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Thursday, December 15, 2005

Michigan Court Enforces Employment Contract Shortening Statute of Limitations

Michigan_state_flagA Michigan appellate court recently enforced the following provision in Robert Clark's employment contract with DiamlerChrysler:

I agree that any claim or lawsuit relating to my service with [DiamlerChrysler] 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.

In 2001, the company had forced Clark into early retirement as part of a "salaried workforce reduction."  He worked his last day on  August 31, 2001.  On  September 8, 2003, Clark filed an action against the company, alleging age discrimination.  The trial court applied the shortened 6-month statute of limitations in Clark's employment contract and dismissed the action.  The appellate court affirmed. The court rejected Clark's argument that the agreement was an unenforceable contract of adhesion, and rejected his argument that it was unconscionable because Clark had " failed to present any evidence that he had no realistic alternative to employment with [DaimlerChrysler]."

Judge Neff dissented; she would have held that the contract provision was both procedurally and substantively unconscionable. 

[Meredith R. Miller]

Judge Neff wrote that:

[the majority's] analysis fails to give proper consideration to whether procedural unconscionability exists in the context of this case. Unlike other contracts contexts, "an employer and employee often do not deal at arm's length when negotiating contract terms. An employee [in plaintiff's position] has only two options: (1) sign the employment contract as drafted by the employer or (2) lose the job."

Defendant claims that plaintiff is contractually bound by a provision for a shortened period of limitations in defendant's employment application form that plaintiff filled out when applying for a job, five months before he was hired. The preprinted form was similar to other preprinted job application forms and required plaintiff to provide his personal information, educational background, employment history, positions for which he was qualified, and expected rate/salary. On the second page, immediately above plaintiff's signature, the employment application contained the following provisions in a two-column format:

READ CAREFULLY BEFORE SIGNING:

1. I have read and do understand the statements contained herein and certify that they are true.

2. I understand that false or incomplete statements herein or in any resume I have supplied are grounds for dismissal.

3. I hereby authorize that previous employers contacted by Chrysler Corporation or any of its subsidiaries in connection with this application fully respond to all inquiries concerning such previous employment and specifically waive prior written notice of disclosure of my personnel record information, including disciplinary reports, letters of reprimand or other disciplinary action. I also authorize educational institutions to release information relative to claimed degrees and achievements. In consideration of the acceptance of my application, I release Chrysler Corporation or any of its subsidiaries previous employers, and educational institutions of any claimed liability arising out of such response and disclosure.

4. I understand that employment is conditioned upon the results of a physical examination by a physician selected by Chrysler Corporation or any of its subsidiaries conducted after an offer of employment is made or the results of a drug test conducted in accordance with Chrysler Corporation's policy.

5. In the event that I am employed by Chrysler Corporation or any of its subsidiaries, I agree to comply with all its orders, rules, and regulations and acknowledge that said orders, rules, and regulations do not constitute terms of employment contrary to paragraph 6.

6. I hereby acknowledge that this application is for an employment of indefinite duration, terminable at will, for any reason either by myself or by Chrysler, except as otherwise provided by the terms of a collective bargaining agreement, if any, applicable to me.

7. I understand that the terms of paragraph 6 cannot be altered except by written agreement executed by an Officer of Chrysler Corporation.

8. I agree that any claim or lawsuit relating to my service with Chrysler Corporation 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.

NOTE: A photocopy of this statement shall be as valid as the original.

Beneath the eight provisions, the application requested the applicant's signature and date. Just below the signature line, the application stated in smaller print:

(This application will be considered active for twelve (12) months from the date filed. If you are hired, it becomes part of your official employment record.)

Given the manner in which defendant obtained "agreement" to the terms stated in the employment application, plaintiff clearly had no realistic alternative to the contractually shortened limitations period. There was "an absence of meaningful choice," a hallmark of unconscionability. Further, the provision concerning a shortened limitations period also "takes advantage of or surprises the victim of the clause," underscoring the procedural unfairness in this case.

While the principles of freedom of contract may support upholding a bargained-for term shortening the period of limitations, the nondescript provision imposed in paragraph eight in defendant's employment application form cannot realistically be claimed to be a "bargained-for" term. First, it is unlikely that an applicant seeking a job from an employer would engage in bargaining these terms at the time of signing the application form. If the applicant is sufficiently aware of the implications of any particular term, such as the six-month limitations period, the applicant is surely also aware that objection to the provision will thwart any offer of a job from the prospective employer. Second, it is unlikely that at the time of hiring, in this case five months after plaintiff completed the application form, an applicant would recall the limitations provision or recognize its broad curtailment of legal rights, such that the applicant would then negotiate different terms.

The shortened limitations period provision in this case cannot be sanctioned as a bargained-for term under the freedom of contract principles. . . .

* * *

Defendant does not contend that it actually bargained for the shortened limitations period in hiring plaintiff. Defendant merely seeks to impose a contractual limitations period via the boilerplate provisions on the job application form. It certainly cannot be said that plaintiff had a meaningful choice about "whether and how to enter" into the agreement for a six-month limitations period. The manner in which defendant acquired plaintiff's acquiescence to the shortened limitations period is procedurally unconscionable.

The dissent then reasoned that the imposition of a 6-month limitations period was substantively unreasonable because:

[t]he Legislature has determined that the appropriate limitations period applicable in this action is three years. The shortened six-month period imposed by defendant places plaintiff at a severe disadvantage in seeking redress for wrongs and is unquestionably advantageous to defendant by permitting it to wholly avoid employee claims.

The dissent also would have held that the provision violated public policy.

Clark v. DaimlerChrysler Corp., __ N.W.2d __ (Mich. Ct. of Apps. Sept. 13, 2005)

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