In a basic sense, a statute of limitations is a law that limits the time an individual has to file a lawsuit. There are time limits for all sorts of claims: e.g., a claim for breach of written contract typically must be filed within 4 years, which is measured from the date of the breach. This rule is found in Section 337 subdivision (1) of the Code of Civil Procedure. In fact, the Code of Civil Procedure, commencing with Section 315, contains many of the common statutes of limitation in California.
However, the statutory periods are not always the “final word.” Parties can agree to shorten time limits by contract, and often commercial contracts do this. Shortened time periods to sue can be found in employment agreements (see, e.g., Martinez v. Master Protection Corp. (2004) 118 Cal.App.4th 107), in commercial leases (see, e.g., Capehart v. Heady (1962) 206 Cal.App.2d 386), in professional services agreements (see, e.g., Moreno v. Sanchez (2003) 106 Cal.App.4th 1415) and in insurance policies (see generally NN Investors Life Ins. Co. v. Superior Court (1989) 208 Cal.App.3d 1070).
Whether these provisions will be enforced depends, inter alia, on the types of claims which the lawsuit involves and the amount of time the provision allows for asserting them. The contractual limitation period is generally measured against a reasonableness standard. Moreno, 106 Cal.App.4th at 1430, 1438-39; Charnay v. Cobert (2006) 145 Cal.App.4th 170, 183.
In the area of employment rights, these provisions have not fared well in California state court, but have been more accepted in the federal courts of this State. See, e.g., Martinez, 118 Cal.App.4th at 117–118 (provision shortening employee’s time to sue employer to six months after employment ended held not enforceable where normal statute of limitations was 3 or 4 years for wage claims and 1 year for employment discrimination claim); Jackson v. S.A.W. Entertainment Ltd., 629 F.Supp.2d 1018, 1028-29 (N.D. Cal. 2009); Pellegrino v. Robert Half Int’l, Inc. (2010) 182 Cal.App.4th 87, 99, opinion superseded, review granted and held, remanded, Cal. Sup. Ct., S180849. Cf. Soltani v. Western &Southern Life Ins. Co., 258 F.3d 1038 (9th Cir. 2001) (upholding six month limitation period); Perez v. Safety-Kleen Systems, Inc., 2007 WL 1848037 (N.D. Cal. June 27, 2007) (same).
The reason behind some courts’ refusal to enforce these provisions in employment agreements is the strong public policy of California, which protects employment rights. For example, provisions of the Labor Code expressly prohibit any diminishment of employee rights through contract. Lab. Code §219 (“. . . no provision of this article can in any way be contravened or set aside by a private agreement, whether written, oral, or implied.”); Lab. Code § 1194 (“Notwithstanding any agreement to work for a lesser wage, an employee receiving less . . . is entitled to recover. . . “).
In the area of commercial leases, these provisions have fared better. Several cases affirm the validity of clauses shortening the tenant’s time to sue. One case involved a 3 month contractual limitation period, Capehart, 206 Cal.App.2d at 388, 391, and another upheld a 6 month limitation period, West v. Henderson (1991) 227 Cal.App.3d 1578, 1581.
However, in residential transactions, the results may be different. One illustration of this is Moreno v. Sanchez (2003) 106 Cal.App.4th 1415. There, the Court of Appeal held that a home inspector’s contract which limited the homebuyer’s right to sue him more than one year after the inspection, was enforceable with some qualification. The Court highlighted the nature of the transaction and “special relationship” between these parties. The plaintiffs were homebuyers who needed the skill and expertise of the inspector to evaluate the home. The Court noted, it would be difficult for an ordinary person to recognize hidden flaws in a home, or a mistake by the inspector.
In such cases, courts traditionally have applied the “delayed discovery” rule, which suspends the running of a statute of limitations until the plaintiff “reasonably should have discovered” the injury. The Moreno court applied the rule and held the contract’s one-year limitation period was subject to the rule.
Weatherly v. Universal Music Publishing Group (2004) 125 Cal.App.4th 913, 918-20, cited Moreno and determined the delayed discovery rule also impacts a limitation period of a contract, when fraudulent representations are involved. The one-year period for claims established in a royalty agreement between a songwriter and music publisher, was subject to this rule. Cases like these demonstrate that courts view a limitation period in a contract as subject to the same exceptions governing statutes of limitations created by the Legislature.
While parties generally may agree to shorten the time limit for bringing claims, the time limits must be “reasonable”. Regarding what is reasonable, the cases vary. In Resurgence Financial, LLC v. Chambers (2009) 173 Cal.App.4th Supp. 1, a provision in a credit card agreement which effectively shortened California’s 4 year statute of limitations for breach of written contract, to 3 years under Delaware law, was held reasonable. In commercial leases, shorter periods of 3 and 6 months have been upheld. Capehart, 206 Cal.App.2d 386; West, 227 Cal.App.3d. Also, section 2725, subdivision (1) of the Commercial Code allows UCC “merchants” to reduce the 4 year statute of limitations for breach of contract to one year.
By contrast, in Charnay, 145 Cal.App.4th at 182-83, the Court stated a provision in a retainer agreement, giving a client 10 days to dispute invoices, would be “inherently unreasonable” if viewed as the limitations period for all claims by the client against the attorney. Ten days is too short a time.
To summarize, a contract provision reducing the statute of limitations will stand a better chance of enforcement when the plaintiff is not asserting an important statutory right or invoking a claim with a strong public policy behind it. The provision must also allow a “reasonable” time for the filing of claims. Like other areas, the law continues to develop on the validity and limits of these provisions.
By Priya Bhatt
For more information, contact www.schorr-law.com, 310-954-1877, firstname.lastname@example.org.