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Sixth Circuit Issues Valuable Reminder of the Importance of Contractually Shortened Limitations Periods

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Sixth Circuit Issues Valuable Reminder of the Importance of Contractually Shortened Limitations Periods

Employers constantly are on the lookout for strategies to employ that reduce the risk of potential litigation arising from the workplace.  In a recent decision, the Sixth Circuit Court of Appeals served an important reminder of the importance of contractually shortened limitations periods as one simple step that employers can take to cut off potential employment claims.

Oswald v. BAE Industries, Inc. involved a claim under the Uniformed Services Employment and Reemployment Rights Act (USERRA), which imposes liability upon non-military employers for discriminating against employees because of their military service. Oswald, an employee of BAE, claimed that he faced adverse employment actions following a tour in Iraq, ultimately resulting in termination of his employment. BAE however, said that Oswald was terminated because of the need to cut costs in light of the 2007 economic downturn. The Sixth Circuit’s decision did not examine the merits of the underlying claim, however.  It turned exclusively upon Oswald’s failure to file a lawsuit against BAE within the 180 day limit agreed to in the employment application Oswald signed when he was hired.

In addressing the relevant time period, the Court said that while the current version of USERRA did provide for an unalterable, infinite time period for filing claims, the statute in force when the  claims were filed did not.  The Court cited to a number of previous rulings in which it had held that where there is no statutory provision that explicitly addresses shortening the limitation period, the employment agreement is valid, so long as the limitation is reasonable.

While USERRA contains express language that it supersedes any “contract, agreement, policy, plan, practice, or other matter that reduces, limits, or eliminates in any manner any right or benefit” provided under the statute , the Court examined that language and held that the limitations period for filing a claim was not a “right or benefit” as defined by the statute, and therefore could be contractually shortened to a reasonable period. Expressing sympathy for Oswald’s predicament, the Court ultimately found the 180 day contractual limitations period to be reasonable and rejected his claim as barred by the shortened limitations period.

The Oswald decision dealt only with the effect of a contractual limitations period on USERRA claims, but it serves as a worthwhile reminder to employers of the benefits of shortened contractual limitations periods for their employees.  The ultimate enforceability of such agreements varies depending upon the jurisdiction in which enforcement is sought, as well as the claim that is at issue. But in many jurisdictions, and for many statutory and common law claims, an agreement by an employee to bring a claim within 180 days (rather than 2, 3, or 6 years), is valid and enforceable, and can be used by defense counsel to bring and win an early motion to dismiss. Employers in the process of revising their employment applications should consider strongly adding this type of shortened limitations period as a condition of employment.