We must use time as a tool, not as a couch.
President John F. Kennedy
Smart 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 ...
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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.