Last week, the Minnesota Supreme Court issued a major employment law decision that will have significant impact on HR policies across the state. In Hall v. City of Plainview, the Court ruled that even where an employee handbook contains a general disclaimer stating that no parts of the handbook should be construed as a contract, provisions covering Paid Time Off (“PTO”) or other forms of compensation may still be binding against the employer, absent a more specific disclaimer.
Background: Employee Handbooks as Unilateral Contracts
While not all employee handbooks are binding contracts, in Pine River the Minnesota Supreme Court held that a handbook can form a unilateral contract if the terms are sufficiently definite, communicated to the employee, and accepted by the employee. An employee need not explicitly accept the terms in the handbook for it to be binding—by beginning to work after receiving the handbook they implicitly accept its terms if the terms are reasonable. Furthermore, portions of a handbook may be contractually binding even if other portions are not.
In search of more certainty regarding what constitutes a “sufficiently definite” contract, employers started including disclaimer language in employee handbooks stating that they do not otherwise create an enforceable contract to reduce the risk of their handbooks binding them. Until this case, most Minnesota courts seem to have taken these disclaimers at face value. However, Hall v. City of Plainview may change that paradigm.
Plainview’s Employee Handbook
The dispute in Hall centers around a provision in an employee handbook that allows a departing employee to be paid for up to 500 hours of their accrued PTO if they give sufficient notice of their departure. While there were factual disputes about whether the employee gave sufficient notice, the Minnesota Supreme Court focused on a more far-reaching question—whether specific language in an employee handbook regarding PTO can bind an employer despite a general disclaimer stating that no portions of the employee handbook formed a contract. The employer in Hall argued that the handbook’s disclaimer trumped any contrary language regarding an obligation to pay for accrued PTO.
In ruling in favor of the employee, the Minnesota Supreme Court focused on the fact that PTO is a form of compensation and ordinarily an employer cannot withdraw an offer of compensation to an employee once an employee has begun working. The Court reasoned 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 legitimate expectation that he would be paid for the earned PTO.” This makes PTO different from other portions of an employee handbook—such as rules governing termination or grievance procedure, which do not apply retroactively if modified. The Court also found the policies to be “sufficiently definite” under the Pine River test.
The Court however did not unequivocally forbid disclaiming of PTO rules in employee handbooks. Instead, the Court stated that had the handbook disclaimer specifically mentioned the PTO portions of the handbook, or if the PTO policy expressly noted that PTO would not be paid upon termination, the employer would win on this issue. So, if nothing else, the Court’s decision in Hall highlights the importance of precise drafting in HR documents and the pitfalls of imprecise language.
Implications of the Decision – Handbook Drafting Considerations
While it remains to be seen how broadly the court’s decision in Hall will be applied, it is clear that boilerplate disclaimers in employee handbooks may no longer shield a company from all of its provisions. The decision also highlights the special nature of compensation in employment law. Provisions regarding salary, PTO, or other compensatory policies should be carefully examined to ensure that they do not expose your company to litigation risks.
Beyond these drafting considerations, employers should also consider their PTO structures more generally and assess if a certain policy could lead to complications later. Hall shows that even clearly worded and understandable policies could lead to litigation under the wrong circumstances. A bit of flossing now can save you an employment root canal down the road.
Bottom Line
General disclaimers in an employment handbook are not sufficient to protect an employer from all its provisions. With respect to PTO, employers should review their policies and, if the intent behind them is to not pay out accrued but unused PTO upon termination, expressly state as such in the policy language itself, rather than pointing to a more generalized disclaimer.
Grant Gibeau gratefully acknowledges Han Li’s research and writing assistance in drafting this article. Han is a J.D. Candidate, expected May 2021, at the University of Minnesota Law School.