Minnesota Supreme Court Finds Unilateral Contract After Employer Denies Employee’s Accrued PTO Payout

Like many public employers, the City of Plainview had a Paid Time Off (PTO) system where employees accrued time off to cover absences due to vacation or illness.  In its policy handbook, it described the procedure for employees who end their employment with the City:

When an employee ends their employment with the City, for any reason, 100% of the accrued unused personal leave time will be paid up to 500 hours, unless the employee did not give sufficient notice as required by the policy.

The City’s handbook stated that 14 days constituted sufficient notice, and that failure to comply resulted in a forfeiture of benefits.  On top of this, the City’s handbook included multiple disclaimers, stating that the handbook did not constitute a contract, either express or implied, and that all employees were considered at-will.

The plaintiff in Hall v. City of Plainview was a 30-year employee who was terminated from his position as the manager of the City’s municipal liquor store.  Prior to his termination, the City offered to allow him to resign and receive his 500 hours of PTO; he refused and was terminated.  The City refused to pay the employee any of his accrued PTO.  He then filed a complaint against the City for breach of contract, violation of Minn. Stat. §181.13, having to do with the prompt payment of wages upon termination, and unjust enrichment.

The claims for breach of contract and the statutory violation were both dismissed, and the unjust enrichment claim was settled outside of court.  Upon appeal, the court of appeals ruled that the disclaimer language was similar to language in other cases where it found that a contract did not exist.  The plaintiff appealed to the Minnesota Supreme Court, which granted review.

The first question to be answered was whether the City’s employment handbook created a unilateral contract, binding upon the City.  Generally, a promise of employment, in the form of an offer, if accepted by an employee, may create a binding unilateral contract.  In Minnesota, the provisions in an employee handbook can form the basis for a unilateral contract if all requirements for the formation of a contract are met.

In analyzing the City’s handbook in Hall, the court found that it contained “sufficiently definite terms” regarding the City’s PTO program to satisfy the requirements needed for a unilateral contract, and that the details included in the handbook amounted to more than a general statement of policy.

The Court then turned to the question of whether a “general disclaimer in an employee handbook stating that the provisions of the handbook are not intended to create a contract necessarily defeats the formation of a contract for every provision in the handbook.”  This was the first time the question had ever been addressed by the Minnesota Supreme Court.

In addressing the City’s disclaimer language, the Court found that the City’s first disclaimer was “aimed at preserving the City’s ability to terminate an employee at its sole discretion” and had no bearing on the payment of PTO.  The City’s second disclaimer stated, “the purpose of these policies is to establish a uniform and equitable system of personnel administration for employees of the City of Plainview.  They should not be construed as contract terms.”

The Court found that “this broad and general contract disclaimer language in the Handbook’s introduction, in the context of the entire Handbook and the relationship between the City and its employees, is ambiguous as to its applicability to the PTO policy.”  The Court found that the handbook itself was not a contract, but some provisions of the handbook, including the PTO provisions, formed a unilateral employment agreement.  The Court concluded that “(i)f the City truly wanted to preserve the right to withhold accrued PTO compensation from an employee after the employee had performed work for he City while the provision governing payment for accrued PTO was in place, it should have been more precise and clear about that intent.”

This is a major decision that impacts employers across the State of Minnesota.  For those who provide a description of employee benefits in their employee handbooks, it is now crucial for them to re-examine the language of their employment policies and handbooks and ensure that their disclaimers are specific and accurate, especially with regard to potential forfeiture of accrued paid time off.  Employers must be aware of the impact that any discussion of benefits in an employee handbook can have on their operations going forward.  This is a critical matter that should be addressed immediately.

We at the Wiley Law Office, are happy to work with all employers on fine-tuning employee handbooks and policies in order to adjust to this new precedent that will apply across the state.  If you or your organization need any assistance making sure your employee handbook is most beneficial to your business, contact the Wiley Law Office, for workplace handbook experience that works.