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Employers’ Use of Handbook Statute of Limitations Clause Both Limited and Expanded by Sixth Circuit

February 1, 2021

By Michael Burns, courtesy of SBAM Approved Partner ASE

A fairly common technical issue found in many employer handbooks is the use of what is called the limitation of actions clause. The limitation of actions clause is a term that sets a maximum length of time an employee agrees to bring a wrongful employment action claim, complaint, or lawsuit against the employer.

Typically, the limitation of action is set at 180 days. The intent of this term is to restrict and also lower the legal length of time an employee may bring any wrongful employment action complaint or lawsuit against the employer.  Most employment laws have their own statute of limitations clause that provide aggrieved persons more time to bring a complaint within a federal or state agency or court. This is usually up to a year statutorily but can be more time in common law.

Employers have used a limitation of action clause as an attempt by agreement to lower that length of time it is exposed to the threat of a complaint or lawsuit. Many agencies (mostly federal) charged with initial enforcement of certain employment laws have bristled at the use of this term and will not restrict the filing of complaints to the employer’s limitation of actions time frame. Many federal courts including Michigan’s Sixth Circuit Court of Appeals have held against an employer’s limitation of action term as it applied to federal employment law, particularly Title VII of the 1964 Civil Rights Act. Just this month as we see below, the Sixth Circuit held that a limitation of actions term in the Employer-Defendant’s handbook would not prevent a lawsuit under the federal Americans with Disabilities Act (ADA) and Age Discrimination in Employment Act (ADEA) just because the filing of the lawsuit was brought outside the limitations of actions term in the handbook.

Despite the above federal challenges, state courts, including Michigan, have upheld limitation of action terms as it applied to state employment laws. This has created a bit of a dilemma. Can an employer derive any legal protection by way of a limitation of action clause? Yes, it can. When reviewing handbooks, ASE has historically advised removing the limitation of action term from the handbook and either placing it in a separate agreement for sign off or, more conveniently, adding it to the employment application forms boilerplate and where the employee signs off agreeing to those terms.

Why move this term out of the handbook? Up until recently and even to the case at hand, the employment handbook also contained a term disclaiming the handbook and its policies do not constitute an agreement. This ran paradoxically against the common legal principal requiring an explicit agreement between two parties in order to validly restrict the right to bring a complaint or lawsuit beyond the limitation of action term (usually 180 days).

Federal courts and agencies have overruled limitation of actions clauses mostly by way of holding that an employee cannot waive their given rights under the law (statutorily longer limitation of action term – typically 360 days or longer). The other legal challenge restricting the use of the limitation of action clause in the handbook is that many handbooks also contain language disclaiming or waiving any policy or term in the handbook as contractually binding. Thereby, creating a paradox when the handbook contains the limitation of actions clause.  That clause in turn requires the explicit approval of the employee as to releasing his rights to that longer statute of limitation term. This contractual waiver can often be found in the employment handbook’s Purpose of this Handbook or About this Handbook section up at the front of the document (again usually).

All the above said, we now have a Sixth Circuit Court of Appeals case handed down just last week that further limits the use of a limitation of action clauses but also held that if the limitation of action clause is in the Acknowledgement Statement and does not interfere with statutorily prescribed statute of limitations it may survive a contractual disclaimer clause in the handbook. The Court expanded the Acknowledgement statement at the end of most handbooks. The Acknowledgment Statement is where the employer also recites its at-will employment relationship, the employer’s right to modify or revise the terms, and stating that information in the handbook can be changed or modified at its discretion. This statement had the employee sign off that he/she understands the policies and will comply with them.

In Thompson v. Fresh Products LLC, et al the employee-plaintiff signed the handbook’s Acknowledgement Statement that also included a fairly comprehensive six-month limitation of actions clause in it. In this case, the employee-plaintiff timely filed their discrimination claims per the ADA and ADEA.  The court held the handbook limitation of statues term was invalid and those claims could move forward.

The federal Sixth Circuit Court of Appeals then looked at the limitation of action clause and Ohio state law on civil actions and found their law did not contain a statutory limitation of actions and therefore the state’s general six-year statute of limitation applied (this is a common law limitation). The Sixth Circuit held that this statute could be modified contractually.

Then the Court also addressed the fact that the handbook had a contractual waiver term in it.  As stated above this is usually fatal to a limitation of actions term anywhere in the handbook. Somewhat surprisingly, the Court upheld the lower court’s finding that the Acknowledgement Statement was not technically in the employee handbook. But being in the Acknowledgment Statement, was separate from the handbook. This is the expansion (slight) of employer’s rights in this case.

This makes possible a difference going forward. If the handbook can waive the contractual terms of the handbook policies, and the limitation of actions clause can be agreed to in the Acknowledgement, a valid limitation of action term can be included in the document if separated from the handbook policies. Kind of a thin determination, but it seems to allow the limitation of action clause to once again reside in the handbook document.

Whew!

What is the employer takeaway? If a Michigan employer wants to take advantage of a limitation of action term in the hopes of limiting the amount of time an employee can bring a claim or lawsuit under Michigan state law, they may once again, apparently, put that term in an Acknowledgement Statement in the back of the handbook document. And ASE may be able to modify its handbook development and updating recommendation information to no longer advise employers to put that limitation of actions clause in a separate agreement or in their employment application boilerplate.

One other important handbook development and update recommendation that still remains the same is — make sure your handbook is updated! As they did in this case, courts do use the handbook to make important factual and legal determinations.

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