In a recent decision, Hall v. City of Plainview, the Minnesota Supreme Court held that a general contract disclaimer in an employee handbook did not prevent the formation of a contract with respect to a paid time off (PTO) policy within the handbook.
The underlying case arose when a terminated municipal employee sued the City of Plainview for 1,778.73 hours of accrued but unused PTO. The Court focused solely on whether the PTO policy formed a contract in spite of the broad disclaimer language at the beginning of the employee handbook.
Justice Paul Thissen, who wrote the February 3, 2021, opinion, found that the PTO policy at issue was sufficiently detailed to create a unilateral employment contract such that the employer would be obligated to follow its terms, which provided for payout of accrued PTO upon certain employment terminations. The Supreme Court then held that the general disclaimer language in the handbook’s introduction stating that it “was not intended to create an express or implied contract” was not sufficiently clear to disavow the more specific terms of the PTO policy.
Although Minnesota employers may be surprised by the result in light of previous case law legitimizing handbook disclaimers, it is consistent with the prevailing practical guidance that employers should follow the letter of their PTO policies, including those that have been drafted to comply with local ordinances pertaining to earned sick and safe time for employees in Duluth, Minneapolis and St. Paul.
However, Minnesota employers can take comfort that they are still not required to pay out accrued PTO (including accrued vacation or time off required to be provided under local sick and safe time ordinances) upon termination of employment. The Hall decision does not change this result, but it underscores the importance of clearly articulating that accrued PTO will not be paid out upon termination of employment, if that is the employer’s policy or practice. Employers should ensure that their PTO policies expressly and clearly state that accrued PTO will not be paid out at the cessation of employment. The best practice is to include this language within the PTO provision itself, rather than at the beginning or end of the handbook.
Minnesota employers should know that if an employee handbook contains provisions about how the employer handles compensation (such as PTO), the employer must follow the handbook provisions. Employers should carefully review and update their handbook disclaimer language, especially if an employer seeks to rely on disclaimer language to avoid the formation of contractual obligation. Disclaimer language must be crafted in a manner that is specific and must be incorporated into the compensation policy itself, rather than broadly applicable across the entire handbook.
Virtus Law, PLLC, is ready to assist in reviewing the disclaimer language in your employee handbooks, and recommending updates to help prevent contractual claims such as those in Hall v. City of Plainview.