The Sixth Circuit recently issued a decision involving the contractual shortening of limitations periods for Title VII discrimination claims, and I am troubled by the decision and its special, favored treatment of arbitration agreements, which reminds me of Animal Farm.
In the Sixth Circuit case, Logan v. MGM Grand Detroit Casino, No. 18-1381 (6th Cir. Sept. 25, 2019) (click here for a copy of the decision), a culinary worker’s employment application stated that the limitations period for filing any employment-related claims would be shortened to 6 months. However, under the governing legal framework, the employee would have had 300 days to file a discrimination complaint with a state or federal agency. The Sixth Circuit held that the employer’s attempt to contractually shorten the limitations period undermines Title VII and is not enforceable. This part of the decision makes sense to me.
However, the Sixth Circuit went on to discuss arbitration clauses. The employee at issue was not bound by an arbitration clause, and so this part of the decision is dictum. The Sixth Circuit explained that if the contractual term shortening the limitations period had been found in connection with an arbitration clause, such a term in an arbitration clause may be enforceable due to the liberal policy favoring enforcement of arbitration agreements. (“We find that a contractually shortened limitation period, outside of an arbitration agreement, is incompatible with the grant of substantive rights and the elaborate pre-suit enforcement mechanisms of Title VII.”).
So, a contractually shortened limitation period in a general contract is illegal and violates Title VII, but when we add such a term to an arbitration proceeding, the term magically becomes protected and enforceable? The Sixth Circuit is wrong here, and there are different ways to view the Sixth Circuit’s flaw.
The Sixth Circuit overlooks the heart of the FAA, 9 USC 2, which allows a court to invalidate arbitration agreements using defenses that apply to other contracts. As a result, this generally-applicable contract defense involving Title VII, which applies to all other contracts, should also apply in connection with an arbitration agreement. A different way of looking at this problem is to envision the arbitration clause more narrowly as just the core promise to arbitrate, stripped away or separated from other promises in the contract. A standard clause from the time of the FAA’s enactment involved a simple promise to arbitrate (e.g., “you and I agree to arbitrate any claims arising from this contract for the shipment of goods”). This clause did not contain any special bells or whistles, like an abbreviated statute of limitations or limitations on damages. I don’t view such terms as really involving the core promise to arbitrate, which the FAA protects, and so the FAA’s special protections should not apply to such additional, side terms. In other words, the FAA addresses the core promise to arbitrate, but not these side promises, and so Title VII could be used to invalidate the abbreviated limitations period, without running afoul of the FAA.
The original purpose of the FAA was to place arbitration agreements on equal footing with other contracts. Before the 1920s, arbitration agreements were generally not enforceable, and the FAA was designed to reverse this judicial hostility and make arbitration agreements as enforceable as other contracts. But, as a result of Supreme Court cases expanding the FAA and the Supreme Court’s manufacturing of a liberal policy favoring arbitration, arbitration agreements are now super contracts and often more enforceable than other, run-of-the-mill contracts. This evolution of arbitration agreements (from enforceable to super-enforceable to virtually untouchable with a delegation clause post Rent-A-Center) reminds me of a classic quote from Orwell’s Animal Farm: ““Four legs good, two legs better! All Animals Are Equal. But Some Animals Are More Equal Than Others.”