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ebglaw.com
Court Okays Employment Contract
Shortening Employee's Time to Sue
Ever-expanding employment laws and increasingly high jury awards
are motivating more and more employers to think "outside the box" in terms
of risk mana gement strategies. For instance, in order to stem the tide of
costly and time-consuming employment litigation, some companies now
require employees to sign agreements to arbitrate employment-related
disputes, rather than litigate in court. Similarly, an increasing number of
employers have implemented another type of employment agreement - one
which shortens the statute of limitations, that is, abbreviates the amount of
time an employee has under the law in which to file a lawsuit against the
employer for employment-related claims. Notably, just such a limitation
was recently found to be lawful by the U.S. Court of Appeals for the Sixth
Circuit.
In the case before the court, Thurman v. DaimlerChrysler, Inc ., No.
02-2474, 2004 WL 2649720 (6th Cir. Nov. 19, 2004), the automaker had
included a provision in its employment application which stated:
I agree that any claim or lawsuit relating to my service with Chrysler
Corporation or any of its subsidiaries must be filed no more than six
(6) months after the date of the employment action that is the subject
of the claim or lawsuit. I waive any statute of limitations to the
contrary.
This clause was printed in the same size font as all other printed portions of
the application, and was preceded by the statement, " READ CAREFULLY
BEFORE SIGNING ," in bold and capitalized letters. The application also
contained a clause stating: "This application will be considered active for
twelve (12) months from the date filed. If you are hired, it becomes part of
your official employment record." The plaintiff, Connie Thurman, signed
the application, acknowledging that she read and understood it. Upon her
hire 13 months later, Thurman was covered by the collective bargaining
agreement then in force between DaimlerChrysler and the United Auto
Workers.
After more than five years on the job, Thurman complained of
sexual harassment. Dissatisfied with the company's response, she and her
February 2005
husband filed a lawsuit against DaimerlerChrysler, alleging sex and race discrimination, as well as various tort
claims. The company sought to have the suit dismissed, arguing that Thurman had failed to file within six
months of the alleged discrimination, as required by the clause in the job application.
The trial court agreed with DaimlerChrysler. The Thurmans appealed and the Sixth Circuit affirmed the
lower court's award of summary judgment for the automaker. In so ruling, the court first addressed the validity
of the job application. Thurman had argued that, because the application expressly stated that it was "active" for
only 12 months, and she was hired after that, none of the terms of the application, including the statute of
limitations provision, was valid. The court rejected this argument, noting that Thurman did not contest that she
was hired based upon that employment application, and that Michigan courts have held that "terms in an
employment application constitute part of an employee's contract of employment."
Thurman next argued that, even if the application had not expired, it was superseded by the collective
bargaining agreement, which did not include a similar provision abbreviating the statute of limitations. Again,
the court was not persuaded. Explaining that collective bargaining agreements do not automatically supersede
employment contracts, the court found that the union contract here expressly reserved the company's right to
manage its employees and direct its affairs, "except as limited by the terms of the Agreement," and that the
contract was silent on the statute of limitations issue.
The Sixth Circuit also rejected Thurman's argument that the employment application was unenforceable
because it constituted an "unconscionable contract of adhesion." Under Michigan law, the court explained,
contracts of adhesion (e.g., "take it or leave it" contracts) are lawful if the challenged provision is reasonable,
even though the challenger had little or no bargaining power. Moreover, Michigan courts had previously held a
six-month limitations period in an employment contract to be reasonable, because it provided the plaintiff with
sufficient time to investigate her claim, determine her damages and file an action.
Thurman's final contention, that she did not sign the waiver "knowingly, intelligently, and voluntarily,"
fared no better than her other arguments. While acknowledging that waivers in civil rights cases "must be
carefully scrutinized for voluntariness," the court quickly concluded that the disputed contract provision not only
was "clear and unambiguous," but also that Thurman's own deposition testimony - that she read and understood
the application before signing it - "refute[d] her argument."
Having decided that the limitations provision in the employment application was lawful and binding, the
Sixth Circuit ruled that all of the Thurmans' claims against DaimlerChrysler were time-barred.
What is the significance of this case?
The ability to get a claim dismissed as untimely is obviously a huge advantage for an employer. Such a
determination is made at a relatively early stage in the proceedings, thereby saving time, as well as financial and
human resources. Further, the court does not decide the veracity of each side's "facts, " thus avoiding a
potentially unjust or costly judgment against the company, as well as possible adverse publicity.
Employers considering the adoption of an employment contract that shortens the limitations period should be
aware, first and foremost, that in about a dozen states (including Florida, Missouri, New Hampshire, Oklahoma
and South Dakota), contracting parties are prohibited by statute from shortening the applicable statute of
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limitations. On the other hand, a few states (including Arizona, New York and Pennsylvania) have statutes
which permit parties to enter into contracts which abbreviate the limitations period, although it appears that, of
these, only Pennsylvania courts have so far approved a contractually shortened statute of limitations in the
employment context.
The majority of states lack a statutory provision permitting or prohibiting contractual statutes of
limitations, and courts in most of these states have not specifically addressed the issue in the context of
employment contracts, although many have upheld contractual limitation of action clauses in other types of
agreements. Federal and state courts have specifically approved such provisions in employment contracts in
California, Illinois, Indiana, Michigan, Ohio, Oregon and Pennsylvania.
Moreover, as the Thurman case demonstrates, even where such contracts are permissible, an employer
may be forced to litigate the validity of the agreement itself. To help ensure that employment contracts which
shorten the limitations period will be upheld in those states where they are not expressly prohibited, employers
should heed a number of caveats:
00Obtain a valid "waiver" from the employee . As the Thurman court noted, an employee's waiver of the
right to the statutory time in which to file suit must be knowingly and voluntarily made to be
enforceable. The agreement must be clear and unambiguous, and the employee must understand the
specific right he is waiving.
The Thurman court arguably danced around the fact that the application, by its own language,
had technically expired, emphasizing instead that the employee was hired on the basis of the application
and was told, in bold, capitalized letters, to read the statute of limitations provision carefully. Notably, a
federal court in Oregon recently upheld a similar contractual limitations provision contained in an
employment application, even though the employee claimed that she had not had time to read it and had
never received a copy, as the company had promised. The court there said that the employee "had an
obligation to read the documents she signed, and her failure to do so does not render the Agreement
invalid." Fink v. Guardsmark, LLC , No. CV 03-1480-BR, 2004 WL 1857114 (D. Or. Aug. 19, 2004).
Other courts, however, could easily rule otherwise. Thus, to help ensure the validity of such a
contract provision, employers may want to wait until the employee is hired and have the new hire sign a
separate agreement, or at a minimum, place the provision in an employee handbook, and ensure that the
employee has sufficient time to read it and ask questions before signing. Wherever it is placed, the
provision should be conspicuously titled, e.g ., under the heading "Legal Proceedings."
00Ensure that the shortened limitations period is reasonable . In Thurman , the Sixth Circuit followed
Michigan law in finding a six-month statute of limitations reasonable. Other courts also have found the
six-month period reasonable.
For instance, in Soltani v. Western and Southern Life Ins. Co ., 258 F.3d 1038 (9th Cir. 2001), the
Ninth Circuit Court of Appeals in California upheld a contractual six-month limitations period, reasoning
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that such a time frame is analogous to the 180-day statute of limitations for filing a discrimination charge
with the Equal Employment Opportunity Commission and an unfair labor practice charge with the
National Labor Relations Board. Yet, in Circuit City Stores, Inc. v. Adams , 279 F.3d 889 (9th Cir. 2002),
the Ninth Circuit, reconsidering the validity of an agreement to arbitrate after the Supreme Court ruled
that such agreements could be lawful, found the contract in that case to be unenforceable for a host of
reasons, including a shortened statute of limitations period. Thus, even within the same jurisdiction, there
is no guarantee that a contractually-shortened limitations period will be found lawful.
Moreover, in a case where, in addition to discrimination claims, the employee alleges tort or
contract claims that might otherwise be subject to as much as a six-year statute of limitations, a court
may be less willing to find a six-month limitations period reasonable. While the Thurman court did not
address this issue, even though Thurman had alleged tort claims in addition to her discrimination claims,
other courts have. In one recent case, the employee alleged, among other wrongs, violations of the state
Labor Code, which had a three-to-four year statute of limitations. The employer's entire arbitration
agreement, which contained numerous one-sided restrictions, including a six-month limitations period,
was deemed unenforceable. Martinez v. Master Protection , 118 Cal. App. 4th 107 (2004).
00Consider making the shortened limitations period mutual. Although the Thurman decision and a few
other cases have upheld one-sided, shortened statutes of limitations provisions, other courts, as in the
Circuit City and Martinez cases discussed above, have ruled them unenforceable in the context of one-
sided agreements to arbitrate employment disputes. In light of the large number of jurisdictions that have
not yet addressed the legality of contractual limitations periods outside the context of an otherwise
unenforceable arbitration agreement, a mutual agreement to abide by an abbreviated statute of limitations
might help persuade a court of the fairness of the shorter period.
00Avoid additional restrictions that could be viewed as "manifestly unfair." Some employers have
attempted to go beyond the shortened limitations period by imposing other restrictions on an employee's
ability to sue.
For example, in the Soltani case discussed above, the company's employment contract also
required employees to give the company 10 days' written notice of the "particulars and amount" of their
claims prior to suing. This notice requirement did not apply to employer claims against the employee
(the "mutuality" issue discussed above). The court held that the "notice" requirement was unreasonable,
and unenforceable. Explaining that 10 days was too short a period of time for the employer to
investigate and attempt to resolve the employee's claim, the court suspected that the requirement's main
purpose was to deter employee lawsuits.
A longer notice requirement may be lawful if it allows for reasonable time to evaluate and
potentially resolve a claim. Employers, however, should tread carefully in this area. Although the Soltani
court upheld the shortened limitations provision while striking the notice requirement, some courts,
particularly with respect to agreements to arbitrate which contain a number of non-mutual restrictions,
have held the entire agreement invalid.
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00Avoid inadvertently lengthening a limitations period. An employment agreement which requires
employees to bring all employment-related suits within, for example, six months of the alleged
wrong could actually lengthen an employee's time to bring suit instead of shortening it. For instance,
Michigan's Whistleblower's Protection Act contains a 90-day statute of limitations. But, under the
above example, the employee presumably would have the contractual six-month period in which to
file suit. Thus, employers should phrase the contractual statute of limitations provision so as to avoid
this situation.
As Thurman and other cases illustrate, carefully crafted agreements which set forth some rules on
potential legal proceedings can help to minimize the risk of costly employment-related litigation. As this area of
law remains unsettled, however, employers need to proceed cautiously.
* * *
If you have any questions about these or any other related issues, please contact Michael W. Casey, III
in the Labor and Employment Group in EBG's Miami office at 305/982-1534 or mcasey@ebglaw.com .
This document has been provided for informational purposes only and is not intended and should not be
construed to constitute legal advice. Please consult your attorneys in connection with any fact-specific situation
under federal law and the applicable state or local laws that may impose additional obligations on you and your
company.
漏 2005 Epstein Becker & Green, P.C.
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