Employers and Employees Can Contractually Agree to Shorter Claims Periods

The U.S. Court of Appeals for the Fourth Circuit stated that, “[a]s a general rule, statutory limitations periods may be shortened by agreement, so long as the limitations period is not unreasonably short and the statute at issue does not prohibit a shortened limitations period.”

In Bracey v. Lancaster Foods, LLC, the employee signed an arbitration agreement that shortened the statute of limitations (i.e. the time within which a claim must be filed) for all employment-related claims to one year. He subsequently brought a discrimination lawsuit against his employer. The employer moved to compel arbitration, and the employee argued that the agreement was unconscionable because it shortened all the applicable statutes of limitation to one year. The Fourth Circuit rejected this argument, noting that it had previously held that parties may agree to shorten limitations period by contract, and that “[c]ourts have frequently found contractual limitations periods of one year (or less) to be reasonable.”

The employee also argued that a one-year limitations period would make it difficult to exhaust his administrative remedies before the Equal Employment Opportunity Commission (which requires employees to file a charge of discrimination and receive a notice of right to sue before bringing a federal lawsuit) prior to making a demand for arbitration. The Fourth Circuit noted, however, that “it is not entirely clear that administrative exhaustion would even be required when the parties contractually agree to resolve employment disputes in arbitration.”

Although this unpublished case cannot be considered binding precedent, it provides some interesting options for employers to consider in drafting arbitration agreements.