Fourth Circuit Upholds Shortened Limitations Period in Arbitration Agreement

By:  M. Jarrad Wright and Jonathan R. Mook

Over the last number of years, employers increasingly have been requiring employees to sign mandatory arbitration agreements as a condition of employment.  This trend has been on the uptick due to employer concerns about the ever increasing cost of court litigation and the potential for runaway juries to award millions of dollars in damages based upon pure emotion rather than fact.  An additional benefit of arbitration recently was highlighted by the Fourth Circuit Court of Appeals in Bracy v. Lancaster Foods LLC, Case No. 19-1292.  In that case, the court ruled that an employment agreement’s requirement that any claim be made within one year was enforceable even though a number of employment related claims the plaintiff asserted had longer limitations periods.

The Facts
The case was brought by Michael Bracy, who worked as a truck driver for Lancaster Foods LLC.  When he was hired, Bracy signed a mandatory arbitration agreement, which required that any claim he might make against the company needed to be brought within one year and that the claim would be heard by an arbitrator, not by a jury.

After suffering an on-the-job injury, Bracy and Lancaster disagreed about his work restrictions, and ultimately, Lancaster viewed Bracy’s position as a resignation.  Subsequently, Bracy sued Lancaster in state court asserting various employment claims.

Lancaster removed the case to federal district court and sought to dismiss Bracy’s lawsuit and compel arbitration based upon the terms of the arbitration agreement Bracy had signed.  Bracy opposed Lancaster’s motion, arguing that the arbitration agreement was unconscionable and could not be enforced because it shortened all applicable statutes of limitation to one year.  The district court rejected Bracy’s contention that the arbitration agreement was not enforceable and dismissed Bracy’s suit.

Fourth Circuit Decision
Bracy appealed the district court’s decision to the Fourth Circuit Court of Appeals, 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 Fourth Circuit made short shrift of Bracy’s argument that Lancaster’s arbitration agreement could not be enforced because it shortened that statute of limitations for employment claims.  Relying upon prior established Fourth 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 does not prohibit contractually shortened statutes of limitations.  The appeals court also noted that 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.

Bottom Line:  The Fourth Circuit’s decision in Bracy serves to confirm the benefits of having your employees sign mandatory arbitration agreements as a condition of employment.  However, those agreements must be properly tailored to ensure that they will pass court muster.  Although the Fourth Circuit in Bracy approved an arbitration agreement with a limitation period of one year, the court’s reasoning makes clear that a thirty-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 upon consultation with experienced employment counsel.  The last thing that any employer wants is to require employees to sign mandatory agreements to arbitrate and, later, find out that those agreements are unenforceable due to an unconscionable provision.