The Dirty Secrets They Don't Tell Employers About Tolling Agreements

Many employers first encounter a tolling agreement when it arrives with a demand letter, often under time pressure and without a clear explanation. Understanding what a tolling agreement does, and when signing one is strategically beneficial, is critical before responding

John Fagerholm, Managing Partner at DefendMyBiz, breaks this down further, explains why plaintiff attorneys use them, and outlines how he decides whether his clients should sign one.

What Is a Tolling Agreement and How Does It Work?

John explains the typical context:

"Typically, when a plaintiff-side attorney sends you demand letters threatening to sue you, what they'll do is they'll add a tolling agreement. They'll say something like, 'Here's everything we think you did wrong, here's all the records that we want, and here's a tolling agreement attached. Sign the tolling agreement and send it back to us, or we're going to file a lawsuit automatically.'"

A tolling agreement pauses the statute of limitations, temporarily stopping the deadline for filing a claim.

"Every claim, typically except for some things in criminal law, has a statute of limitations, which means that the claim has to be filed within a certain amount of time. With most labor-related things, it's three years. So, within three years of the harm, the plaintiff would have to file suit. Each passing day reduces the time available to file the claim."

By having the employer sign a tolling agreement, the plaintiff's attorney freezes the clock. They can pursue pre-litigation discussions, mediation, records requests, and settlement negotiations without burning through the time they'd otherwise spend on filing. If those discussions go nowhere, they still have their full window to sue.

Why Plaintiff Attorneys Request Tolling Agreements

John is direct about the attorney's motivation: "Attorneys that prefer to mediate prior to filing a lawsuit will want you to sign this tolling agreement so that they don't have to file the lawsuit and don't lose any time on the statute of limitations."

From the plaintiff's perspective, this is a low-risk request. They preserve all their options, avoid the cost and formality of filing, and keep the pressure on the employer without committing to anything. Employers, however, often respond under pressure without fully evaluating the implications.

"The demand letter freaks people out, too, but the tolling agreement seems to be the one that they say, 'Well, I'm not signing anything no matter what.'" John understands that instinct, but says the right answer isn't automatic either way.

When Refusing a Tolling Agreement May Make Sense

Sometimes John's response to a tolling agreement request is simple: don't sign it.

"Sometimes I just say no to the tolling agreement. I say, 'You know what, if you're going to file it, file it.' And that's because I look at the case and I don't think that mediation is going to help anyway."

If the facts are strong, the employer's documentation is solid, or the claim is weak enough that it won't survive litigation, there may be no reason to grant the other side additional time or flexibility. In these cases, allowing the claim to proceed to filing preserves the statute of limitations as a potential defense.

For employers who've already documented their position well, that confidence comes from having the records to back it up.

When Signing a Tolling Agreement May Be Strategic

The decision shifts when the case presents meaningful exposure or a realistic path to settlement.

John says:

"Sometimes, if I think it's a case that could settle in mediation, either my client has a lot of liability, or I know the attorney on the other side, or whatever the reasoning is, then I may say, 'Okay, sign it.' Because it's a lot less expensive to get rid of this in mediation than it is to respond to a lawsuit, start going through that process, and then end up in mediation six months later anyway."

In those situations, the tolling agreement is a cost-saving mechanism. Litigation is expensive. Discovery is expensive. If there's a realistic chance of settling before a complaint is ever filed, preserving that window has real financial value for the employer. "So basically what it does is save the client's attorney's fees."

The trade-off: "The drawback is that if a lawsuit is filed anyway, the statute of limitations hasn't run because of the tolling agreement. It doesn't matter how much time it took. The clock was paused."

So signing one doesn't just buy time for discussions. It also eliminates the possibility of a statute-of-limitations defense if the claim is filed after the statute of limitations has expired.

The Bottom Line: A Strategic Decision, Not an Automatic One

John's core message is that the decision to sign or refuse a tolling agreement isn't a legal formality. It's a strategic call that depends entirely on the specific case.

"It's all over the place. But hopefully at least you kind of understand what a tolling agreement is at this point because that seems to be the document that freaks people out."

If you've received a demand letter with a tolling agreement attached, the worst response is a reflexive one in either direction. Signing without understanding what you're agreeing to gives the other side time and flexibility they'd otherwise have to earn. Refusing without evaluating the case could trigger a lawsuit that mediation might have resolved for a fraction of the cost.

The right answer depends on the facts, the claim, the attorney on the other side, and your documentation.

For more on how pre-litigation demand letters typically unfold and what they signal about the case ahead, our posts on PAGA notices and defending high-stakes overtime litigation cover the patterns John sees most often.

Watch John's full breakdown below:

Don't Let a Demand Letter Force a Reflexive Decision

A tolling agreement pauses the statute of limitations, giving both sides more time to negotiate. Whether to sign depends on your exposure, the strength of the claim, and whether early resolution is likely to reduce costs.

Demand letters are designed to create urgency, but the response should be deliberate.

If you've received a demand letter with a tolling agreement, DefendMyBiz works with employers to assess exposure and determine the most strategic response before taking action. Schedule a free 15-minute consultation.

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Disclaimer: The above content is for informational purposes only. This is not legal or tax advice. Laws, IRS guidance, and withholding requirements can change, and outcomes depend on specific facts. You are advised to contact a qualified attorney for any legal advice.