Many employee handbooks have a general disclaimer that “nothing contained herein creates a contract” (hereinafter, the “No Contract Disclaimer”). In Hall v. City of Plainview, 954 N.W.2d 254 (Minn. 2021) the Minnesota Supreme Court evaluated this disclaimer and answered the following questions:
- Does a No Contract Disclaimer prevent an employee handbook from ever being an enforceable contract between the employer and employee?
- Does Minn. Stat. § 181.13(a) create a substantive right to payment for unused PTO irrespective of an employer’s policy?
This article reviews the Hall court’s answers to these questions and identifies key information employers should take from the case to improve their employee handbooks and termination practices.
Hall v. City of Plainview
Donald Hall was a 30-year employee with the City of Plainview. He had 1,778.73 hours of unused paid time off (PTO) when Plainview fired him. Following his termination, he made a written demand for payment of all unused PTO. Plainview rejected his demand, citing its PTO policy required 14-days’ notice of resignation of employment to receive a PTO payout. Mr. Hall disagreed, arguing Plainview’s Personnel Policies and Procedures Manual (hereinafter, “Handbook”) was a valid contract that required payment. He sued the city for breach of contract and violation of Minn. Stat. § 181.13(a).1 The district court dismissed these claims finding Plainview’s Handbook contained a No Contract Disclaimer and Minn. Stat. § 181.13(a) was inapplicable. The Minnesota Court of Appeals affirmed. Mr. Hall appealed to the Minnesota Supreme Court.
A. Plainview’s No Contract Disclaimer and PTO Policy.
Plainview’s Handbook contained, in relevant part, the following No Contract Disclaimer in its introduction:
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. . . [and] is not intended to create an express or implied contract of employment between the City of Plainview and an employee. The Personnel Policies and Procedures Manual does contain language dealing with the grievance procedure, employee discipline or termination which the City may choose to follow in a particular instance. These provisions, however, are not intended to alter the relationship between the City as an employer, and an individual employee, as being one which is “at will”, terminable by either at any time for any reason.
Hall, 954 N.W2d at 258. Plainview’s PTO policy outlined accrual, use, and payment. Up to 500 hours of unused PTO would be paid upon termination of employment “for any reason . . . unless the employee did not give sufficient notice as required by the policy.” Id. The policy did not specifically define “sufficient notice.” But the Minnesota Supreme Court deduced the notice referred to the Handbook’s policy that employees failing to submit at least 14-days’ notice of resignation may be denied leave benefits. Id.
B. The Minnesota Supreme Court Answers “No.”
1. No – A No Contract Disclaimer is Not Blanket Protection Against an Employee Handbook Forming an Employer-Employee Contract.
The concept that an employee handbook can create an enforceable unilateral employment contract is not new. A unilateral contract requires an offer to provide something of value for the performance of act(s) and the acceptance of that offer by the other party performing all or some of those acts.2 In 1983, the Minnesota Supreme Court explained in Pine River State Bank v. Mettille that a handbook policy constitutes an offer when it contains definite terms promising something of value in exchange for the employee’s work.3 Acceptance of and consideration in exchange for the offer, thereby forming an enforceable contract, occurs when the employee performs the work, relying on the employer’s promise.
Because Plainview’s policy outlined PTO accrual, use, and payment clear enough for the court to discern the city’s promise to its employees and identify when the promise was breached, it constituted an offer. Thereafter, Mr. Hall’s continued performance of work to accrue PTO was his acceptance of and consideration for the PTO. Thus, an enforceable contract regarding PTO was formed despite the No Contract Disclaimer. The court found the disclaimer was too general to apply to the detailed PTO policy. Rather, the disclaimer only disclaimed the formation of a contract altering employment status given references to grievance, termination, and discipline policies in the disclaimer. Finding the existence of an enforceable contract, the Minnesota Supreme Court reversed the dismissal of Mr. Hall’s breach of contract claim and remanded the claim to district court for determination of whether Mr. Hall was entitled to payment for unused PTO under the contract.
2. No – Minn. Stat. 181.13(a) Did Not Create Substantive Rights
to Accrued PTO.
Mr. Hall’s claim regarding Minn. Stat. § 181.13(a) was based on his belief that irrespective of the formation of a contract, paid leave benefits are compensation that constitute wages under the statute. The court’s rejection of this argument is consistent with its decision in Lee v. Fresenius Medical Care, Inc., 741 N.W.2d 117 (Minn. 2007). There the court stated the statute “does not itself create a substantive right to vacation pay,” rather it determines the time period for which any payment must occur following a demand. Id. Currently, no statute or Minnesota law or case requires an employer to provide paid leave. Thus, a right to compensation for the vacation or in lieu of the taking vacation can only be created by contract.
Applying this precedent to Mr. Hall’s case, the court explained Minn. Stat. § 181.13(a) is only applicable to Mr. Hall’s demand if he met the conditions under the PTO policy (the contract) entitling him to payment. The Minnesota Supreme Court reversed the lower courts’ dismissal of and remanded the claim to district court for determination. If on remand the district court finds Mr. Hall had a right to payment for any of his unused PTO hours, Plainview will be liable for payment of the PTO hours, penalties under Minn. Stat. § 181.13(a), and Mr. Hall’s attorney’s fees and costs.
Considerations for Minnesota Employers
1. Use Specific Disclaimers in Employee Handbooks.
The Hall decision should remind employers not to rely on general No Contract Disclaimers. Question whether any policy in the handbook amounts to more than a general statement. Does the policy contain definite terms from which a court can identify the employer’s promise to the employee and determine whether that promise was fulfilled? If yes, the employer should consider whether the policy should be revised or accompanied by a more-detailed disclaimer of what happens upon termination or disciplinary action.
2. Paid Leave Policies Should Identify All Conditions for Payment.
Plainview’s PTO policy limited the amount of unused PTO hours that could be paid out and the requirements for an employee to be eligible for payment. These conditions will help minimize liability in some instances. Employers should consider including similar limitations and conditions in their policies, such as the following: (a) stating unused PTO has no cash value and employees are not entitled to any payment in lieu of taking time off; (b) limiting payment to employees providing written notice of termination, without mandating such notice;4 and (c) stating the circumstances under which unused PTO is forfeited (e.g. annually, upon termination).
3. Do Not Forget Unused PTO When Responding to Minn. Stat. § 181.13(a) Demands.
Before responding to a Minn. Stat. § 181.13(a) demand for wages, employers should review their paid leave policies to determine if the employee has a right to payment for unused PTO. If a right exists, payment should be made in the time required by the statute.
This information is general in nature and should not be construed for tax or legal advice.
2 See Cederstrand v. Lutheran Brotherhood, 117 N.W.2d 213, 220-21 (Minn. 1962).
3 333 N.W.2d 622, 626-27 (Minn. 1983).
4 Employers are encouraged to consult with an attorney when implementing such a policy to ensure they are not altering the employment at will-status by mandating advance notice of termination.