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State Supreme Court Considers Whether Employers Can Contractually Shorten Time for Employment Claims

On Tuesday, I watched the webcast of Rodriguez v. Raymours Furniture before the New Jersey Supreme Court where the court considered whether an employer can use a contract (here, in an employment application) to shorten the statute of limitations period otherwise available in an employment statute–here, New Jersey’s Law Against Discrimination (“LAD”).  Although the claim in question arises under LAD, the waiver–if valid–would presumably allow New Jersey employers to shorten the limitations period for wage and hour claims and most other causes of action that would otherwise have a longer limitations period (contract, tort, whistleblower, etc.).  The defendant agreed to his contractually shortened statute of limitations not as part of a severance or release, but three years before when had applied for a job.  The passage of time makes it more likely that an aggrieved employee may miss the contractual limitation date, a point repeatedly made by the plaintiff’s counsel, amici, and the justices.  That’s exactly what happened in this case, as the New Jersey Appellate Division found that the plaintiff’s case, which would ordinarily have been timely, was time barred by virtue of the contract in the employment application.  Although the appeals court found that the contract was one of adhesion, it declined to find it unconscionable, citing numerous cases (not always in the employment context) upholding agreements curtailing statutory limitations periods.

The New Jersey Supreme Court will have to weigh the plaintiff/appellant’s argument that the legislature did not “intend for private parties to be able to short[en] the two year statute of limitations,” as one of the justices put it at oral argument.  Certainly, the Appellate Division refused to find it a violation of state policy.  The appellate court observed that the state legislature had not barred such agreements despite being “presumably aware of the long-established case law allowing contractual reductions that are reasonable and not contrary to public policy.”  The appellant’s counsel also advanced 14th Amendment issues and the parade of horribles from the lack of uniformity as different employers adopted different limitations.  At least some of the justices seemed skeptical that private agreements could not contravene the statutory limitations period.  Others questioned why administrative procedures, such as the one available under LAD, were insufficient to advance the public policy goals at issue.  Questioning an amicus on the plaintiff’s side, another justice asked whether a period longer than 6 months, sufficient to allow administrative investigations to wrap up, but shorter than the statute of limitations could pass muster.

For their parts, the defendant/respondent and its supporting amici said that they did not seek to roll back employee protections, and disagreed with the justices’ suggestions that employers would simply adopt 6 month contractual limitations as a matter of course if the decision was upheld.  Puzzlingly to me, the respondent’s counsel answered that a shorter limitation period would not really change the number of claims, as most lawsuits would get filed right after termination when employers were “angry.”  The chief justice flipped the issue, noting that employers would have more than 6 months to bring claims against employees, while imposing shorter terms on employees’ claims, another practical point with few good-sounding answers.  The best argument came from the last attorney of the day, on the respondent’s side, who argued that public policy interests are served by requiring employees to promptly notify employers of any claims, and that 6 months was sufficient for diligent inquiries and prompt notifications by plaintiffs and their attorneys.  Regardless of whether it was a contract of adhesion, he argued, the language of the job application’s waiver was prominent, supported by consideration, and not unconscionable, which was the only issue before the court.

Upshort for Employers

If the New Jersey Supreme Court upholds the decision, employers in New Jersey would have judicial blessing to use this contractual limitations shortening tool along with arbitration provisions or jury waivers in employment agreements and other waivers.  However, that tool is not all-powerful, as existing decisions have already limited these limitations-shortening agreements to those that are “reasonable and not contrary to public policy.”  The employer in this case has the weight of case law on its side, but the main issue I see is that those cases overwhelmingly examine only the interests of private parties, not the impact on separate, public policy interests.  Whether that is sufficient to overcome the lack of legislative intent that the appellate court found is tough to gauge from oral argument.

Judging outcomes from oral argument is a crapshoot, but the questioning suggested that the New Jersey Supreme Court does have a path to overturn the decision.  None of the counsel on the respondents’ side had a good response to the point that upholding the appellate court’s decision would have the effect of undermining the statutory limitations periods and deterring the filing of employment claims.  As a practical matter, I think that the former point is probably correct.  There would seem to be little reason for employers to accept longer statutes of limitation if courts allow them to establish shorter ones by contract.  Certainly, not every employer will do that as all of the attorneys on the respondent’s side argued, but that seems to be a weak standard if the court decides that its main concern is the practical outcome of its decision.

Either way, we’ll know in a few months, and I’ll provide an update after this decision comes out.

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