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Michigan Appellate Court Upholds One Year SOL in Arbitration Clause in Employment (Web)

HICKS v. EPI PRINTERS, INC., 2005 WL 839502 (Mich. App. 4/12/05):  The Court of Appeals of Michigan held on April 12, 2005 that an employee was bound by a employment manual provision calling for arbitration of all claims against her employer and imposing a one-year period of limitations for filing such claims, even though her sexual harassment claim would otherwise be actionable under a 3-year statute of limitations.

The plaintiff, an at-will full-time employee of the defendant, resigned on June 25, 2001 and sued the defendant, alleging sexual harassment at the workplace and failure of the defendant to respond to her complaints. The circuit court granted summary disposition in favor of the defendant and dismissed the plaintiff's action with prejudice, finding that plaintiff's claims were barred by an agreement to arbitrate. The circuit court subsequently entertained the plaintiff's motion for reconsideration and affirmed its original order. The plaintiff appealed as of right.
When the plaintiff became a full-time employee, she received an employment manual. She later signed a receipt form acknowledging that she received, read, and understood the manual.

The manual contained a clause calling for arbitration of disputes arising between the employee and the company. The court recognized that an arbitration provision must be part of a binding contract to be enforceable, but agreed with the circuit court that the employee manual, which contained wording allowing severability of specific provisions and outlining mutual obligations of both parties, together with the receipt form, constituted a binding contract between the parties.

The plaintiff also challenged the apparent one-year period of limitation under the arbitration agreement, which would bar her claim. She argued that the language found in the arbitration provision stating that arbitration is only available of a party brings a claim within one year of the time when the claim arises, does not expressly bar her from bringing a suit in court after one year.  The court found this interpretation “too strained”, stating that a reading of the relevant provision “clearly leads to the conclusion that all claims must be arbitrated within a year: 1) all claims must be arbitrated; 2) parties must bring all arbitrations within a year; and, 3) therefore, parties must bring all claims within a year.” Under the agreement, the court held, arbitration subsumes all claims. The one year statute of limitations for arbitration must, therefore, apply to all claims and the plaintiff should have demanded arbitration within one year of the sexual harassment she alleged led her to resign.

The plaintiff argued in the alternative that a one-year period of limitations was unreasonable. Typically, the applicable statute of limitations for her sexual harassment claim is three years. The court pointed out the parties may contract for a period of limitations shorter than the default statutory period so long as the shorter period is reasonable, and “the period is reasonable if: 1) the claimant has sufficient opportunity to investigate and file an action, 2) the time is not so short as to work a practical abrogation of the right of action, and 3) the action is not barred before the loss or damage can be ascertained.”

The court found that a one-year period of limitations for plaintiff's sexual harassment claim is reasonable. By its very nature, the court noted, sexual harassment is a claim a plaintiff is aware of at an early stage. Here, the plaintiff's awareness of the alleged misconduct of her supervisor and the failure of management to respond to her complaints led her to resign and the complaint required no further investigation. The court found that the plaintiff had not demonstrated that a one-year period of limitation would somehow impose a hardship on her ability to bring her claim.

Pointing out that waiver of a statutory period of limitations for a civil rights claim is subject to heightened judicial scrutiny that asks if the waiver was knowing, intelligent, and voluntary, the court found that in this case, the provision clearly provided that all claims must be brought within a year. The language of the arbitration provision in the employment manual was clear and it appeared bold-faced, in capital letters, and in a larger font. The plaintiff signed both the employment manual and the receipt referencing the employment manual section containing the time limitation. For these reasons, the court of appeals found that the plaintiff knowingly, intelligently, and voluntary waived the three year period to file a claim and affirmed the decision of the circuit court.