Minnesota state law has never had a requirement for employers to offer paid time off, much less pay out paid time off upon a separation from employment. But since the Minnesota Supreme Court’s 2007 decision in Lee v. Fresenius Med. Care, employers that had a PTO policy in place had to at least follow their own policy. 741 N.W.2d 117 (Minn. 2007). That decision, and related decisions elsewhere, led many employers to include disclaimers in their policies stating that the policies did not create any binding agreement and that the employer was free to change the policy and benefits at any time.

Going forward, employers may have to do a lot more than include simple disclaimers to avoid liability for benefits stated in employment policies. In early February, the Minnesota Supreme Court held, in Hall v. City of Plainview, No. A19-0606 (Minn. Feb. 3, 2021), that an employer’s PTO policy in an employee handbook could still be an enforceable contract with respect to the PTO policy even when the handbook contained a disclaimer that it was not a contract.

The relevant portion of the PTO provision in Hall provided that “[w]hen 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.”  Another section of the Handbook required a 14-day advance notice period for resignation, or else the employee would not be “in good standing,” which “may be considered cause for … denying leave benefits.” 

The disclaimers in that Handbook 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 Handbook went on to state that it “is not intended to create an express or implied contract of employment between the City of Plainview and an employee.”

In the Hall case, the City terminated an employee who had accrued 1,778.73 hours of unused PTO. Prior to termination, the City offered for the employee to “voluntarily” resign with the required amount of notice and then receive payment for up to 500 hours of his accrued PTO. The employee refused to resign, and the City terminated employment, relying on the “lack of notice” language in the Handbook to deny payment of any unused PTO. The employee sued.

The majority opinion for the Court determined that the disclaimers were ambiguous and the particular PTO policy at issue in Hall may be definite enough to constitute a contract. It remanded for further proceedings in district court. In a dissent, the Chief Justice correctly noted that the majority’s decision will create more uncertainty regarding when such policies constitute enforceable agreements or can be changed or even disregarded by employers. But the implications are clear.

Contact Michael Gavigan if  you have been denied pay or other benefits you have earned under your employer’s policy, or if you are an employer who wants to review your current handbook standards to avoid an unwelcome surprise.    A little diligence today could protect against significant risks in the future.