Tuesday, December 1, 2015

Curtailing Employee Suits

New ImageBy now, we’re used to the idea that employees can sign away their rights to a court forum in favor of an arbitral tribunal, but we’re not so used to the idea that contract law, even without the aid of the Federal Arbitration Act, can be deployed to deprive employees of statutory rights they would otherwise have.  A case raising these issues in a dramatic fashion is set for argument today before the New Jersey Supreme Court. At issue is a retailer’s employment application, which provides that any suit must be brought within 6 months of a claim arising. The effect would be substantially shorten the limitations period otherwise applicable under the state’s Law Against Discrimination.

Although the claim in question arises under LAD, the waiver –if valid – would presumably shorten the period for most causes of action that would otherwise have a longer limitations period. In New Jersey, that’s pretty much every claim – contract, tort, Conscientious Employee Protection Act, the list goes on. And there’s nice fringe benefit, from management’s perspective, that employees may not recall signing such a document, much less kept a copy of their applications for employment. In blissful ignorance of this ticking time bomb, employees and their attorneys might assume that they have whatever time the cause of action would normally allow.

But it’s a contract, right? So what’s the problem? The Appellate Division saw none, and dismissed plaintiff’s case as time barred. For that court, the major doctrinal obstacle was unconscionability, always the last resort of the desperate, and the court found the requirements of that doctrine unsatisfied. Although it treated the contract as one of adhesion, it did not find the waiver substantively unfair. In the process, it looked to a variety of cases upholding agreements curtailing statutory limitations periods.

To reach its result, the court rejected the plaintiff’s argument that the legislatively-enacted period in various statutes itself reflected a strong policy of worker protection, thus rendering any effort to shorten the period either substantively unfair or, more directly, a violation of state policy.  The Appellate Division would have none of it – the state Legislature had not barred such agreements despite being “presumably aware of the long-established case law allowing contractual reductions that are reasonable and not contrary to public policy.”

If the Appellate Division’s decision stands, employers will have a powerful new tool to minimize risk of liability.  Nor do they have to choose between an old risk-management tool like arbitration and the new tool of slashing limitations periods. Having their cake and eating it too, there’s no apparent obstacle to providing that an arbitration proceeding has to be filed within the reduced period.  After all, we usually conceived or arbitration as simply replacing a public forum with a private one to resolve the same dispute, albeit in a less formal way.

There are some limitations on such agreements. Looking to the principle that private agreement should be “reasonable and not contrary to public policy,” the court recognized that sometimes a shortened statute of limitations may be, so to speak, off limits.  Under the federal antidiscrimination statutes, for example, there is generally a requirement that a plaintiff file with the EEOC and provide it with at least 180 days to seek to resolve the dispute. This structure would seem to necessarily invalidate a 6 month statute of limitations since it would essentially foreclose any private suit.

Further, the principle may be generalized such that, at least for any claim founded on a statutory regime (as opposed to contract or tort claims), employers may not functionally deprive the employee of her rights by too radical a reduction in the time allowed to bring suit.  But for the Appellate Division, 6 months didn’t do it – in part because New Jersey had 6 month limitations periods for certain remedies.  Nor did the court find persuasive the possibility that a plaintiff would not know of the period – after all, contracting parties are “assumed to have read [the contract] and understood its legal effect . . . even if a language barrier is asserted,” as it was in the case at bar.

To be clear, the Appellate Division is not the first opinion to approve of contractual contraction of limitations, nor even the first to do so in the context of employment claims, and, indeed, the court could find no published opinion to the contrary. Nevertheless, the New Jersey Supreme Court often goes its own way, and it would scarcely be surprising for the court to find these kinds of agreements unenforceable.

We should know in a few months. 

CAS

https://lawprofessors.typepad.com/laborprof_blog/2015/12/by-now-were-used-to-the-idea-that-employees-can-sign-away-their-rights-to-a-court-forum-in-favor-of-an-arbitral-tribunal.html

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