URGENT UPDATE on Contractual Limitations Periods

Just last week I wrote about contractual limitations and reminded everyone what a great defense this was and how every employer should have this on their employment application and on the handbook acknowledgement.  

Well, since that article another Michigan Court of Appeals decision was issued and the contractual limitations period was not enforced in that case. Mohamed v Brenner Oil Company (Feb. 21, 2019). So, once again I write to explain what happened in that case and to tell you how to avoid this unfortunate outcome.

When the plaintiff began his employment with Brenner Oil Company, he received a copy of its employee handbook. The last page of the handbook was a form called “Receipt and Acknowledgment” which contained a 180-day limitations period. The table of contents included a reference to the form and indicated that it was located on page 85 of the handbook. The bottom of the form was also marked page 85. And, the handbook, being written correctly, noted at various places that nothing in the handbook created any contractual rights.

After the plaintiff was discharged in January 2017, he brought suit under the Elliott-Larsen Civil Rights Act in September 2017, well beyond the 180 day limitations period. The defendant moved for dismissal of the complaint based on the contractual limitations period and the motion was granted by the circuit court.

The plaintiff appealed and the appellate courts reversed the trial court, finding that the 180-day limitations period was “part” of the employee handbook and, therefore, since nothing contained within the handbook created any contractual rights, the 180-day limitations was unenforceable.

This was the very issue I noted in last week’s post. But now, we have some additional guidance on how to clearly separate the form from the handbook.

Based on this case, I am now making the following recommendations. Do not have the acknowledgement in the same document as the handbook. Do not make it the last page of the handbook or reference it in the handbook’s table of contents. Keep it separate in every way.

Literally, cut the acknowledgement from the handbook, and paste it into a new document. Call the new document “Acknowledgement and Agreement.” And, finally, when you email the handbook to employees for their review, make the Acknowledgment and Agreement a separate attachment to that email. 

While this document will still require the employee to acknowledge receiving the handbook and acknowledge that nothing in the handbook creates any contractual rights, you should still require the employee to agree to comply with its terms as a condition of employment. Then add the 180-day limitations period and make the employee agree to that term. Also, have the employee acknowledge that continuation of the at-will employment, even for one day, is sufficient consideration for the employee’s agreement.

You should now have an enforceable agreement (assuming it is correctly written) that can be used to dismiss any untimely claims.

Remember, as I stated last week, it remains unclear whether a contractual limitations period is applicable to federal civil rights claims, but there are plenty of cases that suggest it would. Unfortunately, we know that contractual limitations will not apply to claims under the Fair Labor Standards Act, the federal wage law (at least in the Sixth Circuit). 

Make sure applicants agree to the 180-day limitations period on your employment application. This is especially important if you have a union. An agreement entered by the individual before becoming employed will likely still be enforceable after the employee becomes a member of the union.  

If you need assistance in drafting a contractual limitations period, contact an experienced employment attorney.

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