On February 1, the 5th Circuit slashed a $366,160,000 jury verdict against FedEx for employment retaliation claims under 42 U.S.C. § 1981 (Section 1981) and Title VII of the Civil Rights Act of 1964 (Title VII). Instead, in Harris v. FedEx Corporate Services, Inc., No. 23-20035, the court found that the former employee, Jennifer Harris, was only entitled to $248,619.57 — less than 0.1% of the original verdict — largely because (1) Harris’ Section 1981 claim was barred by the six-month limitation period she agreed to in her employment contract with FedEx and (2) Harris’ remaining Title VII claim was subject to a $300,000 statutory cap on damages.
Harris sued FedEx in Texas in May 2021 for race discrimination and retaliation under Section 1981 and Title VII, based on her termination from employment with FedEx in January 2020. Section 1981 does not contain a statutory limitations period, so courts typically apply the most analogous state statute of limitations, which in Texas is generally either two or four years (depending on the specific type of claim alleged). However, Harris’ employment contract with FedEx contained a “Limitation Provision,” which provided that “[t]o the extent the law allows an employee to bring legal action against the Company, [Harris] agrees to bring that complaint within the time prescribed by law or 6 months from the date of the event forming the basis of [her] lawsuit, whichever expires first.” Thus, since Harris did not sue FedEx until 16 months after her termination, FedEx argued that her Section 1981 claims were barred by the Limitations Provision.
However, the District Court refused to enforce the Limitations Provision, finding that it violated public policy and, alternatively, did not apply to Harris’ Section 1981 claims. Thus, her Section 1981 claims proceeded to the jury, which found that FedEx did not discriminate against Harris but did retaliate against her.
FedEx appealed, contending — among other issues — that the Limitations Provision barred Harris’ Section 1981 claims. The 5th Circuit agreed, rejecting all of Harris’ arguments that the Limitations Provision was unenforceable. Specifically, the 5th Circuit rejected Harris’ argument that she didn’t knowingly and voluntarily accept the Limitations Provision, holding that “parties to a contract have an obligation to protect themselves by reading what they sign and, absent a showing of fraud, cannot excuse themselves from the consequences of failing to meet that obligation.”
The 5th Circuit also rejected Harris’ argument that the six-month limitations period was unreasonable as applied to Section 1981 claims, explaining that “it is well established” that a contract may validly limit the time for bringing claims “to a period less than that prescribed in the general statute of limitations” if the shorter period is reasonable. The 5th Circuit found that the six-month period was reasonable since (1) Congress did not include a statute of limitations in Section 1981, implying that it was willing to live with a wide range of limitations periods for such claims; (2) unlike Title VII claims, plaintiffs do not have to exhaust administrative remedies prior to filing Section 1981 claims; and (3) a six-month limitations period is prescribed in various other federal laws.
Finally, the 5th Circuit rejected Harris’ argument that the Limitations Provision was rendered void by Texas Civil Practice & Remedies Code § 16.070, which generally voids contractual provisions “that purport[] to limit the time in which to bring suit on the stipulation, contract, or agreement to a period shorter than two years.” The 5th Circuit opined that (1) Harris waived this argument by not raising it to the District Court, and (2) Harris cited no authority that Section 16.070 applied to “any cause of action other than a breach-of-contract claim” and, instead, other courts have held that Section 16.070 does not apply to statutory claims.
Thus, the 5th Circuit found that the Limitations Provision was enforceable and, therefore, the District Court erred by allowing Harris’ Section 1981 claims to proceed to trial. And since — unlike Section 1981 — Title VII has a $300,000 damages cap, Harris’ $366 million jury verdict was improper. Instead, the 5th Circuit determined that (1) based on the evidence presented, Harris was only entitled to $248,619.57 in compensatory damages, and (2) Harris did not present sufficient evidence to support an award of punitive damages under Title VII.
It remains to be seen whether Harris will seek further review, either from the en banc 5th Circuit or the U.S. Supreme Court. And it is unclear how far the 5th Circuit’s reasoning extends as to limitations on actions under other employment laws, many of which have statutory limitations periods and/or require an employee to exhaust administrative remedies before filing suit (unlike a Section 1981 claim). But given the 5th Circuit’s ruling, companies should consider including reasonable contractual limitations periods in their contracts with employees and independent contractors, at least as to Section 1981 claims. As the FedEx case demonstrates, a contractual limitations period for Section 1981 claims can have significant importance since the damages recoverable under Section 1981 are not limited by statute as are the damages recoverable under a similar Title VII claim.
Of course, contractual limitations provisions may be attacked by employees on other grounds not raised by Harris, so enforceability may turn on how these provisions are worded and presented to workers. BakerHostetler’s team of employment attorneys is here to help with drafting these provisions based on the current state of the law.
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