Employers May Substantially Reduce Their Potential Exposure for Employment-Related Lawsuits with a Simple Modification to Their Employment Applications
June 12, 2017
Authored by: Bill Wortel
Employers go to great lengths and expense to reduce their potential exposure to employment-related claims. Most employers implement employment policies to address the ever-growing myriad of federal, state, and local employment laws, regularly conduct employee EEO training, hire qualified human resources professionals and in-house attorneys with expertise in employment law, and regularly seek advice and assistance from outside counsel concerning these prophylactic measures. The article addresses a fast, simple, and inexpensive way to substantially reduce exposure to certain types of employment-related claims through the inclusion of an express waiver (“Waiver”) in a form employment application or other document signed by applicants or employees. The Waiver contractually reduces to six (6) months the time period within which certain types of employment-related claims must be filed and waives any statute of limitations to the contrary, thereby significantly reducing the number of timely-filed claims and, consequently, the employer’s potential exposure. Although waivers can vary by jurisdiction, the following include example of things to bear in mind.
Which Claims Should Be Included in the Waiver?
The employment-related claims that subject employers to the most potential exposure are those that carry lengthy limitations periods and no damages caps. For example, 42 U.S.C. § 1981 (“Section 1981”), which prohibits race discrimination and retaliation, has a four (4)-year statute of limitations and does not cap emotional distress or punitive damages. State common law also provides a source for employment-related breach of contract and tort claims, such as defamation, intentional infliction of emotional distress, negligent hiring / retention / supervision, and invasion of privacy (the “Common Law Claims”). While the elements and limitations periods of Common Law Claims differ from state to state, they generally carry a one (1) to four (4)-year limitations period and unlimited emotional distress and punitive damages. Many state anti-discrimination statutes also have limitations periods in excess of six (6) months, do not cap damages, and do not require an employee to exhaust administrative remedies through the filing of an administrative charge with a state agency (the “State Anti-Discrimination Claims”). The courts have consistently upheld an employer’s right to contractually reduce to six (6) months the limitations periods for Section 1981 Claims, Common Law Claims, and State Anti-Discrimination Claims. Thus, such claims should be included in the Waiver.
While claims asserted under the Family and Medical Leave Act (FMLA), the Fair Labor Standards Act (FLSA), and the Equal Pay Act (EPA) typically do not permit emotional distress damages and limit punitive damages (also known as “liquidated damages”) to the amount of the back pay award, they carry a two (2)-year limitations period which can be extended to three (3) years in the case of a willful violation. Although no federal appellate court decision has yet addressed the issue, there currently is a split in authority at the district court level as to whether the limitations periods for FMLA (and, by analogy, FLSA and EPA) claims may be contractually shortened. Accordingly, employers including FMLA, FLSA, and EPA claims in their Waivers also should include a severability clause providing that the illegality or unenforceability of any part of the Waiver shall have no effect upon, and shall not impair the enforceability of, any other part of the Waiver.
Which Claims Should Be Excluded from the Waiver?
The U.S. Equal Employment Opportunity Commission (EEOC) is charged with investigating and enforcing the most common statutory employment claims, including those asserted under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, and the Age Discrimination in Employment Act (the “EEOC Claims”). Although most of the EEOC Claims allow a successful plaintiff to recover back pay, front pay, emotional distress damages, punitive damages, and attorneys fees, these claims offer two significant advantages to employers in comparison to the other employment-related claims discussed above. First, an individual may not file an EEOC Claim in court unless and until he or she first has exhausted available administrative remedies – i.e., filed an administrative charge with the EEOC or comparable state agency, typically within 300 days of the alleged violation, and received a Notice of Right-to-Sue from the EEOC. Thus, the EEOC Claims already carry a relatively short limitations period (i.e., 300 days). Second, the combined recovery of emotional distress and punitive damages under the EEOC Claims, to the extent such damages are available at all under the relevant statute, may not exceed the applicable statutory cap ($50,000-$300,000, depending on the size of the employer). Because the administrative exhaustion process typically takes more than six (6) months to complete, the courts have uniformly refused to enforce contractual provisions that attempt to shorten the 300-day limitations period for such claims. Accordingly, the Waiver should expressly exclude EEOC Claims from its coverage.
How Should the Waiver Be Implemented?
The Waiver should be included in a form employment application and should be clear, explicit, and conspicuous. Highlighting the limitations provision can be accomplished through bold font, italic font, capital letters, a heading placing the reader on notice of the importance of the provision, and any other means that accentuate the provision. Highlighting the Waiver will increase the likelihood of a court finding that the waiver was made knowingly and voluntarily, which many states consider to be a prerequisite to the contractual shortening of a statutory limitations period.
Employers also may wish to have their current employees execute an agreement containing a Waiver. A court examining the enforceability of a Waiver under these circumstances is likely to question whether any consideration was offered to the current employee in exchange for the employee’s waiver. Whether the employee’s continued employment alone constitutes adequate consideration for such a Waiver will depend on applicable state law and, in some states, how long the employee remains employed following the execution of the Waiver and whether the employee’s separation from employment was voluntary. Employers who prefer more predictability concerning the enforceability of Waivers against current employees should offer their current employees a form of consideration other than mere continued employment in exchange for their execution of the Waiver, such as a small monetary payment or other benefit to which the employee is not otherwise entitled.
Employers who ask union employees to sign a Waiver as a condition of continued employment may face an additional hurdle under the National Labor Relations Act (NLRA). The NLRA requires that before any changes are made with respect to employees’ wages, hours, terms, or conditions of employment, such changes must first be negotiated with the incumbent union. Thus, a union may have a basis under the NLRA to argue that the requested Waiver is in fact a change in a term or condition of employment, thereby foreclosing the company from unilaterally imposing a requirement that employees execute a Waiver as a condition of continued employment.
If you would like assistance drafting and/or implementing a waiver, please contact a member of Bryan Cave’s Labor & Employment Client Service Group.