Last week, part I of this article laid out what a limitation of action agreement is and how it can be used by employers. This week we look at what the recent Michigan Supreme Court’s decision in Rayford v American House of Roseville I LLC handed down on July 31st said.
The Plaintiff, Tamika Rayford, was a nurse working for American House Roseville I, LLC. When she joined American House in 2017, she signed an Employee Handbook Acknowledgement that stated:
“In consideration of my employment, I agree that any claim or lawsuit arising out of my employment with the Company, or my application for employment with the Company, must be filed no more than 180 days after the date of [the] employment action that is the subject of the claim or lawsuit, unless the applicable statute of limitations period is shorter than 180 days in which case I will continue to be bound by that shorter limitations period. While I understand that the statute of limitations for claims arising out of an employment action may be longer than 180 days, I WAIVE ANY STATUTE OF LIMITATIONS TO THE CONTRARY, unless state, federal or local law prohibits such waiver.”
She was subsequently fired for allegedly reporting preferential treatment in exchange for sexual acts and for making a false theft report. She sued the employer for retaliation, race-based harassment, sex or gender harassment, hostile work environment, violation of public policy, malicious prosecution, and abuse of process – quite a list.
The employer moved for summary disposition stating her claims were barred by the contractually shortened 180-day limitations period in the employee handbook’s acknowledgement, and she could not rely on the three-year statute of limitation that the law would normally allow. She had not brought this case for more than two years after her 2017 termination. Plaintiff responded that this limitation of action agreement was “an unconscionable contract of adhesion.” The trial court granted the Defendant-employer’s summary disposition and dismissed the Plaintiff’s claims. On appeal, the Court of Appeals affirmed the lower court’s decision.
A few years ago, this type of limitation of action agreement was frequently found in employee handbooks. As noted in Part I of this article, if the handbook also had a waiver of contracts term in it (usually this is in the About this Handbook or Purpose of this handbook statement at the start of the handbook) legal challenges could be made despite the limitation of action agreement because the law requires a formal agreement to modify the law or common law statute of limitations that are in place. It is now recommended the limitation of action agreement be put elsewhere such as in an employment application form or other separate agreement outside of the handbook.
In this case, the Michigan Supreme Court held that the limitation of action clause that Ms. Raymond agreed to by signing the handbook acknowledgement may have actually been an adhesion contract. An adhesion contract is an agreement that one party really has no power to truly negotiate and is forced upon them. Adhesion contracts are often seen in the insurance industry. These types of agreements have been often found to be void by the Courts.
The Court said that if the agreement that the Plaintiff signed was in fact an adhesion contract, this limitation of action agreement would not meet the requirement of reasonableness that must be part of such boilerplate formal agreements. In this case, the Michigan Supreme Court found that the lower Courts should have also examined the agreement through the lens of “reasonableness.” Though the test for reasonableness is normally applied when looking at an adhesion contract, earlier Court decisions around limitation of action agreements did not view such agreements as an adhesion contract. This was the change the Michigan Supreme Court based its decision on to overrule the lower Courts and send the case back down. That Court will now review the employment acknowledgement agreement to see whether the agreement was reasonably struck between the two parties.
The question the Court dwelled on is whether the Plaintiff in signing this acknowledgment had any real bargaining power. The Supreme Court questioned this because it saw that in reality the employee only had option of signing or losing the job opportunity. It questioned whether the contract was unconscionable which is where the weaker party has no “realistic alternative but to accept the term.”
In its opinion, the Supreme Court also stated it did not hold that a six-month (180 day) limitation period was per se unreasonable, only that the Court did not review the limitation agreement through the reasonableness test. It also focused on whether the Plaintiff, who was only given a week after employment began to sign off on the acknowledgement, was in any position to fairly negotiate this term. In fact, it was shown she never learned of this contractually shortened period until the Defendant-employer filed its motion for summary disposition.
Given how this ruling could and probably will limit such agreements going forward, employers should review their handbook’s various policies, employment applications and other agreements that seek to limit the time most employees may bring a claim against them. All may not be lost, as these limitation of action agreements could still hold value when used in genuinely negotiated employment contracts for higher-level positions rather than rank-and-file employees.
As always, ASE will keep an eye on this and other policy and practice developments that would allow employers to protect their rights.
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Source: Tamika Rayford v American House Roseville I LLC dba American House East I and American House (No. 163989) (7/31/2025)