Simon PLC Attorneys & Counselors – December 2025 Memorandum
Rayford v. American House Roseville I, LLC- A Narrow Carveout from Rory
Troy, Michigan – For over 20 years, Michigan courts have routinely applied the holding in Rory v. Continental Ins. Co., 473 Mich. 457 (2005) that an unambiguous contract must be enforced as written. In Rory, an insured brought an action for uninsured motorist benefits under an automobile insurance policy. However, the policy required that claims “must be brought within 1 year from the date of the accident.” While the court of appeals agreed with the trial court that a one-year period of limitations was unreasonable and that the statutory three year period should apply, the Michigan Supreme Court reversed. In emphatic language, the Court held that “an unambiguous contractual provision providing for a shortened period of limitations is to be enforced as written unless the provision would violate law or public policy. ”The Court also held “[t]o the degree that [prior cases] abrogate unambiguous contractual terms on the basis of reasonableness determinations, they are overruled.” Id. The Rory Court in so holding found that a “fundamental tenet of our jurisprudence is that unambiguous contracts are not open to judicial construction and must be enforced as written.” Rory, 473 Mich at 468 (citing Harrington v Inter-State Business Men’s Accident Ass’n, 210 Mich 327; 178 NW 19 (1920); Indemnity Ins Co of North America v Geist, 270 Mich 510; 259 NW 143 (1935); Cottrill v Mich Hosp Serv, 359 Mich 472; 102 NW2d 179 (1960); Henderson v State Farm Fire & Cas Co, 460 Mich 348; 596 NW2d 190 (1999); Cruz v State Farm Mut Auto Ins Co, 466 Mich 588; 648 NW2d 591 (2002)). Rather than imposing their own views of the terms the parties should have agreed on, courts should enforce contracts according to their unambiguous terms because doing so respects the freedom of individuals freely to arrange their affairs via contract. Id. Courts has previously noted that “[t]he general rule [of contracts] is that 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.” Rory, 473 Mich at 468-469, quoting Terrien v Zwit, 467 Mich 56, 71; 648 NW2d 602 (2002) When a court abrogates unambiguous contractual provisions based on its own independent assessment of “reasonableness,” the court undermines the parties’ freedom of contract. without regard to judicial perceptions of “reasonableness” or the purported adhesive nature of the contract. Id. The Court further held that the policy did not violate law or public policy as such policies were required to be filed and approved by the Commissioner of Insurance.
Twenty years later in Rayford v. American House Roseville I, LLC, Docket No. 163989. Argued April 9, 2025 (Calendar No. 1) and decided July 31, 2025, the Michigan Supreme Court held that contractually shortened limitations periods in adhesive, non-negotiated employment agreements must undergo judicial scrutiny for “reasonableness” before enforcement. In Rayford, defendant hired plaintiff, a certified nursing assistant, in February 2017. Approximately one week after beginning her employment, plaintiff signed an “Employee Handbook Acknowledgement” (the Acknowledgment), which provided a limitations period of 180 days for bringing any claim or lawsuit arising out of plaintiff’s employment. Plaintiff alleged that a few months after beginning her employment, she reported inappropriate behavior she had witnessed between upper management and nursing assistants to defendant’s human-resources division and the state of Michigan and that after doing so, plaintiff’s manager retaliated against her in several ways. Plaintiff brought her complaint in April 2020, and defendant moved for summary disposition, arguing that plaintiff’s claims were barred by the 180-day limitations period in the Acknowledgment. Plaintiff countered, in part, that the Acknowledgment was unenforceable as an unconscionable contract of adhesion. The trial court initially dismissed her claims as time-barred under the contractual limit. And the Court of Appeals affirmed, relying on precedents like Rory and Clark v. DaimlerChrysler Corp. (268 Mich App 138 (2005)), which enforced such clauses absent unconscionability. Rayford appealed to the Supreme Court, which granted leave and ultimately reversed, remanding for further fact-finding on the clause’s reasonableness. In so remanding, the Supreme Court looked at the contract at issue- an adhesion contract. An adhesion contract is defined as “[a] standard-form contract prepared by one party, to be signed by another party in a weaker position, such as a consumer, who must essentially either accede (adhere) to the terms or not have a contract at all.” Black’s Law Dictionary (12th ed), p 405. While the Court had not adopted one singular definition of “adhesion contract,” their focus was consistently on the bargaining power between the parties” especially in an employment setting. The Court found that the earliest case on the topic quoted the California Supreme Court, which noted that an “adhesion contract . . . entered into between two parties of unequal bargaining strength, expressed in the language of a standardized contract, written by the more powerful bargainer to meet its own needs, and offered to the weaker party on a ‘take it or leave it basis’ carries some consequences that extend beyond orthodox implications. Obligations arising from such a contract inure not alone from the consensual transaction but from the relationship of the parties.” See Zurich Ins Co v Rombough, 384 Mich 228, 232233; 180 NW2d 775 (1970), quoting Gray v Zurich Ins Co, 65 Cal 2d 263, 269; 419 P2d 168 (1966). Due to the power dynamics of the parties in an employment setting, the Court found itself in a position in which they believed they should utilize their equitable power to prevent what they perceived as abusive contractual practices.
Notwithstanding, the Court’s perception of adhesion contracts, they fell short of ruling such provisions as unenforceable and acknowledged that such provisions may also be enforceable depending on the facts of the case. Moreover, before ruling in favor of the plaintiff, the Court acknowledged Rory’s teaching that, “[w]hen a court abrogates unambiguous contractual provisions based on its own independent assessment of ‘reasonableness,’ the court undermines the parties’ freedom of contract.” However, the Court went on to hold the language in Rory to be nonbinding dicta because that Court was not purporting to adjudicate the enforceability of shortened limitations periods in employment agreements. Chief Justice Megan Cavanagh’s opinion, while concurring with the majority in Rayford, took issue with the majority’s nonbinding dicta holding, explaining persuasively that the language in Rory was not dicta but rather applicable to all agreements. In all other respects, Justice Cavanagh agreed with the majority.
The Rayford Court in remanding the case to the trial court for additional fact finding to determine the “reasonableness” of a shortened statute of limitations did not change the long standing precedent set forth in Rory but rather as Judge Cavanagh explained created a narrow carveout from Rory’s holding on adhesion contracts that shortened the statute of limitations on certain claims for those in the employment context as an employee and employer do not necessarily deal at arm’s length when negotiating contract terms.
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Melgene Castillo Shoemake
Senior Attorney
Steven A. Morris
Partner
