportional and justified.
  • Document objective criteria for calculating penalties, linking them to actual or potential damages.
  • Adjust contract templates to avoid terms that may be interpreted as granting an excessive economic advantage or undermining the dignity of the other party.

Conclusion

This precedent requires companies to rethink contractual sanctions beyond traditional usury concepts. Employers should assess whether their employment agreements, NDAs, service contracts, or any other contracts could be vulnerable to claims under the “exploitation of one person by another” standard.

At Vega, Guerrero & Asociados, we have the expertise to conduct preventive reviews and redesign contractual clauses to comply with this new judicial framework.

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