Michigan Supreme Court Says Shortened Limitations Periods in Employment Agreements for Bringing Claims Against an Employer Might Not Hold Up in Court
An employee who believes an employer has violated their rights and the law through misconduct, such as discrimination and harassment, can file a civil lawsuit against the employer under applicable federal and/or state civil rights laws. But those claims, like all others, are subject to statutes of limitation, which require that a suit be filed before a specified deadline, usually a matter of years from the date the claim arises.
However, many employment agreements and handbook acknowledgments contain provisions that purport to dramatically shorten that timeframe, requiring an employee to file any action in a matter of weeks or months or else lose their right to pursue any action against their employer. A July 31, 2025 Michigan Supreme Court decision calls into question the validity of such clauses in employment agreements when such agreements are considered “adhesion contracts” (i.e., standard-form contracts prepared by one party, to be signed by another party in a weaker position who must essentially either agree to the terms or not have a contract at all). Many, if not most, employment agreements are considered adhesion contracts.
In Rayford v. American House Roseville I, LLC, the Court addressed the question of whether an employer can contractually shorten the three-year statute of limitations applicable to claims under Michigan’s Elliott-Larsen Civil Rights Act (ELCRA) to 180 days through a boilerplate employment agreement.
Courts Will Carefully and Skeptically Scrutinize Shortened Limitations Periods Contained in Adhesion Contracts
The Court began its analysis by determining that the employment agreement in question was an adhesion contract because the employee had only two options: sign the employment contract as drafted by the employer or lose the job. “Many employees who need a job are in a weaker position than the employer, who can fire or refuse to hire the employee if the employee tries to negotiate or refuses to sign the agreement.”
Having found that the agreement was an adhesion contract, the Court noted, “While contractually shortened limitations periods are generally permitted, they require further analysis before enforcement where, as here, a non-negotiated boilerplate agreement is an adhesion contract between an employer and an employee.”
Overruling two of its prior decisions on the subject, the Court concluded that “an adhesive boilerplate employment agreement that shortens a limitations period must be examined for reasonableness” and is subject to traditional contract defenses, including unconscionability.
To be “reasonable,” the Court said, a contractually shortened limitation period must
- Provide a claimant with sufficient opportunity to investigate and file an action.
- Not be so short as to work a practical abrogation of the right of action (i.e., so short that it would be almost impossible to file a suit in time).
- Not bar the claim before the loss or damage arising from the claim can be ascertained.
Although the Court found that the employment agreement in this case was an adhesion contract, it did not make a determination on whether the shortened limitation period in the agreement (i.e., 180 days) was “unreasonable” or “unconscionable” and should therefore be unenforceable. Instead, it sent the case back to the trial court to determine the answer. Finally, the Court noted that if the shortened limitations period is found to be unreasonable or unconscionable, the standard three-year statutory limitations period for ELCRA claims will apply.
What Does This Mean for Employers?
For Michigan employers, the Rayford decision makes clear that while shortening a limitations period in an employment contract is not per se unlawful, a court will set aside such a provision if it is so short that it effectively deprives an employee of their right to pursue an otherwise valid claim within the statutory limitations period.
In Rayford, the shortened limitations period was contained in a handbook acknowledgment that was signed approximately one week after employment began. Given this context, employers should carefully reconsider including shortened limitations provisions in handbook acknowledgments, employment agreements, and other adhesion contracts. To reduce legal risk, employers may want to present any shortened limitations provision as a standalone agreement. This approach may strengthen its enforceability under heightened judicial scrutiny.
Although the Court did not definitively rule that the 180-day period was unreasonable or unconscionable, it noted that the 180-day period is a “drastic” reduction from the 3-year statutory limitation and that such a difference “cannot be understated.” Thus, it is possible that Michigan courts may be moving toward a finding that a 180-day limitations period is unreasonably short. However, employers can remain hopeful because the 180-day limitation period has historically been upheld by the courts. For now, we have to wait to see what the courts decide. In the meantime, employers should consult with legal counsel to review their shortened limitation periods in adhesion contracts and, if necessary, create standalone agreements.
If you have any questions about this decision or would like assistance reviewing or revising your company’s employment agreements, please contact Breanne Gilliam at Maddin Hauser.