Review of contractually shortened limitations periods in boilerplate employment agreements; “Adhesion contract”; Extension of Rory v Continental Ins Co to employment contracts; Overruling Clark v DaimlerChrysler Corp & Timko v Oakwood Custom Coating; Reasonableness; Camelot Excavating Co, Inc v St Paul Fire & Marine Ins Co; “Dictum”; Procedural & substantive unconscionability; Herweyer v Clark Hwy Servs, Inc

The court held that “an adhesive boilerplate employment agreement that shortens a limitations period must be examined for” reasonableness, and is “subject to traditional contract defenses, including unconscionability, and, as adhesion contracts, may be procedurally and substantively unconscionable.” Plaintiff sued defendant, her former employer, alleging a variety of claims related to her termination. The trial court granted summary disposition for defendant, finding plaintiff’s claims were barred by the contractually shortened 180-day limitations period contained in the Employee Handbook Acknowledgment she had signed. The Court of Appeals affirmed. On leave granted, the court first found that “broad holdings outside of the insurance context were not germane to the controversy” in Rory, “especially in light of the fact that the litigants did not brief the issue.” Rory’s language “purporting to reach beyond insurance contracts cannot reach adhesive employment agreements because such an extension constitutes nonbinding dicta.” It limited Rory and held that in cases involving adhesive employment contracts, “the pre-Rory reasonableness analysis” should apply. “We now reestablish that reasonableness review is used for contractually shortened limitations periods in adhesive employment contracts.” It also overruled Timko “because it failed to apply the Camelot factors to the record before it when it held that a six-month limitations period was reasonable.” The court further held that adhesion contracts are subject to an unconscionability defense. It then found the contract at issue in this case was an adhesion contract, noting that plaintiff “lacked bargaining power when she was presented with a boilerplate employment agreement that contained a shortened limitations period of 180” days, and held that “close judicial scrutiny of the challenged shortened limitations” provision was required. In sum, “the shortened limitations period contained in plaintiff’s employment agreement was adhesive. We overrule the Court of Appeals in Clark, limit Rory to insurance contract cases, and restore Camelot and Herweyer. We also overrule Timko to the extent that it could be interpreted as accepting a shortened limitations period of 180 days as per se reasonable.” Remanded to the trial court.

Concurring, Justice Cavanagh agreed “with nearly every point” in the majority opinion, but questioned its “conclusion that the holdings in Rory[] that go beyond insurance contracts are mere dicta.” She suspected “that Rory’s statement that adhesion contracts ‘must be enforced according to [their] plain terms unless one of the traditional contract defenses applies’ is properly considered a holding, not dictum.” But even if so, she supported “creating a narrow carveout from Rory’s holding for adhesion contracts in the employment context.”

Dissenting, Justice Zahra noted his agreement “with the Rory Court that traditional principles of contract law—not paternalistic exertions of judicial will and policymaking from the bench—must govern which contractual terms will be enforced in Michigan. On any proper view of our jurisprudence, Rory controls the result of this appeal.” He would affirm.