KHVPF Insight

Michigan Supreme Court to Decide Whether “Public Policy” Allows Enforcement of Contractual Agreements Shortening Statutes of Limitation for Employment Claims

Michigan Supreme Court to Decide Whether “Public Policy” Allows Enforcement of Contractual Agreements Shortening Statutes of Limitation for Employment Claims

Are your employment agreements or employee handbooks illegal? If they include a provision shortening the time in which employees must file a civil rights lawsuit arising out of their employment, they may soon be.  

In Rayford v American House Roseville I, LLC, the Michigan Supreme Court is considering whether contractual provisions that shorten the period in which an employee must bring a civil rights claim are unlawful because they violate the state’s “public policy.” Under the “public policy” doctrine, a contractual promise may be nullified when its enforcement would “tend to be injurious to the public or against the public good.”

However, if—as expected—the Michigan Supreme Court narrowly rules against employers on the “public policy” defense, it will require the Court to disregard well-established law regarding the limits of public policy doctrine and undermine private contract rights in this state.

The public policy defense is peculiar because, although it is raised by a party seeking to avoid a contractual promise, it is not designed to protect that party. It is designed to protect the courts from having to ratify contracts contrary to the “public good.” It is also notoriously vague. Because the concept of “public good” lacks any objective definition, what one judge finds harmful to the public good, another may find beneficial. To avoid a situation where the validity of contracts will depend, in large part, on which judge hears a lawsuit, the Michigan Supreme Court long ago held that “public policy” must come, not from “general considerations of supposed public interest” based on “the subjective views of individual judges,” but from “definite indications in the law.”

In Rayford itself, the justices and advocates have largely focused on whether the state’s general three-year statute of limitations is a “definite indication” in the law that three years is the only appropriate limitations period for a civil rights claim. But I submit that is the wrong focus. If the public policy exception is meant to protect the public and not an individual litigant, then the focus should not be on the effect on an individual employee trying to avoid contractual promises.

Instead, the question should be whether enforcing contractually shortened limitations periods will impair the public’s interest in remedying civil rights violations. And the place to look for “definite indications” in the law regarding the public interest in protection of civil rights is the civil rights law itself.  

In enacting the Elliott-Larsen Civil Rights Act, the Legislature created two mechanisms for remedying civil rights violations. First, it created a private cause of action for anyone aggrieved by a violation of the Act–this is the mechanism that would be affected by a contractually shortened limitations period. Second, Elliott-Larsen also created the Michigan Department of Civil Rights and empowered it to work with the Michigan Civil Rights Commission to investigate and remedy violations of our civil rights statutes. 

The “public interest” in civil rights enforcement finds definitive expression in this second mechanism—two public institutions (the Department of Civil Rights and Civil Rights Commission) with nearly unfettered authority to investigate, enforce, and remedy discrimination in workplaces throughout the state on behalf of the public. As any employer who has been the subject of an investigation or inquiry by the Department of Civil Rights knows, the administrative enforcement scheme is entirely independent of whether and how soon an employee brings a civil rights lawsuit. Even if an employee and employer agree to a shortened limitations period for private civil rights claims, the Department and Commission retain plenary authority to investigate and remedy civil rights violations, with or without a complaint by the aggrieved employee. Thus, contractual limitations clauses do not impair the state’s public policy—as reflected in our constitutional and statutory scheme—of ensuring civil rights violations are investigated and remedied.

Even the Civil Rights Commission—the public institution chiefly responsible for enforcing our civil rights statutes—itself does not believe that a limitations period shorter than three years would thwart the purposes of the Elliott Larsen Civil Rights Act. Instead, it thinks a 180-day limitations period is enough. And it had good reason to think so. Shorter limitations periods encourage prompt reporting, and thus prompt resolution, of discrimination. That, in turn, reduces workplace strife. Allowing discrimination to linger for years can also have significant consequences for employees and employers. Waiting to bring claims of discrimination may expose others in the workplace to similar acts of discrimination. And whether it is limited to one employee or more, allowing unreported discrimination to continue diminishes employee morale in the work force and tarnishes public or customer trust. This is why workplaces governed by collective bargaining agreements require employees to raise their disputes through an expeditious arbitration process within weeks, rather than months or years. 

Employers will know soon whether the Michigan Supreme Court will agree and continue to allow customized limitations periods for civil rights claims. The justices’ questions at oral argument and the overall trend in their employment decisions suggest that it will not. If so, we all will lose the benefits of prompt reporting—and, if necessary, remedying—of workplace discrimination.

David Porter