In early February, the Minnesota Supreme Court held that a general contract disclaimer in an employee handbook may not be sufficient to bar a terminated employee’s claim that he had a contractual right to a payment of his substantial accrued Paid Time Off at termination of his employment. In the case of Hall v. City of Plainview, Court File No. A19-0606 (Minn. 2021), the Court concluded that when it comes to employee compensation, benefits and other policies and procedures that are clear and specific, an employer must provide the employee with a clear and unmistakable statement that a particular provision is not to be considered contractual in nature. Depending on the of the case, a general employee handbook disclaimer may not be enough to disclaim an employee’s contractual rights.
The case at issue involved the termination of employment of the manager of the municipal liquor store for the City of Plainview. The manager had accrued nearly 1800 hours of PTO over 30 years of employment.
The city’s employee handbook laid out its employees right to PTO and concluded with the following statement:
When 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 [two weeks’] notice as required by the policy.
The employee handbook included this general disclaimer language:
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 Personnel Policies and Procedures Manual is not intended to create an express or implied contract of employment between the City of Plainview and an employee.
After refusing the city’s invitation that he resign with the required two weeks’ notice, the city terminated the manager’s employment and later denied his request for his accrued PTO.
In its decision, the Supreme Court noted that since its 1993 decision in Pine River State Bank v. Mettile, Minnesota law has been clear that the terms of an employee handbook may be considered contractual if all the requirements for formation of a unilateral contract otherwise are met. This includes a requirement that the terms of the putative contract be clear and definite in nature. In response to the Pine River, Minnesota employers routinely relied on a line of cases from the Minnesota Court of Appeals that held that even where employee handbook language was adequate to create an enforceable contract, an express disclaimer of contract in the employee handbook would be an effective defense to a breach of contract claim based on the handbook language.
In Hall, the Supreme Court found that the city’s PTO policy was clear, specific and left no room for interpretation. It therefore was sufficiently definite to be contractual. The Court further held, however, that the City’s disclaimer language was too imprecise to conclusively disclaim, as a matter of law, a contractual right to the PTO payout that Hall claimed because it did not expressly disclaim a contractual right to compensation for unused PTO at termination. “If the City truly wanted to preserve the right to withhold accrued PTO compensation from an employee after the employee had performed work for the City while the provision governing payment for accrued PTO was in place, it should have been more precise and clear about that intent.”
Note that the Court did not throw out the disclaimer; rather, it left it to a jury to decide the impact of the handbook’s general disclaimer on Hall’s claim.
Lessons Learned
Clarity is King. In Hall, the City of Plainview’s PTO policy was too clear, whereas the disclaimer language was not clear enough. The employer’s best bet is to ensure that its handbook (a) does not make explicit or implicit promises regarding matters over which the employer wishes to retain discretion and (b) doubles down on its disclaimer language. In addition to a clear and unmistakable general disclaimer, the careful employer will also include specific disclaimer language in its individual policies addressing employee compensation, benefit, rights to leave, progressive discipline, etc.
As stated by the Supreme Court in Hall: “Well-drafted, specific, disclaimers can prevent the formation of contractual rights stemming from employee handbook provisions, including provisions concerning PTO. Employers can and should include more than boilerplate ‘no contract’ disclaimers in their employee handbooks, both for their own benefit as well as for the benefit of their employees. . . .”
