by Valeria Gomez

The enforceability of employment arbitration agreements has been a hot topic in the headlines lately. But what about agreements that allow an employee to sue in court but shorten the time frame for doing so? Companies that include such limitations periods in their employment agreements should take note of a recent ruling from the U.S. 6th Circuit Court of Appeals that invalidated such contractual limitations periods for claims under the Fair Labor Standards Act (FLSA) and the Equal Pay Act (EPA).

What happened

Margaret Boaz began her employment with FedEx in 1997. FedEx’s compensation system involved categorizing its jobs into grade levels and compensating employees based on their respective grade levels. In 2004, when Boaz had already reached a “grade-7” job category, FedEx eliminated a number of positions, among them that of Jim Terrell, a grade-27 employee. Boaz took over some of Terrell’s job responsibilities upon his departure in January 2004, but her compensation didn’t change to reflect her new duties. She performed Terrell’s old duties until June 2008, when she changed to a new job in which she no longer performed those duties.

In April 2009, Boaz sued FedEx for violations of the FLSA and the EPA. She claimed that the company violated the EPA by paying her less than it had paid Terrell, a man, for performing the same job duties. She also claimed that FedEx violated the FLSA by misclassifying her as an exempt employee and failing to pay her overtime during the same period.

Boaz received her last paycheck for the job in which she claimed she was unlawfully compensated on June 30, 2008. The limitations period under the FLSA and the EPA is two years for regular claims and three years for willful violations. So, under applicable law, her April 2009 lawsuit was timely. However, her employment agreement included the following provision: “To the extent the law allows an employee to bring legal action against Federal Express Corporation, I agree to bring that complaint within the time prescribed by law or six months from the date of the event forming the basis of my lawsuit, whichever expires first.”

Based on that clause, FedEx asked for summary judgment (dismissal of the case on legal grounds before trial), claiming the date of its last alleged illegal activity—Boaz’s last paycheck—had occurred more than six months before she filed suit. The district court agreed with FedEx and dismissed the case. Boaz appealed to the 6th Circuit (which covers Kentucky, Michigan, Ohio and Tennessee).

What the court said

The 6th Circuit recognized that the question was whether FedEx could contractually limit Boaz’s rights under the FLSA and the EPA (the EPA is actually part of the FLSA)—specifically, whether the shorter limitations period in her employment agreement was valid.

In support of its position that the shorter time limit should be enforced, FedEx pointed out that courts have routinely enforced contractual statutes of limitations for other types of employment claims, including race discrimination claims under Title VII of the Civil Rights Act of 1964. Since race discrimination is just as bad as the equal pay and other FLSA violations alleged by Boaz, FedEx argued, why wouldn’t a contractual limitations period also be enforceable in this case?

Because for one thing, responded the court, the U.S. Supreme Court has said that FLSA claims are different. The 6th Circuit pointed out that the Supreme Court ruled in a 1945 decision that employees couldn’t waive their FLSA rights, either prospectively or retrospectively. (In other words, employees may not enter into binding contractual agreements not to pursue FLSA claims in exchange for money, ongoing employment, or other forms of “consideration.”) On the other hand, the Supreme Court has expressly held that Title VII rights may be waived. The 6th Circuit then explained the underlying “economic motive” rationale for treating FLSA claims differently.

Being able to circumvent the FLSA by having employees agree to earn less than the federal requirements (for overtime, equal pay, and so forth) would give noncompliant employers a competitive advantage over employers that strictly follow FLSA standards. However, an employer gains no economic advantage by discriminating against a racial group or another protected class. Thus, employers theoretically have more motivation to violate the FLSA. So, the rationale goes, even though no type of discrimination is more deplorable than any other, it’s the impact of violations that dictates their “waivability.”

And the same goes for the EPA, which Congress enacted as an amendment to the FLSA after the Supreme Court had already ruled that FLSA rights couldn’t be waived. The EPA prohibits employers from paying different wages to an employee of the opposite sex for substantially equal work. Because an employer that pays women less than it pays men gains some type of competitive advantage over businesses that don’t do that, employees’ EPA rights likewise can’t be waived.

FedEx tried one more argument, pointing out that courts have upheld agreements requiring employees to arbitrate FLSA claims. So if an agreement can govern the forum for a claim (and include a waiver of the right to a jury trial), then why can’t it also govern the time limit for the claim? The 6th Circuit responded that the court case in which the agreements requiring arbitration of FLSA claims were enforceable held that an employee can waive his right to a judicial forum only if the alternative forum “allow[s] for the effective vindication of [his] claim.” The time limit provision in this case, on the other hand, would have completely negated Boaz’s claims.

For all of those reasons, the court determined that because the FedEx employment agreement deprived employees of their rights under the FLSA—i.e., the right to file a claim in the time frame permitted by the law—the 6-month limitations period was invalid. As a result, Boaz’s lawsuit was timely, and she should be allowed to proceed with her case. Boaz v. FedEx,Case No. 12-5319.

What to remember

This case makes clear that, at least in the 6th Circuit, employers may not contractually limit the time frame for filing FLSA or EPA claims. However, such limits may be enforceable for other types of employment claims, including Title VII claims. However, there may be other ways to limit the impact of FLSA claims, such as requiring employees to sign arbitration agreements.

If you’re seeking to limit your company’s exposure to employment claims through contracts, carefully consider your options and confer with experienced employment counsel to make sure you understand which types of limits have been found enforceable in jurisdictions where you have employees. You should also be sure to maintain personnel records for the duration of any possible limitations period, just in case a contractual time limit provision is deemed invalid (as it was in this case).

Valeria Gomez is an attorney in Butler Snow’s labor and employment practice group in the Nashville office. She may be reached at valeria.gomez@butlersnow.com.