The Michigan Supreme Court recently issued an opinion reinstating a principle of law that had been rejected more than 25 years ago because that idea (that courts should review contracts for reasonableness) undermined an“ancient and irrefutable” principle of contract law, namely that contracting parties “are generally free to agree to whatever they like, and, in most circumstances, it is beyond the authority of the courts to interfere with the parties' agreement.” Wilkie v Auto-Owners Ins Co, 469 Mich 41, 51-52 (2003); see also Terrien v Zwit, 467 Mich 56, 71 (2002) (“competent persons shall have the utmost liberty of contracting and that their agreements voluntarily and fairly made shall be held valid and enforced in the courts”); and Rory v Continental Ins Co, 473 Mich 457, 468 (2005) (“[a] fundamental tenet of our jurisprudence is that unambiguous contracts are not open to judicial construction and must be enforced as written.”)

The decision from Rayford v American House Roseville I, LLC, No 163989 (Mich Sup Ct, Jul 31, 2025) could have a far-reaching impact on the interpretation and analysis of contracts in general – or it actually might be quite limited in its scope and restricted to the specific facts and circumstances of particular case – or it could be seen as simply affirming a principle of contract law that also has been consistently recognized in this state (that all contracts are subject to closer scrutiny if a traditional contract defense applies).

At issue in Rayford was whether a limitation of actions clause in a pre-printed employment agreement, which the plaintiff had signed one week after starting work for the defendant, could be enforced to prevent her from filing a civil rights lawsuit past the contract deadline. While the Court did not issue a blanket prohibition against such clauses, the opinion does call into question whether a contract under these circumstances (a pre-printed boilerplate contract signed after the start of an employment relationship restricting the ability to pursue substantial rights) is reasonable and enforceable.

The facts referenced in the decision are relatively straightforward: The defendant hired the plaintiff for an entry-level position in its nursing care facility. About a week after starting her job, the defendant had the plaintiff sign an acknowledgment form, included in an employee handbook, which provided, among other things, that any claim or lawsuit against the defendant had to be filed within 6 months after the incident giving rise to such claim.

The plaintiff alleged that, shortly after beginning her employment, and after she had been promoted to a supervisor position, she was the subject of unlawful discrimination based on harassment, retaliation, and a hostile work environment, as prohibited by MCL 37.2101 (the Elliott-Larsen Civil Rights Act). The opinion is unclear as to when these events took place, but, after being accused by the defendant of engaging in criminal conduct (the charges were later dropped due to a lack of evidence), the plaintiff was fired about 5 months after her start date.

She filed suit well after the contract-imposed time limit, and just 3 months prior to the statutory deadline in MCL 600.5805(2), which the Court noted is the statute of limitation applicable to the ELCRA, citing Garg v Macomb Co Community Mental Health Servs, 472 Mich 263, 284-285 (2005) (“[A] person must file a claim under the Civil Rights Act within three years of the date his or her cause of action accrues . . . ‘[T]hree years' means three years. An employee is not permitted to bring a lawsuit for employment acts that accrue beyond this period, because the Legislature has determined that such claims should not be permitted.”)

The Court's specific problems were that the limitation of actions clause was included in a boilerplate agreement, which was signed, according to the majority opinion, under circumstances in which the plaintiff had no choice but to accept those terms. The Court also noted that the contractual limit infringed on a legally protected right to be free from discrimination (i.e., the ELCRA), and, consequently, these type of contract clauses must be analyzed for reasonableness, and whether other contract defenses, such as unconscionability, apply.

With respect to its reasonableness anaysis, the Court reinstated the decisions in Camelot Excavating Co, Inc v St Paul Fire & Marine Ins Co, 410 Mich 118 (1981) and Herweyer v Clark Hwy Servs, Inc, 455 Mich 14 (1997) (which had been overruled by Rory, 473 Mich at 490), finding that a shortened time limit must allow a sufficient opportunity to investigate and file an action, that the claim cannot be effectively barred before a loss can be determined, and, similarly, that the limited period for filing suit cannot be so short that it is, in practical effect, a complete ban on the right to file suit.

The Court also (strongly) suggested that the contract clause might be unconscionable, which is generally understood as the circumstance in which one contracting party lacks a meaningful choice on whether to accept a contract term or not and the terms are unreasonably favorable to the other party. The Court noted that, to establish unconscionability, a plaintiff must prove there was no realistic alternative to accepting the contract (procedural unconscionability) and that the “inequity” of the challenged contract provision was “shock[ing to] the conscience of the court” (substantive unconscionability). The Court cited to Gillam v Mich Mortg Inv Corp, 224 Mich 405, 409; (1923), Styninger v Courtright, 229 Mich 399, 403-404 (1924), and Allen v Mich Bell Tel Co, 18 Mich App 632, 637-638 (1969) as support.

The Court's decision should be understood in the context of the basic contract principles which form the well-established law of this state. For instance, the concept that competent persons “have the utmost liberty of contracting and that their agreements voluntarily and fairly made shall be held valid and enforced in courts,” is a fundamental rule of law. Kendzierski v Macomb Co, 503 Mich 296 (2019). If a contract is not ambiguous, the interpretation and enforcement of that agreement “begins and ends with the actual words” in that agreement. Ingham Co v Michigan Co Rd Comm Self-Ins Pool, 508 Mich 461, 477 (2021). The Courts' primary obligation is to give effect to the parties' intention at the time they entered into the contract as expressed by the plain meaning to the words and phrases the parties chose to include in their contract. Meemic Ins Co v Jones, 509 Mich 333, 347 (2022). This is important (interpreting contracts as written), because the words of the contract are deemed to reflect the contract's intent as a matter of law. Quality Prods & Concepts Co v Nagel Precision, Inc, 469 Mich 362, 375 (2003). In fact, even when a contract impacts a significant right, the terms are generally enforced not only because the written word is deemed to reflect the actual intent of the parties, but because contracting parties are required to read and understand what they are signing before they consent to an agreement. Scholz v Montgomery Ward & Co, 437 Mich 83, 92 (1991). Underlying these principles is the basic fact that contracts are a serious matter, and the parties “must be able to rely on their agreements.” Macomb Co v AFCSME Council 25, 494 Mich 65, 80 (2013). 

Because the Rayburn decision does not call into question these basic tenets of our contract law, and a contracting party is still free to identify the only terms under which that party will agree to contract, Wilkie, 469 Mich at 61, that opinion should not be referenced as some means to avoid any contract, voluntarily made, on the mere suggestion raised after-the-fact, that a part of the contract is unreasonable. In fact, application of the decision probably should be limited to employment contracts, and probably situations in which a significant public policy or protected right, whether constitutional or legislatively created. This appears to be the exact intent of the opinion because the majority expressly said so, namely that the analyses from Camelot and Herwyer, on which the Rayburn Court relied, provide “the correct framework for reviewing contractually shortened limitations periods contained in boilerplate employment agreements.” Otherwise, the Courts will be called on to decide whether any contract is reasonable just because one of the contracting parties later decides that it would be advantageous to challenge the contract in an effort to avoid its obligations.

The Rayburn Court could have reached the same decision (that this contract should be examined in more detail before foreclosing the plaintiff's right to pursue a civil rights claim) without upending the analysis from Rory (which it did not overrule), and without resurrecting a doctrine which essentially calls on the Courts to second-guess the motivations of contracting parties, in hindsight, and in situations where “disappointed parties . . . have a great incentive to describe circumstances in ways that escape the explicit terms of their contracts." UAW-GM Human Resource Center v KSL Recreation Corp, 228 Mich App 486, 492 (1998).

While contracts generally are enforced as written, Hunt v Drielick, 496 Mich 366, 376 (2014), the Courts still can intervene if there is an applicable defense or other reason not to enforce the contract, such as the existence of unconscionability, duress, fraud, waiver, estoppel, or public policy violations. See Rory, 473 Mich at 470 n 23; and Epps v 4 Quarters Restoration LLC, 498 Mich 518, 537, 540-541 (2015). The Courts have long recognized that additional analysis of a contract when a traditional contract defense might apply is necessary to “ ‘allow[] complete justice to be done in a case by adapting [our] judgments to the special circumstances of the case.' ” Bazzi v Sentinel Ins Co, 502 Mich 390, 411 (2018), quoting Tkachik v Mandeville, 487 Mich 38, 45-46 (2010).

As such, all contract terms, whether included in an adhesion contract, or presented as a pre-printed or boilerplate form, or in a document reached after arms-length negotiations between parties of similar bargaining power, are always subject to a  determination as to whether the contract was the subject of fraud, undue influence, or whether the contract violates some law or public policy. Andary v USAA Cas Ins Co, 512 Mich 207, 227 (2023); DeFrain v State Farm Mut Auto Ins Co, 491 Mich 359, 373-374 (2012); Rory, 473 Mich at 470. In this regard, the Rayburn opinion actually seems to be only a re-affirmation of the principle that, if a traditional contract defense applies, then further scrutiny should be expected.

Perhaps it was unreasonable for the defendant to hire the plaintiff first and then require her to sign away rights, even rights of which she was explicitly informed (in bold type and capital letters), because, once having accepted a position with the defendant, she probably was not in the best position to quit and find another job (the dissent notwithstanding, which noted that she obviously had marketable skills, having been promoted so soon after her hire, and that she was not without options), but this does not mean that the Courts should step in and determine the reasonableness of every kind of contract based on one party's dissatisfaction with the consequences of their decision.

In this regard, the opinion should not be understood as a blanket prohibition of certain contract clauses, like a shortened limitation of actions clause, even in the employment context, because the Court did not find such clauses, or, indeed, any contract clause, per se unenforceable. As such, the importance of knowing and understanding a contract before signing the agreement remains as a basic standard of contract law and cannot be overstated. The parties at the outset of a contract relationship are in the best situation to decide for themselves and to determine what is reasonable and makes sense to include as their accepted terms rather than relying on the Court to make that decision for them. Because these principles remain as the foundation for contract law, the Rayburn decision should not be considered as an invitation for the Courts to step in when one party wants to get out of a freely made contract. Rather, the opinion appears to be more of an explanation as to the analysis to follow when there is sufficient evidence that a contract defense is applicable.