The Minnesota Supreme Court recently released an opinion that has a significant impact on employers and their obligations under employee handbooks.
This case stems from an employer’s refusal to pay a terminated employee’s accrued paid time off (“PTO”). Donald Hall (“Hall”) was terminated by the City of Plainview (“the City”) from his position as manager of its municipal liquor store, where he had worked for 30 years. During this time, Hall accumulated 1,778.73 hours of unused PTO.
Prior to Hall’s termination, the City offered Hall the opportunity to voluntarily resign from his position, and if he did so, the City would pay 100% of his PTO, up to 500 hours. Hall declined the offer, and his employment was terminated by city council vote. Following his termination, the City refused to pay Hall the accrued PTO, claiming Hall failed to provide sufficient notice in accordance with the requirements of the City’s employee handbook (“the Handbook”).
Hall filed a lawsuit alleging: (1) breach of contract, (2) violation of Minn. Stat. § 181.13, and (3) unjust enrichment. At the trial court level, the judge dismissed Hall’s contract and statutory claims, but Hall’s unjust enrichment claim survived. Hall appealed the district court’s dismissal of his contract and statutory claims, and the court of appeals affirmed, finding that the disclaimer language in the Handbook was “substantially similar to disclaimer language in other cases…in which [the court of appeals] has concluded that an enforceable contract did not arise.” The court also noted that, as to Hall’s statutory claim, an employment contract must exist to recover under section 181.13(a) for an employer’s failure to pay accrued PTO.
The Minnesota Supreme Court granted Hall’s petition to decide whether the Handbook met the requirements for formation of a unilateral contract, and whether the general disclaimer language in the Handbook meant the City was not obligated to pay Hall accrued PTO in accordance with the PTO provision set forth in the Handbook. This latter issue was a matter of first impression for the Court.
With two justices dissenting, the Court determined that disclaimer language in an employee handbook does not preclude a finding of an enforceable unilateral employment contract between an employer and an employee that obligates that employer to pay accrued PTO following the end of the employee’s employment. In other words, a policy within a handbook may be enforceable despite the fact that general disclaimer language in the handbook states that the handbook does not create a contract and may be changed at will.
The Court found the City had entered into a unilateral contract with Hall for payment of PTO. The governing law states that provisions in an employee handbook may constitute terms of an employment contract when: “(1) the terms are definite in form; (2) the terms are communicated to the employee; (3) the offer is accepted by the employee; and (4) consideration is given.” Hall, A19-0606, at *4 (citing Pine River State Bank v. Mettille, 333 N.W.2d 622 (Minn. 1983)). Here, the Handbook satisfied the definiteness requirement because the Handbook provided over one page of details on the City’s PTO program and laid out a procedure by which departing employees may cash out their PTO. The Court’s finding was strengthened by the fact that the City cited the Handbook’s terms regulating PTO when it initially denied Hall payment of his accrued PTO benefits.
The Court also held that the general disclaimer language in the Handbook did not affect Hall’s entitlement to payment for accrued PTO in exchange for the labor he provided to the City. In addition to its legal analysis, the Court cited policy reasons for its decision: “Common sense and fairness support this conclusion. An ordinary Minnesota employee who is provided with a detailed PTO policy that his employer follows when its employees leave, and who watches PTO accrue on his paycheck every pay period, would have a legitimate expectation that he would be paid for the earned PTO for the hours he worked.” The Court noted that a contrary ruling would allow employers to arbitrarily decide which employees would be entitled to payment of accrued PTO, therefore compromising the integrity of employee handbooks as a whole.
This opinion does not change the fact that it has always been important to implement a well-written employee handbook. However, this opinion signifies the urgency to consider updating current employee handbooks so employers are protected and employee expectations are clear at the beginning of the employer-employee relationship.
If you would like help updating your employee handbook or simply have questions regarding the impact this decision has on you, please contact Quinlivan & Hughes, P.A.