Michigan Supreme Court: Contractual Time Limits In Employment Agreements Must Face Reasonableness And Unconscionability Review
Rayford v American House Roseville I, LLC
Opinion Released: July 31, 2025
MSC Docket No. 163989; COA Docket No. 355232
Macomb County Circuit Court
Authored by Justice Welch
Holding: The Michigan Supreme Court held that while contractually shortened limitations periods are generally permitted, such provisions in adhesive, non-negotiated employment agreements require close judicial scrutiny and must be examined for reasonableness. The Court overruled prior decisions extending blanket enforceability to these provisions in employment contexts and remanded the case for further proceedings to determine both the reasonableness and unconscionability of the 180-day limitations period at issue, with the statutory limitations period applying if the provision is found unreasonable or unconscionable.
The Court specifically overruled Clark v DaimlerChrysler Corp and Timko v Oakwood Custom Coating, Inc, limited Rory v Continental Ins Co to insurance contracts, and restored the frameworks of Camelot Excavating Co, Inc v St Paul Fire & Marine Ins Co, and Herweyer v Clark Hwy Servs, Inc for assessing reasonableness in adhesive employment contract limitations provisions.
Facts: Plaintiff Rayford, a certified nursing assistant, was hired by Defendant American House Roseville I, LLC, a nursing care facility, in February 2017. Approximately one week after her employment began, she signed an "Employee Handbook Acknowledgement" (the "Acknowledgment") which provided, among other things, a limitations period of 180 days for bringing any claim or lawsuit arising out of her employment, waiving any longer statute of limitations unless prohibited by law.
A few months into her employment, after receiving a promotion, Plaintiff observed what she believed to be inappropriate sexual behavior between upper management and other nursing assistants, alleging that some staff received preferential treatment in exchange for sexual acts. She reported these concerns to the employer's human resources division and to the State of Michigan, though the record is unclear as to which specific agency or department received her report. Following her report, Plaintiff alleged that her manager began to retaliate against her by issuing write-ups and ignoring her concerns about unrelated incidents. She further claimed that the manager disciplined her for errors made by others and ignored her work-related concerns, allegedly acting unfairly in response to her complaints.
Around the same time, Plaintiff finished a shift and inadvertently left her purse in a locked room at work. The next day, she stated that her purse was missing, which she reported as a theft to both the employer and the police. Defendant accused Plaintiff of lying about the purse being stolen and presented the police with a video purportedly showing her leaving with her purse on the day in question, but Plaintiff claims this video was incorrectly date-stamped and was taken several days before the incident. On July 3, 2017, she was charged criminally for making a false report based on the employer's allegations and the video. A few days later, on July 7, 2017, Defendant terminated her employment.
Ultimately, the criminal charge against Plaintiff was dismissed when the employer could not produce the purported video recording.
In April 2020, almost three years after her termination, Plaintiff filed a lawsuit against American House Roseville I, LLC. She asserted claims under the Elliott-Larsen Civil Rights Act (ELCRA)—specifically, race-based harassment, sex- or gender-based harassment, retaliation, and hostile work environment—as well as wrongful discharge in violation of public policy, malicious prosecution, and abuse of process. Defendant moved for summary disposition, arguing that all claims were barred by the 180-day shortened limitations period specified in the Acknowledgment, which Rayford had signed soon after beginning her employment. Plaintiff opposed the motion, contending that the Acknowledgment was an unconscionable contract of adhesion and also argued, in the alternative, that defendant should be estopped from relying on the Acknowledgment because the employer did not provide her with a copy upon request as required by the Bullard-Plawecki Employee Right to Know Act (ERKA).
The trial court granted summary disposition in favor of Defendant, holding that the Acknowledgment unambiguously required Plaintiff to file suit within 180 days after the challenged employment action, and that she failed to provide authority for the Acknowledgment being unconscionable. The trial court dismissed her ELCRA, abuse of process, and ERKA-related claims. Plaintiff moved for reconsideration regarding the abuse-of-process claim only, but the trial court denied the motion.
On appeal, the Court of Appeals affirmed, holding that the contractual limitations period in the Acknowledgment barred Plaintiff's claims and that she otherwise failed to state a claim for abuse of process. The Court of Appeals found no evidence that Plaintiff lacked realistic alternatives to employment when she signed the Acknowledgment, and thus found the contract was not unconscionable. The panel also held that Plaintiff's claims were forfeited because she waited more than two years after her July 2017 termination before filing suit, and that her civil rights claims were dismissed on a motion for summary disposition under MCR 2.116(C)(7) exclusively on the basis of the limitations period, without any discovery or opportunity to argue the merits.
Plaintiff sought leave to appeal, raising her unconscionability and ERKA arguments without specifically invoking a judicial "reasonableness" standard or asserting a public policy violation concerning the shortened limitations period. The Michigan Supreme Court ultimately granted leave to consider, among other issues, whether contractually shortened limitations periods in employment agreements (such as the 180-day period at issue here) are enforceable and whether the contract was an unconscionable contract of adhesion.
Key Appellate Ruling:
The Michigan Supreme Court ruled that, while contractually shortened limitations periods are generally permitted, a shortened limitations provision contained in a non-negotiated, boilerplate (adhesive) employment agreement between an employer and employee must undergo close judicial scrutiny. Such a provision must be examined for reasonableness, and is also subject to traditional contract defenses, including unconscionability.
The Supreme Court overruled Clark v DaimlerChrysler Corp (2005) and Timko v Oakwood Custom Coating, Inc (2001), in favor of the analytical framework is provided by Camelot Excavating Co, Inc v St Paul Fire & Marine Ins Co (1981) and Herweyer v Clark Hwy Servs, Inc (1997), which require review of these provisions for reasonableness in the context of adhesive contracts. The holding in Rory v Continental Ins Co (2005) is expressly limited to insurance contracts and does not extend to adhesive employment agreements.
Furthermore, when an employment agreement is found to be adhesive (i.e., a standard-form contract offered on a take-it-or-leave-it basis to a party in a weaker bargaining position), courts must apply the Camelot reasonableness test to any contractual shortening of a statutory limitations period. The reasonableness test considers whether (1) the claimant had sufficient opportunity to investigate and file an action, (2) the time was not so short as to practically abrogate the right of action, and (3) the action is not barred before loss or damage can be ascertained. Adhesive employment agreements that contractually shorten limitations periods may be challenged as procedurally and substantively unconscionable. Procedural unconscionability exists if the employee had little to no bargaining power (not requiring proof of the complete absence of job alternatives), while substantive unconscionability requires showing the term is unreasonably favorable to the employer, to the extent it "shocks the conscience."
The Court overruled Clark to the extent it extended Rory’s "plain language" rule to employment contracts, and overruled Timko to the extent it accepted a 180-day (six-month) limitations period as per se reasonable without individualized analysis. The holding of Rory is now limited to the auto insurance context; language suggesting broader application is nonbinding dicta.
Ultimately, the case was reversed and remanded to the trial court for development of a full evidentiary record so that it can determine (1) whether the 180-day limitations period is reasonable under the Camelot/Herweyer test, and (2) whether the provision is unconscionable, both procedurally and substantively. If the provision is found to be unreasonable or unconscionable, then the full statutory limitations period (three years) applies pursuant to Herweyer.
