Minnesota Supreme Court Rules on Workplace Handbook Policies

April 16, 2021  |  Scott M. Lepak

Authored By Scott M. Lepak and Claire Schmitz

The Minnesota Supreme Court recently announced two important holdings in Hall v. City of Plainview regarding workplace handbook policies. First, the Court determined that general disclaimers in employee handbooks (generally at the front of personnel handbooks or manuals) do not automatically apply to all provisions within the handbook, including compensation and severance policies. The second ruling was that the state law providing a penalty for failure to pay wages promptly did not create an automatic right to paid time off (PTO) on its own absent a binding contract present. Read on as we discuss the specifics of the Minnesota Supreme Court rulings on workplace handbook policies.

Background Facts

In 2017, the City of Plainview terminated an employee who had accrued unused PTO throughout 30 years of work. When the employee was terminated, the City refused to pay him the accrued PTO, citing the employee handbook. The City claimed he had not given “sufficient notice” per a policy in their handbook. This employment handbook also contained a disclaimer stating that the provisions within it “should not be construed as contract terms” and that it was “not intended to create an express or implied contract of employment between the City of Plainview and an employee.”

The employee sued the City for breach of contract, stating that the PTO policy was a contractual obligation and that the City violated Minn. Stat. § 181.13 when they refused to pay him. The Minnesota Supreme Court relied on the theory of unilateral contracts determined in Pine River State Bank v. Mettille to come to their decision. Pine River is notable for holding that “[A]n employee handbook may constitute terms of an employment contract if (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.” Using this definition, the Hall court ruled that the employee handbook created an offer for a unilateral contract. There was a specific procedure for cashing out PTO that the court found to be “more than general statements of policy; rather, they provide specific information and procedures by which employees may comprehend and take advantage of the City’s PTO program.”

The court determined that the handbook’s general disclaimer did not unambiguously mean that the employee did not have any contractual right to his unused PTO. Because the court determined that PTO is a form of compensation, the court rejected the City’s argument that this general disclaimer subverts the employee’s ability to accept the contract based on the compensation policy.

The court then looked at Minn. Stat. § 181.13(a) (providing a penalty for failure to pay wages promptly) and whether this statute created an independent right to PTO absent a contract between an employer and an employee. The court determined that this statute only created that right when a contractual right existed, it alone did not create an independent right to payment.

What Employers Should Do

In light of this decision, employers should review their handbooks for language that could unintentionally create a unilateral contract with their employees. To ensure it does not, employers should:

• Review employee handbook disclaimer to make sure that it is clear and specific that any policy within it does not create a contract. 
• Just putting a general disclaimer at the front of the handbook is not sufficient.
• Review handbooks to make sure that included policies are aligned with current practice.
• Put a disclaimer on every page of the handbook that it does not create a contract.
• Though Minnesota does not require employers to provide PTO, employers that choose to provide benefits such as these should ensure that the policies are clear and that they follow them.
• Include a “not a contract” specifically drafted disclaimer of all provisions in the handbook acknowledgement that employees sign.

If you have further questions or need more information on this matter, please contact Scott Lepak at 763-780-8500. 

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