Contractual six-month limitations period enforceable under ERISA, but not for FMLA claims
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Wednesday, November 29, 2017

Contractual six-month limitations period enforceable under ERISA, but not for FMLA claims

By Ronald Miller, J.D.

An employer’s contractual provision providing for a six-month limitations period for any employment-related claims was enforceable under ERISA, but not against an employee’s FMLA claims, ruled a federal district court in Utah. Finding that the FMLA provides a right employees would not otherwise enjoy, the court concluded that a contractual provision purporting to limit the FMLA’s two-year limitations period impeded that right and therefore violated public policy. On the other hand, both the Supreme Court and the Tenth Circuit have recognized that parties may contractually limit the time to bring ERISA claims. Thus, the court concluded that the employer’s contractual six-month limitations period did not violate public policy as applied to the employee’s ERISA claim (Zisumbo v. Convergys Corp., November 22, 2017, Shelby, R.).

Contractual limitations period. In 2012, the employee submitted an on-line application for employment. The application stated that the employee agreed that any employment-related claims must be brought no more than six months after the action arose, and waived any statute of limitations that was longer than six months. The employee was hired and was fired just over a year later on June 28, 2013. She had taken some medical leave before being fired. She subsequently received notice from the employer that her health insurance policy through the company had been retroactively cancelled months before her termination, leaving her responsible for various unpaid medical bills.

The following year, a collections agency sued the employee to collect on unpaid medical bills. Those claims were settled and the employee brought a third-party complaint asserting FMLA and ERISA claims against the employer. The FMLA and ERISA claims were brought beyond the contractual six-month period, but within the respective statutory periods. The parties filed cross-motions for summary judgment.

The employee’s complaint was filed on June 25, 2014, just under a year after her termination. Thus, her claims were timely under the statutory limitations period for the FMLA (two years) and ERISA (six years), but untimely under the restricted six-month contractual limitations period. The question then was whether her employment application validly altered the statutory limitations period for any claims under the FMLA and ERISA.

FMLA claims. In this instance, the employee argued that the application’s provision purporting to limit the two-year FMLA statutory limitations period to six-months was unenforceable because it violated public policy. As a general matter, parties may contract to limit the statutorily-prescribed time to bring a lawsuit. However, their ability to do so is limited in two ways: (1) there must be no “controlling statute to the contrary,” and (2) the shorter limitations period must otherwise be reasonable.

The district court observed that while the Tenth Circuit has not weighed in on the matter, the majority of courts to address the issue have concluded that the FMLA gives employees a right to sue, and a contract shortening the statutory two-year limitations period impedes that right and therefore violates public policy. In the absence of controlling Tenth Circuit authority, the court in this instance concluded that the majority interpretation was the better argument—that is, that contractual provisions restricting the statutory FMLA limitations period violated public policy and was therefore unenforceable.

The court noted that the FMLA expressly prohibits an employer from interfering with or restraining an employee’s rights under the FMLA, including the right to bring a federal suit within two years of any violation. Here, the six-month limitations period in the employment application interfered with those rights, and consequently ran afoul of the proscription on interfering with rights under the FMLA. Accordingly, the application’s shortened limitations period was contrary to public policy, and not enforceable.

ERISA claims. On the other hand, ERISA has no analogous provision precluding an employer from contractually restricting the statutory limitations period. In fact, both the Supreme Court and the Tenth Circuit have recognized that parties may contractually limit the time to bring ERISA claims. Therefore, the court concluded that the contractual six-month limitations period did not violate public policy as applied to the employee’s ERISA claim.

Still, the employee argued that the provision should not be enforced: (1) because the application was ambiguous; (2) any waiver of the statutory limitations period was not a knowing waiver; and (3) any waiver was unconscionable.

Ambiguity. According to the employee, the ambiguity stemmed from the fact that the application purported to waive any limitations period beyond six months but also stated that the employer intended to comply with state and federal law. Here, the court observed that because the Supreme Court and Tenth Circuit have condoned contractually altering ERISA’s limitations period, the shortened limitations period was in compliance with federal and state law.

Unknowing waiver. Next, the employee argued that the limitations period was a waiver, and was not knowing and voluntary because the application was on-line, the position was an entry level job, and she was only a high-school educated 18-year old when she signed it. However, the court concluded that even if the provision was a waiver that was required to be knowing and voluntary, that standard was met here.

Weighing in favor of the employer was the fact that the provision was clear, conspicuous, and specific. On the other hand, the employee had only a high school education and no business experience. However, she had unlimited time to review the application before submitting it, and she was given consideration for the waiver—her job. These factors counseled in favor of concluding the waiver was knowing and voluntary.

Unconscionability. Finally, the employee argued that the limitations provision was substantively and procedurally unconscionable. Here, the court determined that the employee had not met her burden of demonstrating unconscionability, and so declined to find the application unenforceable on this basis. The court observed that the application was short (five pages), and contained only a page of enumerated terms. The disputed provision was clear and concise, and after reviewing the term, the employee had the choice not to apply if she did not wish to be bound by it.

Accordingly, the parties’ cross-motions for summary judgment were granted in part and denied in part. The employee’s FMLA claim was timely, while her ERISA claim was not.

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