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Use contractual limitations to protect company and managers

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in Compensation and Benefits,Employment Law,Human Resources,Leaders & Managers,Management Training

by Danon D. Goodrum, Esq., Clark Hill PLC, Detroit

Michigan courts have generally upheld as valid and enforceable provisions within an employment application or employment contract that place time limits on when employees can sue their employers.
    Thus, while the statute of limitations for filing a claim of discrimination under Michigan’s Elliott-Larsen Civil Rights Act (ELCRA) is three years, a Michigan court has upheld contractual provisions providing for a shortened limitations period of six months.
    Still, employees who have missed the deadlines spelled out in the contracts have repeatedly challenged the shortened deadlines, arguing that such limitations are unconstitutional, unreasonable or violate public policy. To date, Michigan courts have rejected their arguments and dismissed their cases.

Crafting agreements that work

Employers, however, must draft the agreements carefully. The obvious intent of a limitations provision is to protect the company and its managers from lawsuits. In a recent case, the employer’s limitations policy protected the company but not its managers. The language that didn’t protect managers read something like this:

“To the extent the law allows, EMPLOYEE agrees to bring claims, action or lawsuit against EMPLOYER within the time prescribed by law or six months from the date of the event forming my claims, action or lawsuit, whichever expires first.”

    The disgruntled employee sued both the company and members of management personally. The ELCRA permits an employee to sue not only the employer but also members of management who participated in the alleged discriminatory act. The court found the employee’s claims against the employer were time-barred based on the contractual limitations period. But since the express language of the provision made no reference to supervisory personnel, the contractually shortened time period did not apply to them.
    So as an employer, you are well-advised to make sure that you have a contractual-limitations policy that applies to claims against managers as well as the company. If your provision refers only to the employer or company, then it does not provide maximum protection.

Language to protect managers

Modify the language to include agents, employees and servants so that they, too, get the benefit of the shortened limitations period. The following language provides better protection for everyone, including managers and supervisors:

I agree to commence any claim, action or lawsuit against EMPLOYER/COMPANY, its successors, assigns, subsidiaries, employees, servants, agents and independent contractors arising out of my application for employment, employment or termination of employment within six months (180 days) or within the time prescribed by law, whichever expires first, of the event forming the basis for my claim, action or lawsuit. While I understand that the statute of limitations for claims, actions or lawsuits arising out of my employment may be longer than six months (180 days), I agree to be bound by the six-month (180 days) period of limitations set forth in this agreement and I waive any statute of limitations to the contrary.
I have read the above statement and understand its contents.
    Date: __________
    Employee signature:
_____________________________________________


    You can incorporate a contractual-limitations provision in your company’s employment application. An alternative that also works well is a stand-alone document, similar to agreements requiring employees to return an employer’s property upon termination, noncompetition agreements and confidentiality agreements.
    Yet another alternative: Add the language to your employee handbook the next time you revise it. You should obtain legal counsel before you make the change to make sure the language doesn’t conflict with any other provisions in the handbook. That’s necessary when you don’t want most handbook provisions to be contractually binding, but you do want the time limitations provision to be a binding contract. Your attorney can tell you how to ensure that happens.

__________________________________________
Danon D. Goodrum is an associate attorney with the Labor and Employment Practice Group of Clark Hill’s Detroit Office. She has represented employers in a wide variety of employment-related litigation matters. For more information on contractual-limitations provisions, contact her at (313) 965-8817 or at dgoodrum@clarkhill.com.

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