Freedom of contract is the right to enter into legally binding agreements without government interference. While some argue that all government restrictions should be lifted, others believe health and welfare laws are necessary. The US Constitution does not include a contract law clause, but some argue that limiting contracts could violate the due process clause. The Supreme Court has repeatedly affirmed freedom of contract, but some government restrictions are necessary to prevent illegal or dangerous contracts. Contractual freedom extends beyond labor law to other areas.
Freedom of contract is the right to enter into legally binding agreements as an adult without government interference. Proponents of this concept argue that government should not limit the obligations individuals choose to undertake, as long as people fully understand the contract and enter into an agreement voluntarily. Some people believe that all government restrictions should be lifted, while others argue that health and welfare laws are in place to prevent the creation of contracts that could significantly endanger people.
The concept of freedom of contract became a burning legal issue in the United States in the early 20th century as workplaces were changing dramatically. Mass production was on the rise, and people often worked long hours with little legal protection, from minimum wage laws to basic job security requirements. As some regions began passing laws to limit working hours, some employers took the matter to court, arguing that freedom of contract is part of the US Constitution.
While the Constitution does not specifically include a contract law clause, some readings include an argument that entering into contracts is a legal right and limiting the nature of contracts could violate the due process clause in the Constitution. For these reasons, the Supreme Court has repeatedly affirmed freedom of contract, sometimes overturning laws aimed at promoting worker safety. A famous example from 1905, Lochner v New York, ruled that time limits were unconstitutional.
The ability to freely enter into legal agreements continues to be protected by law, but some government restrictions are also part of the process. Individuals cannot be bound into illegal contracts and must have all information available at the time of signing. In a situation where someone appears to be being coerced or manipulated, the contract may not be valid. Similarly, a person cannot enter into a contract that would create danger and violate health and safety laws; for example, a structural worker cannot agree to refrain from using a safety harness while working at great heights.
Contractual freedom extends beyond labor law to other areas where people can enter into legal contracts. They range from agreements with insurance companies to real estate purchase contracts. The government cannot interfere when people enter into an ill-considered contract as long as the terms are legal and they clearly do so of their own free will.
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