4th Circuit upholds shortened limitations period in arbitration agreement
By: M. Jarrad Wright and Jonathan R. Mook, DiMuroGinsberg P.C.
Over the last several years, employers increasingly have been requiring employees to sign mandatory arbitration agreements as a condition of employment. The trend has been on the uptick because of concerns about the ever-increasing cost of litigation and the potential for runaway juries to award millions of dollars in damages. The U.S. 4th Circuit Court of Appeals (whose rulings apply to all Virginia employers) recently highlighted an additional benefit of arbitration. The court ruled an employment agreement’s requirement that any claim be made within one year was enforceable even though a number of employment-related claims the employee asserted had longer limitations periods.
Facts
Michael Bracy worked as a truck driver for Lancaster Foods LLC. When he was hired, he signed a mandatory arbitration agreement, which required any claim against the company to be filed within one year and heard by an arbitrator, not a jury.
After Bracy suffered an on-the-job injury, he and Lancaster disagreed about his work restrictions, and ultimately, the company viewed his position as a resignation. He sued the company in state court asserting various employment claims.
The case was moved to federal district court, and Lancaster sought to dismiss Bracy’s claims and compel arbitration based on the terms of the arbitration agreement he had signed. He opposed the company’s request, arguing the arbitration agreement was unconscionable and couldn’t be enforced because it shortened all applicable statutes of limitation to one year. The district court rejected his contention the arbitration agreement wasn’t enforceable and dismissed his suit.
4th Circuit’s decision
Bracy appealed the district court’s decision to the 4th Circuit, which is based in Richmond and whose decisions apply to federal courts not only in Virginia, but in West Virginia, North and South Carolina, and Maryland as well. On appeal, the court made short shrift of his argument that Lancaster’s arbitration agreement couldn’t be enforced because it shortened the statute of limitations for employment claims.
Relying on prior established 4th Circuit law, the court held that as “a general rule, statutory limitations periods may be shortened by agreement, so long as the limitations period is not unreasonably short,” and as long as the statute at issue doesn’t prohibit contractually shortened statutes of limitations.
The 4th Circuit also noted contractual limitation periods of one year or less have been found to be reasonable. Accordingly, the court affirmed the district court’s dismissal of Bracy’s lawsuit. Bracy v. Lancaster Foods, LLC, Case No. 19-1292.
Bottom line
The 4th Circuit’s decision serves to confirm the benefits of having your employees sign mandatory arbitration agreements as a condition of employment. The agreements must be properly tailored, however, to ensure they will pass court muster. Although the 4th Circuit in Bracy approved an arbitration agreement with a limitation period of one year, its reasoning makes clear a 30-day limitation for pursuing a claim, in all likelihood, would render the agreement unconscionable and unenforceable.
Where to draw the line on the statute of limitations as well as other provisions in an arbitration agreement are matters that should be determined based on consultation with experienced employment counsel. The last thing any employer wants is to require employees to sign mandatory agreements to arbitrate and, later, find out the agreements are unenforceable because of an unconscionable provision.
Jarrad Wright and Jonathan R. Mook are partners at DiMuroGinsberg P.C. in Alexandria, Virginia, and can be reached at mjwright@dimuro.com and jmook@dimuro.com.
