Don’t Gamble with Your Contracts

Gamblers know that casinos enjoy a “house edge” – a small but statistically significant mathematical advantage in games ensuring that over an extended period, the “house” will prevail. Likewise, savvy employers understand that well-drafted, legally enforceable contracts offer the best chance of enhancing profitability by controlling risk.

One way to limit risk is by shortening otherwise applicable statutes of limitations. The Michigan Court of Appeals recently ruled that state discrimination claims arising under Michigan’s Elliott-Larsen Civil Rights Act can be shortened by contract. In contrast, last month, the federal Sixth Circuit Court of Appeals ruled that federal employment claims arising under the Americans with Disabilities Act (“ADA”) and the Age Discrimination in Employment Act (“ADEA”) cannot be contractually shortened. And it has long been the law in this circuit that claims arising under the federal Title VII of the Civil Rights Act of 1964 – which protects employees from discrimination based on race and other protected categories – likewise cannot be shortened by contract, because to do so would affect the substantive rights of employees and undermine the uniform nationwide system created by Congress for handling Title VII claims.

The takeaway? Contractual provisions – such as those purporting to shorten the statutes of limitations for state law claims – can be used to an employer’s advantage; however, contracts can backfire, as is the case when employers attempt to shorten limitations periods for the federal claims described above. Careful drafting with an eye toward a company’s business needs, risk tolerances, and culture can help to ensure that employment agreements are appropriate and enforceable.

Not sure whether your business has the “house edge”? Call us today at (248) 477-6300.