How to Reduce Your Exposure to Lawsuits

While claims asserted under the Family and Medical Leave Act (FMLA), the Fair Labor Standards Act (FLSA), and the Equal Pay Act (EPA) typically do not permit emotional distress damages and limit punitive damages (also known as 'liquidated damages') to the amount of the back pay award, they carry a two (2)-year limitations period, which can be extended to three (3) years in the case of a willful violation. See 29 U.S.C. ' 255(a) (FLSA, EPA); 29 U.S.C. ' 2617(c) (FMLA). Although no federal appellate court decision has yet addressed the issue, there currently is a split in authority at the district court level as to whether the limitations periods for FMLA (and, by analogy, FLSA and EPA) claims may be contractually shortened. Compare Fink v. Guards-mark, LLC, No. CV 03-1480-BR, 2004 WL1857114 (D. Or. Aug. 19, 2004) (holding six-month limitation provision was enforceable against FMLA claim), and Badgett v. Federal Express Corp., 378 F. Supp.2d 613, 625-26 (same), with Conway v. Stryker Medical Div., No. 4:05-CV-40, 2006 WL 1008670, at *2 (W.D. Mich. April 18, 2006) (holding six-month limitation provision unenforceable against FMLA claim due to 29 C.F.R. ' 825.220(d)'s prohibition against an employee's waiver of rights under the FMLA without court or U.S. Department of Labor approval), and Lewis v. Harper Hosp., 241 F. Supp. 2d 769 (E.D. Mich. 2002) (same). Accordingly, employers that include FMLA, FLSA, and EPA claims in their Waivers also should include a severability clause providing that the illegality or unenforceability of any part of the Waiver shall have no effect upon, and shall not impair the enforceability of, any other part of the Waiver.

Which Claims Should Be Excluded from the Waiver?

The U.S. Equal Employment Opportunity Commission (EEOC) is charged with investigating and enforcing the most common statutory employment claims, including those asserted under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act (ADA), and the Age Discrimination in Employment Act (ADEA) (the 'EEOC Claims'). Although most of the EEOC Claims allow a successful plaintiff to recover back pay, front pay, emotional distress damages, punitive damages, and attorneys' fees, these claims offer two significant advantages to employers in comparison to the other employment-related claims discussed above.

First, an individual may not file an EEOC Claim in court unless and until he or she first has exhausted available administrative remedies ' i.e., filed an administrative charge with the EEOC or comparable state agency, typically within 300 days of the alleged violation, and received a Notice of Right-to-Sue from the EEOC. The ADEA employs a less burdensome administrative ex-haustion process than the other EEOC Claims, allowing a lawsuit to be filed prior to the issuance of a Notice of Right-to-Sue provided that such lawsuit is filed more than sixty (60) days after the filing of a charge with the EEOC. See 29 U.S.C. ' 626(d). Thus, the EEOC Claims already carry a relatively short limitations period (i.e., 300 days).

Second, the combined recovery of emotional distress and punitive damages under the EEOC claims, to the extent such damages are available at all under the relevant statute, may not exceed the applicable statutory cap ($50,000-$300,000, depending on the size of the employer). See 42 U.S.C. ' 1981a(b)(3). Because the administrative exhaustion process typically takes more than six (6) months to complete, the courts have uniformly refused to enforce contractual provisions that attempt to shorten the 300-day limitations period for such claims. See, e.g., Salisbury v. Art Van Furniture, 938 F. Supp. 435, 437-38 (W.D. Mich. 1996) (six-month limitations provision unenforceable against ADA claim because enforcement would effect a 'practical abrogation' of the right to file an ADA claim in light of administrative exhaustion requirement). Accordingly, the Waiver should expressly exclude EEOC Claims from its coverage.

Should a Choice-of-Law Clause Be Included?

The courts will apply applicable state law in determining whether a Waiver is enforceable. Whether a choice-of-law clause in the Waiver is enforceable will depend on a number of fact-specific considerations, including the source of the limitation period sought to be shortened, which state's choice-of-law principles are applicable, whether application of the chosen state's law would undermine the public policy of the state in which the action is pending, and the relationship between the parties and the state that is the subject of the choice-of-law provision.

That said, there is little downside to including a choice-of-law clause in the Waiver, especially when a severability clause of the type described above also is included. If the choice-of-law provision is enforceable, including it will increase both predictability of outcome and the likelihood of the Waiver's enforceability (as the employer no doubt will have selected a state with a favorable law concerning the shortening of limitations periods). Keep in mind, however, that the likelihood of a court enforcing a choice-of-law clause will depend on the nature of the relationship between the parties and the state that is the subject of the choice-of-law clause. This analysis can be especially complex when an employer has employees in multiple states.

How Should the Waiver Be Implemented?

The Waiver should be included in a form employment application and should be clear, explicit, and conspicuous. Highlighting the limitations provision can be accomplished through bold font, italic font, capital letters, a heading placing the reader on notice of the importance of the provision, and any other means that accentuate the provision. Highlighting the Waiver will increase the likelihood of a court's finding that the waiver was made knowingly and voluntarily, which many states consider to be a prerequisite to the contractual shortening of a statutory limitations period. See, e.g., Thurman, 397 F.3d at 354 (noting that the heading 'READ CAREFULLY BEFORE SIGNING' in bold font in the same section as the limitation provision was sufficiently conspicuous to render the waiver enforceable).

Employers also may wish to have their current employees execute an agreement containing a Waiver. A court examining the enforceability of a Waiver under these circumstances is likely to question whether any consideration was offered to the current employee in exchange for the employee's waiver. Whether the employee's continued employment alone constitutes adequate consideration for such a Waiver will depend on applicable state law and, in some states, how long the employee remains employed following the execution of the Waiver and whether the employee's separation from employment was voluntary. See, e.g., Abel v. Fox, 654 N.E.2d 591 (Ill. App. Ct., 4th Dist., 1995) (holding that continued employment may constitute adequate consideration to support a contract under Illinois law). Employers who prefer more predictability concerning the enforceability of Waivers against current employees should offer their current employees a form of consideration other than mere continued employment in exchange for their execution of the Waiver, such as a small monetary payment or other benefit to which the employee is not otherwise entitled.

Employers who ask union employees to sign a Waiver as a condition of continued employment may face an additional hurdle under the National Labor Relations Act (NLRA). The NLRA requires that before any changes are made with respect to employees' wages, hours, terms, or conditions of employment, such changes must first be negotiated with the incumbent union. Thus, a union may have a basis under the NLRA to argue that the requested Waiver is in fact a change in a term or condition of employment, thereby foreclosing the company from unilaterally imposing a requirement that employees execute a Waiver as a condition of continued employment. A union would appear to have less firm footing with respect to a company's unilaterally instituted requirement that job applicants be required to sign a Waiver in order to be hired, as the applicants would not be members of the union at the time they execute the Waiver.

Bill Wortel, a member of this newsletter's Board of Editors, is a member of the Labor and Employment and Commercial Litigation Client Service Groups and he serves on the Labor and Employment Best Practices Committee in the Chicago office of Bryan Cave, LLP.

Employers go to great lengths and expense to reduce their potential exposure to employment-related claims. Most employers implement policies to address the myriad and growing federal, state, and local employment laws; regularly conduct employee EEO training; hire qualified human resources professionals and in-house attorneys with expertise in employment law; and regularly seek advice and assistance from outside counsel concerning these prophylactic measures. The purpose of this article is to apprise readers of a fast, simple, and inexpensive way to reduce their exposure to certain types of employment-related claims through the inclusion of an express waiver ('Waiver') in an employment application or other document signed by applicants or employees. The Waiver contractually reduces to six (6) months the time period within which certain types of employment-related claims must be filed and waives any statute of limitations to the contrary, thereby significantly reducing the number of timely-filed claims and, consequently, the employer's potential exposure.

Which Claims Should Be Included in the Waiver?

The employment-related claims that subject employers to the most potential exposure are those that carry lengthy limitations periods and no damages caps. For example, 42 U.S.C. ' 1981 ('Section 1981'), which prohibits race discrimination and retaliation, has a four (4)-year statute of limitations and does not cap emotional distress or punitive damages. See Jones v. R.R. Donnelly & Sons, Co. , 541 U.S. 369 (2004). Moreover, ' 1981 claims may be brought against supervisors in their individual capacities. See, e.g., Daulo v. Commonwealth Edison , 892 F. Supp. 1088, 1091 (N.D. Ill. 1995). State common law also provides a source for employment-related breach of contract and tort claims, such as defamation, intentional infliction of emotional distress, negligent hiring / retention / supervision, and invasion of privacy (the 'Common Law Claims'). While the elements and limitations periods of Common Law Claims differ from state to state, they generally carry a one (1) to four (4)-year limitations period and unlimited emotional distress and punitive damages. See, e.g., 12 Okl. St. Ann. ' 95(A)(4) (1-year statute of limitations for certain torts under Oklahoma law); 735 ILCS 5/13-202 (2-year limitations period for certain torts under Illinois law); Miss. Code Ann. ' 15-1-49 (3-year statute of limitations for certain torts under Mississippi law); 21 R.C. ' 2305.09 (4-year statute of limitations for certain torts under Ohio law). Many state anti-discrimination statutes also have limitations periods in excess of six (6) months, do not cap damages, and do not require an employee to exhaust administrative remedies through the filing of an administrative charge with a state agency (the 'State Anti-Discrimination Claims'). See, e.g., Mich. Comp. Laws ' 37.2101, et seq. The courts have consistently upheld an employer's right contractually to reduce to six (6) months the limitations periods for '1981 Claims, Common Law Claims, and State Anti-Discrimination Claims. See, e.g., Thurman v. DaimlerChrystler, Inc. , 397 F.3d 352, 358-59 (6th Cir. 2004) (affirming summary judgment for the employer on the plaintiffs' claims of sex discrimination under Michigan's Elliott-Larsen Civil Rights Act, race discrimination under ' 1981, and various state common law claims, based on six-month limitations provision in employment agreement); Soltani v. Western & Southern Life Ins. Co. , 258 F.3d 1038, 1044-45 (9th Cir. 2001) (affirming summary judgment for the employer on the plaintiffs' common law wrongful termination claim based on six-month limitations provision in employment agreement); Taylor v. Western & Southern Life Ins. Co. , 966 F.2d 1188, 1206 (7th Cir. 1992) (affirming the grant of the employer's motion to dismiss the plaintiffs' Section 1981 claim based on six-month limitations provision in employment agreement); Vincent v. Comerica Bank, No. H-05-2302, 2006 WL 1295494, at *5-6 (S.D. Texas May 10, 2006) (slip copy) (granting employer's motion for summary judgment on plaintiff's common law defamation claim based on six-month limitations provision in employment application); Mayes v. DaimlerChrysler, No. 05-70249, 2005 WL 2562780, at *6-7 (E.D. Mich. Oct. 10, 2005) (granting employer's motion for summary judgment on the plaintiff's '1981, common law retaliatory discharge, and state statutory sex discrimination claims, based on six-month limitations provision in employment application). Thus, such claims should be included in the Waiver.

While claims asserted under the Family and Medical Leave Act (FMLA), the Fair Labor Standards Act (FLSA), and the Equal Pay Act (EPA) typically do not permit emotional distress damages and limit punitive damages (also known as 'liquidated damages') to the amount of the back pay award, they carry a two (2)-year limitations period, which can be extended to three (3) years in the case of a willful violation. See 29 U.S.C. ' 255(a) (FLSA, EPA); 29 U.S.C. ' 2617(c) (FMLA). Although no federal appellate court decision has yet addressed the issue, there currently is a split in authority at the district court level as to whether the limitations periods for FMLA (and, by analogy, FLSA and EPA) claims may be contractually shortened. Compare Fink v. Guards-mark, LLC, No. CV 03-1480-BR, 2004 WL1857114 (D. Or. Aug. 19, 2004) (holding six-month limitation provision was enforceable against FMLA claim), and Badgett v. Federal Express Corp. , 378 F. Supp.2d 613, 625-26 (same), with Conway v. Stryker Medical Div., No. 4:05-CV-40, 2006 WL 1008670, at *2 (W.D. Mich. April 18, 2006) (holding six-month limitation provision unenforceable against FMLA claim due to 29 C.F.R. ' 825.220(d)'s prohibition against an employee's waiver of rights under the FMLA without court or U.S. Department of Labor approval), and Lewis v. Harper Hosp. , 241 F. Supp. 2d 769 (E.D. Mich. 2002) (same). Accordingly, employers that include FMLA, FLSA, and EPA claims in their Waivers also should include a severability clause providing that the illegality or unenforceability of any part of the Waiver shall have no effect upon, and shall not impair the enforceability of, any other part of the Waiver.

Which Claims Should Be Excluded from the Waiver?

The U.S. Equal Employment Opportunity Commission (EEOC) is charged with investigating and enforcing the most common statutory employment claims, including those asserted under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act (ADA), and the Age Discrimination in Employment Act (ADEA) (the 'EEOC Claims'). Although most of the EEOC Claims allow a successful plaintiff to recover back pay, front pay, emotional distress damages, punitive damages, and attorneys' fees, these claims offer two significant advantages to employers in comparison to the other employment-related claims discussed above.

First, an individual may not file an EEOC Claim in court unless and until he or she first has exhausted available administrative remedies ' i.e., filed an administrative charge with the EEOC or comparable state agency, typically within 300 days of the alleged violation, and received a Notice of Right-to-Sue from the EEOC. The ADEA employs a less burdensome administrative ex-haustion process than the other EEOC Claims, allowing a lawsuit to be filed prior to the issuance of a Notice of Right-to-Sue provided that such lawsuit is filed more than sixty (60) days after the filing of a charge with the EEOC. See 29 U.S.C. ' 626(d). Thus, the EEOC Claims already carry a relatively short limitations period (i.e., 300 days).

Second, the combined recovery of emotional distress and punitive damages under the EEOC claims, to the extent such damages are available at all under the relevant statute, may not exceed the applicable statutory cap ($50,000-$300,000, depending on the size of the employer). See 42 U.S.C. ' 1981a(b)(3). Because the administrative exhaustion process typically takes more than six (6) months to complete, the courts have uniformly refused to enforce contractual provisions that attempt to shorten the 300-day limitations period for such claims. See, e.g., Salisbury v. Art Van Furniture , 938 F. Supp. 435, 437-38 (W.D. Mich. 1996) (six-month limitations provision unenforceable against ADA claim because enforcement would effect a 'practical abrogation' of the right to file an ADA claim in light of administrative exhaustion requirement). Accordingly, the Waiver should expressly exclude EEOC Claims from its coverage.

Should a Choice-of-Law Clause Be Included?

The courts will apply applicable state law in determining whether a Waiver is enforceable. Whether a choice-of-law clause in the Waiver is enforceable will depend on a number of fact-specific considerations, including the source of the limitation period sought to be shortened, which state's choice-of-law principles are applicable, whether application of the chosen state's law would undermine the public policy of the state in which the action is pending, and the relationship between the parties and the state that is the subject of the choice-of-law provision.

That said, there is little downside to including a choice-of-law clause in the Waiver, especially when a severability clause of the type described above also is included. If the choice-of-law provision is enforceable, including it will increase both predictability of outcome and the likelihood of the Waiver's enforceability (as the employer no doubt will have selected a state with a favorable law concerning the shortening of limitations periods). Keep in mind, however, that the likelihood of a court enforcing a choice-of-law clause will depend on the nature of the relationship between the parties and the state that is the subject of the choice-of-law clause. This analysis can be especially complex when an employer has employees in multiple states.

How Should the Waiver Be Implemented?

The Waiver should be included in a form employment application and should be clear, explicit, and conspicuous. Highlighting the limitations provision can be accomplished through bold font, italic font, capital letters, a heading placing the reader on notice of the importance of the provision, and any other means that accentuate the provision. Highlighting the Waiver will increase the likelihood of a court's finding that the waiver was made knowingly and voluntarily, which many states consider to be a prerequisite to the contractual shortening of a statutory limitations period. See, e.g., Thurman, 397 F.3d at 354 (noting that the heading 'READ CAREFULLY BEFORE SIGNING' in bold font in the same section as the limitation provision was sufficiently conspicuous to render the waiver enforceable).

Employers also may wish to have their current employees execute an agreement containing a Waiver. A court examining the enforceability of a Waiver under these circumstances is likely to question whether any consideration was offered to the current employee in exchange for the employee's waiver. Whether the employee's continued employment alone constitutes adequate consideration for such a Waiver will depend on applicable state law and, in some states, how long the employee remains employed following the execution of the Waiver and whether the employee's separation from employment was voluntary. See, e.g. , Abel v. Fox , 654 N.E.2d 591 (Ill. App. Ct., 4th Dist., 1995) (holding that continued employment may constitute adequate consideration to support a contract under Illinois law). Employers who prefer more predictability concerning the enforceability of Waivers against current employees should offer their current employees a form of consideration other than mere continued employment in exchange for their execution of the Waiver, such as a small monetary payment or other benefit to which the employee is not otherwise entitled.

Employers who ask union employees to sign a Waiver as a condition of continued employment may face an additional hurdle under the National Labor Relations Act (NLRA). The NLRA requires that before any changes are made with respect to employees' wages, hours, terms, or conditions of employment, such changes must first be negotiated with the incumbent union. Thus, a union may have a basis under the NLRA to argue that the requested Waiver is in fact a change in a term or condition of employment, thereby foreclosing the company from unilaterally imposing a requirement that employees execute a Waiver as a condition of continued employment. A union would appear to have less firm footing with respect to a company's unilaterally instituted requirement that job applicants be required to sign a Waiver in order to be hired, as the applicants would not be members of the union at the time they execute the Waiver.

Bill Wortel, a member of this newsletter's Board of Editors, is a member of the Labor and Employment and Commercial Litigation Client Service Groups and he serves on the Labor and Employment Best Practices Committee in the Chicago office of Bryan Cave, LLP.