The Minnesota Supreme Court offered a reminder to employers in its February 3, 2021 decision, Hall v. City of Plainview: carefully draft your employee handbooks and follow your own policies. If the handbook contains ambiguous disclaimers and concrete compensation policies, it can be enforced against the employer as a unilateral contract.
****
At the time the City of Plainview terminated Donald Hall in 2017, Hall had accrued over 1,700 hours of unused paid time off (“PTO”). Hall demanded payment of his accrued PTO. The City denied his request, claiming (among other things) that it did not have a contractual obligation under its handbook to pay his accrued PTO.
The handbook introduction contained a disclaimer that the handbook “is not intended to create an express or implied contract of employment….” The handbook section on PTO stated that unused PTO would not be paid unless the employee gave “sufficient notice,” meaning 14 days’ written notice.
Hall filed suit against the City alleging breach of contract and other claims. The district court granted the City’s motion to dismiss the contract claim. Hall appealed. The Court of Appeals affirmed, holding that the disclaimer language was sufficient to conclude that an enforceable contract did not arise.
The Minnesota Supreme Court granted Hall’s petition for review and considered two questions related to the contract claim: 1) whether the handbook created a unilateral contract for payment of PTO; and 2) whether the handbook’s general disclaimer language was enforceable to defeat Hall’s contractual claim for payment of PTO. As to the first question, the Court concluded that the handbook provision regarding PTO was a unilateral contract because the terms were definite; the terms were communicated to the employee; the offer was accepted; and consideration was given. See Pine River, 333 N.W.2d 622 (Minn. 1983). The Court rejected the City’s argument that two “general statements of discretion and modification” outside the PTO section of the handbook meant that the terms of the PTO section were not definite.
As to the second question, on an issue of first impression, the Court concluded that the disclaimer language in the handbook did not unambiguously preclude finding an enforceable contract that required the City to pay Hall’s accrued PTO to the extent required by the PTO policy. The City argued that its express disclaimer was clear such that no provision of its handbook was a contract. Effectively, the City claimed that nothing in the handbook was binding on the City.
The Court concluded that the disclaimer language was aimed at preserving the City’s right to terminate an employee at will; it was not relevant to a claim for unused PTO. The modification provision was more general and stated the handbook was intended “to establish a uniform and equitable system of personnel administration” which “should not be construed as contract terms.” The Court held this language was ambiguous as to its applicability to the PTO policy in the context of the entire handbook and the City’s relationship with its employees. The Court concluded that if the City wanted to preserve its right to withhold PTO compensation after an employee had performed work while the PTO policy was in place, the handbook language should have been “more precise and clear about that intent.” The Court determined that a fact-finder would have to discern the impact of the handbook’s general disclaimer.
The Court noted that “[a]n ordinary Minnesota employee who is provided with a detailed PTO policy….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” in the manner stated in the policy.
****
The Court offered guidance to employers for avoiding claims of contractual rights under their handbook terms: “well-drafted, specific, disclaimers can prevent the formation of contractual rights stemming from employee handbook provisions, including provisions concerning PTO.” The takeaway for employers from Hall is that if an employee handbook contains provisions about how the employer handles compensation, the employer must follow the handbook provisions. Employers should carefully review and update their handbook disclaimer language. If an employer seeks to rely on disclaimer language in its handbook, the language must be crafted in a manner that is specific and incorporated into the compensation policy itself, rather than broadly applicable across the entire handbook.
Arthur Chapman’s Employment Law team is ready to assist in reviewing the disclaimer language of your employee handbooks, and recommending updates to help prevent contractual claims such as those in Hall v. City of Plainview.
