Saving Employment Contract Limitation Periods from Being Unenforceable in Employment Litigation

We must use time as a tool, not as a couch.

President John F. Kennedy

Saving Time.jpgSmart employers make it a point to use time to their advantage by limiting the statutes of limitations for filing employment-related lawsuits. Statute of limitations require a plaintiff/employee to file a lawsuit within a specified time frame. But like any tool, it is important to know how and when to use it.  

In this regard, a recent decision by a Michigan district court judge in a class action Fair Labor Standards Act (FLSA), Biggs v Quicken Loans, Inc. (PDF)barred an employer from enforcing an employment agreement that shortened the time in which an employee could bring any legal or administrative claim, including a claim under the FLSA. 

The FLSA's period of limitation for bringing claims is limited to two years. But the employment agreement in Biggs contractually shortened this limitation period to one year from the date the employee knew of the violations. 

Procedural Rights vs Substantive Rights

An important point for employers to remember when it comes to employment contractual waivers and limitations is that waivers of substantive rights (e.g., the right to a minumum wage) as opposed to precedural rights will almost always be unenforceable. 

And that is where the employer in the Biggs case lost the battle: The Court rejected the employer's position that the FLSA's statute of limitations period was only a "procedural" right and not a "substantive right" under the FLSA, and therefore waivable. In reaching this decision, the Court adopted the reasoning from another Michigan Federal District Court opinion also issued in a FLSA claim (PDF) that addressed the same issue:

[A]s a general rule, contractual waivers that purport to weaken the FLSA’s substantive protections are invalid. The waivers in Quicken's employment agreements do exactly this, by limiting the financial penalty Quicken would have to pay for violating the FLSA ... 

* * *

Because the contractual limitation provisions in Plaintiffs contracts “contravene[ ] the statutory policy” of the FLSA, the Court finds them unenforceable as a matter of law...

Michigan Courts are More "Employer Friendly" when it comes to Enforcing Contractual Limitations Period. 

In contrast to the federal court decision, Michigan state courts generally take a more employer friendly view when it comes to enforcing contractual time limitations for bringing employment law claims.

  • Michigan's Take on Substantive versus Procedural Rights

Consider for example that the Michigan Court of Appeals has essentially found that the statute of limitations provision under the FLSA is not a "minimum wage provision," (i.e., a substantive provision). See Allen v MGM Grand Detroit, LLC, 260 Mich App 90, (2003). In that case, the Court compared the three year statute of limitations under the Michigan's Minimum Wage Law of 1964, MCL 408.381 et seq., (the state counterpart to the federal minimum wage and overtime pay requirements of the FLSA) to the FLSA's two year statute of limitations. In this comparison, the FLSA’s shorter statute of limitations was determined not to constitute a “minimum wage provision.” In other words, in the view of the Michigan Court of Appeals, the statute of limitations was not a substantive provision, but rather a procedural provision that is subject to contractual waiver.

Unfortunately, the Allen case was not cited and this distinction was not made in the Biggs case. While it is impossible to know if this support would have made a difference, it clearly provided persuasive support for the employer's position and went to the heart of the issue of procedural versus substantive rights.   

  • Employer Friendly View of Contractual Limitations under Michigan Law

Also, under the direction of the Michigan Supreme Court “an unambiguous contractual provision providing for a shortened period of limitations is to be enforced as written unless the provision would violate law or public policy. Following this direction Michigan courts have upheld a six-month contractual limitation period applied to an age discrimination claim under the Elliott-Larsen Civil Rights Act (ELCRA). See Clark v DaimlerChrysler Corp, 268 Mich App 138, 706 NW2d 471 (2005). In that case, the court found that the contractual period was not contrary to law and that it did not violate public policy.

The Take Away

Employers should continue to seek to limit their liability for employment lawsuits. One way to do this is by entering into employment agreements that shorten the statutory periods of limitations for all employment disputes or other aspects of the employment relationship. While cases like those discussed above illustrate that it is essential to consult with an experienced employment lawyer before drafting or entering into any employment agreement, a few points to consider: 

  • Enforcement of contractual limitations period may vary. As noted above, Michigan state courts routinely side with an employers’ ability through employment applications and handbooks to limit the time for filing an employment-related claim if the the limitations period is "reasonable." In this regard, a six month limitations period for employment-related claims have repeatedly been found to be reasonable.
  • Contractual limitations or waivers of substantive rights, as compared to procedural rights, are almost always never subject to waiver. Further, contractual limitations or waivers for certain claims may not be enforceable for certain employment claims. For example, contractual limitations are not enforceable as to Family Medical Leave Act (FMLA) claims because employers are prohibited "from interfering with, restraining, or denying the exercise of (or attempts to exercise) any rights provided by the Act." See 29 C.F.R. § 825.220(a)(1)
  • Because the enforceability of contractual limitations period shortening the time to file an employment-related claim may vary, it is important to include a severability clause that provides that the illegality or unenforceability of any part of the contractual limitation period will not effect or otherwise impair the enforceability of any other part of the contract. 

For more information about updating employment agreements or implementing such agreements to avoid or minimize risks arising out of employment law claims, please contact Jason Shinn about the management employment law services offered through the E-Business Counsel law firm. 

Extending the Fair Labor Standards Act's Overtime & Minimum Wage Coverage to Home Health Care Workers

Young and Old Hands.jpgMichigan home health care companies and the home health care industry are facing significant changes under the U.S. Department of Labor's (DOL) proposed rule change to the Fair Labor Standards Act's (FLSA) 1975 "companionship exemption."   

Proposed FLSA Revision 

On December 27, 2011 the DOL published a notice of proposed rulemaking to revise the companionship and live-in worker regulations applicable to home health care workers employed by third-party companies. This proposed revision would extend the FLSA's overtime and minimum wage coverage to these employees, which have previously been exempt from the FLSA since 1975.  

Obviously if this revision is enacted it will significantly change the home health care industry. Consider for example that the DOL's proposed rule would potentially mean higher paychecks for an estimated 1.7 million home care workers. This is because employers covered by the FLSA must generally pay the federal minimum wage and one and a half times an employee’s regular hourly wage for each hour or part of an hour that the employee works in excess of 40 hours in one week. 29 USC 207(a)(1).

But an increase in wages also means higher labor costs for a number of home-care companies. Such increase would likely be passed along to customers, many of which are likely to be on fixed incomes and rely on Medicare and Medicaid reimbursements.

To some extent, however, the impact of the proposed change to the FLSA companionship exemption would be muted because a number of states already provide coverage of home care workers under state minimum wage and overtime laws. Additionally, the DOL's proposed rule would also benefit those home care employers that are already paying overtime despite the federal exemption.

Reason for the Revision to the FLSA Home Health Care Exemption

According to the FAQ page maintained by the DOL, the FLSA changes are needed: 

Due to significant changes in the home health care industry over the last 35 years, workers who today provide in-home care to individuals are performing duties and working in circumstances that are markedly different than when the companionship services regulations were first promulgated. The nature of the employment relationship and the scope of duties being performed by workers in the home are different than originally contemplated when the exemption was first enacted.

The impetus for the DOL's proposed rule can actually be traced back to 2001 when the outgoing Clinton Administration proposed a revision to the labor rules to allow federal protections to apply to personal home care aides. The Bush administration, however, reversed those revisions and returned to the 1975 exemption.

In 2007, the U.S. Supreme Court affirmed the 1975 companionship exemption in ruling against a home care aide who sued her employer over unpaid overtime. See Long Island Care at Home, Ltd. v. Coke, 551 U.S. 158 (2007). In this decision, the U.S. Court noted that any change to the exemption rule must come from Congress or the Labor Department, which brings us full circle with the DOL's December 2011 proposed rule change. 

Submitting Comments Concerning the Proposed Revision to the FLSA Home Health Care Exemption

The DOL's proposed rule will be subject to comments, which may be submitted by following this link. Alternatively, comments may be sent in hard copy to Mary Ziegler, Director, Division of Regulations, Legislation, and Interpretation, Wage and Hour Division, U.S. Department of Labor, Room S-3502, 200 Constitution Avenue, N.W., Washington, D.C. 20210. All Comments regarding the DOL's proposed rule must be identified by RIN 1235-AA05 and be received on or before February 27, 2012

For Michigan home health care providers looking for more information about what this proposed revision will mean to your business, contact Jason Shinn or see the DOL's fact sheet on the proposed rule change, the DOL's FAQ, or the DOL's comparison chart showing the differences between the current and proposed rule.

Does An Employer Violate the FLSA's Anti-retaliation Provision for Firing Employee For Facebook Posting About Payment Practices?

Facebook.jpgOn June 24, 2011, a Florida federal district court dismissed a claim that an employer violated the Fair Labor Standards Act's (FLSA) anti-retaliation provision by allegedly firing an employee who expressed her disagreement over the employer's payment practices on Facebook.

The Plaintiff, Lilli Morse, filed suit against her former employer, J.P. Morgan Chase & Co., under the FLSA alleging it failed to pay her overtime wages. She further alleged that when she complained on her Facebook page, J.P. Morgan retaliated by terminating her employment.

The FLSA Anti-retaliation Provision

Under the FLSA anti-retaliation provision an employer cannot

... discharge or in any other manner discriminate against any employee because such employee has filed any complaint or instituted or caused to be instituted any proceeding under or related to [the Act], or has testified or is about to testify in such proceeding, or has served or is about to serve on an industry committee. 29 U.S.C. 215(a)(3).

Earlier this year, the Supreme Court held that this anti-retaliation provision extended to both written and verbal complaints. See Kasten v. Saint-Gobain Performance Plastics Corp., 131 S. Ct. 1325 (U.S. 2011). Specifically, the Court noted that to fall under the anti-retaliation provision, a complaint must be "sufficiently clear and detailed for a reasonable employer to understand it, in light of both content and context, as an assertion of rights protected by the statute and a call for their protection." And this standard may be met by oral or written complaints.

Expressing Disagreement Over Payment Practices on Facebook is not a "complaint" under the FLSA  

Turning to Ms. Morse's case, the Court acknowledged that the statutory requirement may be satisfied by an "informal workplace grievance procedure." But the Court refused to extend the FLSA's anti-retaliation provision to a posting on an employee's Facebook page because it did not equate a Facebook post with the filing of a "complaint" within the meaning of the FLSA. Specifically, the Court reasoned: 

Morse does not allege that she made anything close to a serious complaint to her employer ... in fact, she never complained to her employer at all. She simply voiced her disagreement with her employer's payment practices on her Facebook page.

Employers Still Must Exercise Caution in Addressing Employment Issues and Social Media

Increasingly Facebook is becoming an acceptable means to fulfill legal related obligations. For example, a Businessweek article (by Heather Smith) discusses foreign courts' acceptance of using Facebook in legal proceedings and foreclosure notices.

It is easy to understand, however, why the Court refused to extend the FLSA's anti-retaliation provision's requirement of making "any complaint" to a Facebook posting. After all, how many times do people express frustration or disappointment through an informal Facebook posting but take no further action, such as actually complaining to their employer? 

But employers still need to exercise caution when it comes to taking adverse employment actions against employees in connection with Facebook and other social media. This is because Section 7 of the National Labor Relations Act (NLRA) protects the right of employees (union and non-union) to engage in "concerted activities" for their "mutual aid and protection." And in protecting such rights, the NLRB has aggressively pursued employers taking action or implementing social media policies that may discourage employees from exercising their Section 7 rights, i.e., talking with each other about protected subjects — wages, hours, and other terms and conditions of employment. In this regard, the NLRB has taken various actions against employers for simply having a policy that may have a "chilling" effect, even absent evidence the employer enforced the policy.

It is, therefore, important for employers to carefully review their employment policies relating to social media, Internet usage, email, and related technologies to assess the potential risks for violating their employees' rights under Section 7 of the NLRA. 

Employers Cannot Ignore Costly Risks of Mis-classifying Independent Contractors

Head in Sand.jpgUsing independent contractors - sometimes referred to as freelancers - provides a compelling strategic opportunity for many employers for various tax and liability reasons. In fact, its reported that employers may save as much as 30% on wages by avoiding payroll taxes, unemployment insurance, worker's compensation coverage, and benefits provided to regular W-2 employees. But these benefits are not without risks. 

One such risk arises under the Fair Labor Standards Act (FLSA), 29 U.S.C. § 201 et seq

The FLSA requires employees - but not independent contractors - to receive no less than the current minimum wage and not less than 1½ times the regular rate of pay for all hours worked in excess of 40 hours per week. But merely identifying an individual as an independent contractor and even memorializing that relationship in a written agreement does not preclude a judge from later finding that an individual was actually an employee and not an independent contractor. 

Instead, determining whether an independent contractor or actual employment relationship exists under the FLSA depends upon the economic reality of the relationship and not the labels the parties place on their relationship. In making this determination, courts apply what is referred to as an "economic reality test," which focuses on:

  1. The permanency of the relationship between the parties;
  2. The degree of skill required for the rendering of the services;
  3. The worker's investment in equipment or materials for the task; 
  4. The worker's opportunity for profit or loss, depending upon his or her skill; 
  5. The degree of the alleged employer's right to control the manner in which the work is performed; and 
  6. The extent to which the employee's service is an integral part of the alleged employer's business. This is determined by analyzing "the worker's economic dependence upon the business for which he or she is laboring, which is in turn analyzed by determining if similar work is available elsewhere, who controls the rate of pay and whether the employee is forced to work either long hours or for low pay.

The Importance of Getting "it" Right the First Time

Three additional considerations should give employers pause for concern that their independent contractor designation may be "second-guessed" by a judge and exposing the employer to liability: 

First, none of the preceding six factors are determinative.

Second, the remedial purposes of the FLSA require the courts to define "employer" more broadly than the term would be interpreted in traditional common law applications. 

Third, contractual intentions do not control whether a worker is considered an employee for FLSA purposes: A contractual arrangement may provide evidence of the economic relationship between parties, but the FLSA is designed to defeat rather than implement contractual arrangements.

The Take Away

Employers in general and, according to Businessweek, small companies especially, are likely to see the greatest scrutiny as government agencies crack down on independent contractors. And no company - large or small - can afford to make costly decision-making pitfalls when it comes to mis-classifying individuals as independent contractors rather than regular W-2 employees. Such mistakes may expose employers to liabilities that include back pay, liquidated damages, civil damages, attorney fees, or any combination of these remedies. It is, therefore, critical to revisit all independent contract relationships with experienced legal counsel.