Every day, in state and federal courts throughout Michigan, companies are sued by plaintiffs who allege that their current or former employer discriminated against them because of a “protected characteristic” (age, sex, race, religion, handicap, etc.); retaliated against them for some “protected activity;” failed to honor their protected rights under a state or federal statute (e.g., FMLA); wrongfully discharged them or otherwise breached a contract of some sort; etc., etc.
It seems at times as though the list could go on indefinitely, and is limited only by the creativity of the plaintiffs’ bar. And, every day, employers miss the opportunity to potentially limit their exposure to these myriad claims with a simple clause that can be included in an application for employment, an employment contract, or appropriate new hire paperwork: a contractual limitations period.
Every claim, cause of action, or lawsuit that can be filed against an employer is subject to a “statute of limitations.” This is a legal deadline by which a plaintiff must file his or her lawsuit, or lose it forever. Some statutes of limitation are long (e.g., claims for breach of contract in Michigan are subject to a six year statute of limitations). Others are short (e.g., claims under the Michigan Whistleblower Protection Act must be filed within 90 days after the alleged retaliation occurs). In between, statutes range from 300 days (to file a charge of discrimination with the EEOC, a mandatory administrative precursor to a Title VII claim in federal court) to three years (to file a claim of discrimination under Michigan’s Elliot Larsen Civil Rights Act). Just keeping track of the various statutes can seem like a full time job some days! But, in most cases, these statutory limitations periods can be adjusted by written agreement to a single, enforceable limitation period for all claims.
Federal courts in Michigan apply a “reasonableness” test to the agreed limitation period, holding that the time must still provide the employee “sufficient opportunity to investigate and file an action” and must not “work a practical abrogation” of the employee’s rights. Michigan state courts will enforce a contractual limitation period unless some other traditional contract defense, such as fraud, duress, or waiver applies. In most instances, however, courts have ruled that a six-month contractual limitation period is reasonable and enforceable.
As with all “rules” there are exceptions. For example, at least one federal court in Michigan recently ruled that a contractual limitation period was not effective to bar claims filed by the EEOC on behalf of an employee, and did not prevent the intervenor employee’s participation in the lawsuit that the EEOC filed. EEOC v. Ranir, 2012 WL 381339 (Feb 6, 2012). Some federal courts have also held that waivers under the FLSA must be approved by the Department of Labor or a federal court to be enforceable. And, of course, a claim that is filed within the six-month agreement would not be barred. But in that instance, a primary objective of having the shortened period - preventing stale claims long after the employee has left and potential evidence and witnesses gone – is satisfied nonetheless.
So, although not a “silver bullet” to kill all claims, an employer can effectively limit its exposure for many claims for the cost of less than a silver bullet.