The “Reasonableness” of Shortened Limitations Period May No Longer Be an Issue 

June, 2006 -

Recently, in Clark v. DaimlerChrysler Corp., the Michigan Court of Appeals ruled that an employee’s lawsuit for age discrimination under the Elliott-Larsen Civil Rights Act (ELCRA) was timebarred because of the six-month limitations period contained in the employee’s job application. The court upheld the contractual limitations period at issue even though the ELCRA explicitly provided that an individual has three years to bring a claim under that statute. While the ruling is obviously very favorable, the more significant aspect of the decision was that the court rejected the argument that a contractual limitations period must be “reasonable” to survive judicial scrutiny. If this ruling stands, it is more important than ever that employers consider including in their employment applications language that shortens an employee’s time for bringing employment-related lawsuits. In the Clark case, the plaintiff had completed a job application five months before being hired by DaimlerChrysler Corporation. When signing the application, the plaintiff agreed as follows: I agree that any claim or lawsuit relating to my service with [DaimlerChrysler] 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. By signing the employment application, the plaintiff acknowledged that if he was hired, the application (and all of its terms and conditions) would become part of his employment record. In 2001, the plaintiff was approached and asked to accept early retirement as part of a salaried workforce reduction. Although the plaintiff initially declined to accept early retirement, he claimed he was later told that his position would likely be eliminated and that retirement was in his best interest. The plaintiff eventually accepted early retirement, and his last day of work was August 31, 2001. On September 8, 2003, the plaintiff filed a lawsuit against DaimlerChrysler, alleging that he had been discharged because of his age in violation of the ELCRA. The lawsuit was filed well within the ELCRA’s three-year limitations period. However, the employer filed a motion for summary isposition, asking the trial court to dismiss the plaintiff’s age discrimination claim because it was barred by the six-month limitations period contained in the plaintiff’s employment application. The trial court accepted DaimlerChrysler’s argument, applied the shortened statute of limitations, and dismissed the plaintiff’s claim. On appeal, the plaintiff argued that the trial court had erred in applying the six-month limitations provision because it was “unreasonable” and therefore unenforceable. Until recently, courts generally upheld contract terms limiting the time to bring suit, so long as the limitation was “reasonable.” Earlier this year, however, in the insurance context, the Michigan Supreme Court overruled the “reasonableness” rule and held that “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.” In the Clark case, the Court of Appeals extended this rule to the employment setting, holding that the six-month limitation provision contained in DaimlerChrysler’s job application was unambiguous and, therefore, would be enforced—regardless of whether it was reasonable—unless it violated the law or public policy. Noting that there is no Michigan statute or public policy prohibiting the contractual modification of limitations periods, and recognizing that Michigan courts have previously found such shortened periods of limitations to be reasonable, the Clark court concluded that such contractual modifications were not contrary to public policy. The Clark decision significantly solidifies an employer’s ability to shorten an employee’s time for bringing an employment-related lawsuit, which could save employers a significant amount of time and money. For example, if an employment application contains language similar to that at issue in Clark, an employer will spend less time wondering whether a discharged employee will eventually choose to bring suit. And, in the event that a former employee does bring suit outside the contractual limitation period, an employer likely will be able to convince the court to dismiss the suit in its early stages, thus avoiding the costs of prolonged litigation and the risk of a substantial monetary judgment. Prior to the Clark decision, it was unclear whether a limitations period as short as or shorter than six months would be upheld if challenged. Although the Clark case itself involved a six-month limitations period, its rejection of “reasonableness” as a basis for challenging the terms of an unambiguous contract provision implies that even shorter limitations periods may be upheld, if unambiguously set forth in an employment application, despite the fact that an argument could be made by plaintiffs that such a provision would be unreasonable. In the end, the Clark decision provides several important lessons for employers. First, Michigan employers should continue to insert language into all job applications that clearly states that an employee must bring any employment-related lawsuit within six months of the event giving rise to the claim. In order to ensure that the contractual provision is unambiguous, employers should refer specifically to claims arising under federal or state civil rights laws and should include language whereby the employee waives any limitations period to the contrary. To be safe, the waiver language should be in bold print and should be located immediately above the employee’s acknowledgment signature. A copy of the signed employment application should be retained in the employee’s personnel file. Finally, although the Clark decision implies that limitations periods of less than six months would be upheld if unambiguously set forth in an employment application, employers should be aware that such provisions have not yet been tested, and the risk still remains that they will ultimately be deemed unenforceable by the courts or the legislature. Court Rules That Employees May Not Waive FMLA Claims When an employee is discharged, many employers consider it practical to provide him or her with severance pay in exchange for a full release of claims. In doing so, employers are able to significantly reduce the number of lawsuits filed by former employees and avoid the uncertainty and cost inherent in litigation. Recently, however, the Fourth Circuit Court of Appeals (which covers Maryland, Virginia, West Virginia, North Carolina, and South Carolina) held that regulations promulgated by the Department of Labor under the Family and Medical Leave Act of 1993 (FMLA) prohibit such releases from being enforced in a subsequently-filed FMLA lawsuit. It appears from this decision that the Fourth Circuit believes employees who sign a release can pocket the severance pay they are provided and then turn around and sue their former employer for a violation of the FMLA. In Taylor v. Progress Energy, Inc., the plaintiff suffered from health problems that caused her to miss a significant amount of work. Like many companies, the plaintiff’s employer failed to properly designate many of the plaintiff’s absences as FMLA leave and then improperly counted these absences against her when making the decision to terminate her employment. At the time she was terminated, the plaintiff was presented with the company’s standard severance package, and she executed a full release of claims in exchange for $12,000 in 3 severance pay. Later, however, the plaintiff filed a lawsuit alleging a violation of the FMLA and seeking monetary damages. In arguing that the release she had signed did not prevent her from bringing suit against her employer under the FMLA, the plaintiff pointed to a Department of Labor regulation that provided that employees “cannot waive, nor may employers induce employees to waive, their rights under [the] FMLA.” In dismissing the plaintiff’s claim, the district court relied on a decision from the Fifth Circuit Court of Appeals, which had held that the regulation did not apply to post-termination waivers. The Fourth Circuit disagreed with the reasoning of the district court and the Fifth Circuit and reinstated the plaintiff’s case. Although it acknowledged that the language of the regulation at issue was ambiguous in terms of exactly what was prohibited, the Fourth Circuit focused on comments made about the regulations at the time they were in draft form. At that time, several employers had pointed out that the regulation could be interpreted to prohibit post-termination waivers and suggested that it be changed to make clear that this was not the case. The Department of Labor rejected this suggestion, comparing the FMLA to the Fair Labor Standards Act and noting that post-termination waivers were not allowed under that statute. The draft regulation was left unchanged in its final form. From this history, the Fourth Circuit inferred an intent to prohibit post-termination waivers of FMLA claims. In addition, the court concluded that because releases purporting to waive an employee’s FMLA rights were prohibited, an employee could not somehow ratify the release by keeping the severance pay he or she had received. Thus, the court allowed the employee to keep the $12,000 in severance pay she had received while she continued her FMLA lawsuit against her former employer. Although Michigan courts have not yet addressed this issue, the Taylor decision is bad news for employers across the country. An employer who provides an employee with severance pay in exchange for a signed release of claims expects to get a full release, not just a release of some claims. If an employee can still bring an FMLA claim against her former employer after signing a release, the benefit to the employer is obviously greatly diminished (particularly in light of the rise in the number of FMLA claims being filed). In light of the split between the Fourth and Fifth Circuits on this issue, it is possible that the United States Supreme Court will soon address the issue. In the meantime, however, employers may want to reevaluate their severance programs to determine whether the possibility of an FMLA lawsuit may outweigh the benefits gained by paying severance in exchange for a signed release of claims. New “Change to Win” Coalition Will Likely Spur Increase in Organizing Earlier this year, several major labor unions— including the Service Employees International Union, the Teamsters, the Food and Commercial Workers, UNITE-HERE, the Carpenters and Joiners, the Laborers, and the Farm Workers—broke off from the AFL-CIO and formed the “Change to Win” coalition. With more than 5 million members, the Change to Win coalition now represents approximately one-third of this country’s organized workforce, and its membership likely will continue to grow. Leaders of the Change to Win coalition have indicated that the coalition was formed because of a belief that the AFL-CIO lost focus on the importance of grassroots organizing campaigns and, instead, poured money into political causes in an attempt to stop the continuing decline in union membership across the country. At its initial convention in late September 2005, the Change to Win coalition announced plans to embark upon an aggressive organizing campaign and announced its goal of targeting more than 500,000 workers for union membership by the end of the year. The coalition has pledged that 75% of all dues collected will be poured back into organizing, so employers can expect to see a significant increase in organizing activity over the next few months, particularly in those industries or areas where coalition unions are already strong. It is important to understand that the type of organizing activity employers can expect is dramatically different from the union campaigns of old. Tactics are becoming increasingly aggressive.



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