Time's up: Against Shortening Statutes of Limitation by Employment Contract

Employers are increasingly adding clauses to contracts with employees that purport to shorten the statutes of limitation for employees to pursue claims against their employers (SOL Clauses). SOL Clauses are being imposed on employees in various stages of the contracting process. They have turned up in job applications, offer letters, arbitration clauses, employment agreements, and employee handbooks. Where they have been enforced by the courts, the justification has been a prioritization of “freedom of contract” over any other policy concerns. This Article argues that, in the employment context, “freedom of contract” should not be prioritized over other competing concerns, which include the potential for overreaching given the inherent imbalance of bargaining power between employer and employee. A very small minority of states have statutes that either prohibit or limit the enforceability of SOL Clauses. In states without relevant statutory authority, the courts have reached differing conclusions concerning whether to enforce SOL Clauses—sometimes with courts reaching different conclusions on the same exact clause from the same employer’s standard contract. This Article begins with an exhaustive review of how SOL Clauses have been treated by courts. At least two state Supreme Courts have held that an SOL Clause undermines the policy supporting the employee’s underlying claim and, as such, is against public policy. In larger number, other courts have refused to enforce SOL Clauses as “unreasonable,” often under the guise of a substantive unconscionability analysis. At the same time, other courts have held that the clauses are inherently reasonable and enforceable. The result is a current patchwork of often irreconcilable outcomes. In light of the current landscape, this Article discusses the benefits and drawbacks of each of the current approaches, and relates those approaches to well-worn discussions of rules and standards in law design. Ultimately, this Article argues that public policy is a profitable avenue to void SOL Clauses. It does so by referencing recent scholarship that looks to the third-party harm that a contract or clause may cause. This Article argues that this lens justifies invalidating SOL Clauses, which clauses may have the effect of erecting procedural barriers that prevent employees from holding employers accountable on the merits, and might allow employers to continue repeated bad behavior without deterrence or redress. This is especially problematic given that SOL Clauses are presented to employees in standard form contracts. Employers are using these agreements to re-write the rules of the workplace and potentially override legislative judgments about the appropriate limitations period for an employee to pursue a claim.