When a big company hires a new CEO or other top executives, lawyers get involved and an often long and complicated employment contract gets hammered out. For the average small to medium-sized business owner, that’s not how hiring works. Most employees go through a similar hiring and onboarding process, and with some exceptions, such as, for example, commissioned salespeople, there’s not much custom negotiation and documentation involved. Everyone is more or less using the same forms and employed under the same broad policies and procedures.
That doesn’t mean, however, that small and medium-sized employers do not intend for their employees to be contractually bound to certain terms and conditions of employment.
A recent Michigan Supreme Court (the “Court”) decision addressed one such term and condition: an agreement to shorten the statute of limitations for claims of discrimination, harassment and other employment-based claims. As discussed below, the Court explained that it is an employer’s burden to prove that an employee agrees to the terms of such an agreement.
McMillon v. City of Kalamazoo
In the case of McMillon v. City of Kalamazoo, the plaintiff signed an employment application in 2004 which reduced the statute of limitations for employment-related claims to nine months. However, she was not hired for the position in 2004, but was contacted by the employer for potential employment in mid-2005 and was eventually hired. The employer argued that it was allowed to enforce the plaintiff’s previous application and the agreements made in it. The plaintiff argued that in 2005 the employer was required to restart the hiring process and that her previous application was not binding.
The trial court and Michigan Court of Appeals ruled in favor of the employer. The Michigan Supreme Court reversed, ruling that the plaintiff’s claims of discrimination could not be dismissed as untimely based solely on the shortened statute of limitations in her 2004 application, and that there was an issue of material fact as to whether Plaintiff had notice that her prior application materials and employment terms would apply to her employment beginning in 2005.
The Pros and Cons of Employment Agreements
The broader lesson of this case is that employers must take affirmative and careful steps to ensure that employees have, in fact, agreed to employment conditions that employers want the ability to enforce. It’s not enough to bury such an agreement to shorten a statute of limitations, a confidentiality agreement, or other employment-related agreement in an application or handbook. It’s best to have an employee review and sign an agreement to ensure its enforceability. Moreover, as this case demonstrates, it’s not enough to rely on past agreements signed by former applicants or employees who are later hired or rehired. New signed agreements should be obtained.
By now you may be thinking: Should I be requiring all of my employees to sign detailed employment agreements? Not necessarily. Crafting employment law policies and agreements requires a “one size fits one” approach, because every business is different.
And while there are potential benefits for employers to have ironclad employment agreements in place, there are also potential drawbacks. Here are a few of the pros and cons:
Pros of Employment Contracts:
- Clarity: Employment contracts provide clear and concise terms of employment, reducing the likelihood of misunderstandings or disputes.
- Protection: Contracts can protect the employer by outlining the employee’s obligations, such as working hours, job responsibilities, and confidentiality agreements.
- Compliance: Contracts can help employers ensure that they are complying with relevant laws and regulations, such as minimum wage requirements and anti-discrimination policies.
- Confidentiality: Contracts can include clauses that protect the employer’s confidential information, trade secrets, and intellectual property.
- Stable workforce: Contracts can provide the employer with a stable workforce, as employees are committed to fulfilling the terms of the agreement.
Cons of Employment Contracts:
- Inflexibility: Contracts can limit the employer’s ability to make changes to the terms of employment, making it difficult to adapt to changes in the business environment.
- Legal disputes: Contracts can lead to legal disputes if the employee fails to fulfill their obligations or if there are disagreements over the interpretation of the contract.
- Cost: Contracts may involve additional costs to draft and enforce the agreement.
- Time: Contracts can take time to draft and negotiate, which can be a drain on the employer’s resources.
- Limitation on opportunities: Contracts can limit the employer’s ability to terminate the employment relationship, as they may be obligated to fulfill the terms of the contract for a specified period of time.
In conclusion, employment contracts can offer both benefits and drawbacks from an employer’s perspective. Employers should carefully consider their options and objectives and seek experienced legal counsel to ensure their policies and practices protect their rights and interests. For assistance with your business’ employment law needs, please contact Zana Tomich.