Although Minnesota courts have long held that a disclaimer in an employee handbook may prevent the formation of a contract to alter an employee's at-will status, the Minnesota Court of Appeals recently held that a handbook disclaimer also may prevent the formation of a contract for vacation benefits or paid time off.
The plaintiffs in Roberts et al. v. Brunswick Corp. et al., No. A09-1855 (Minn. Ct. App. June 15, 2010), were employees of a company owned by Genmar Holdings until Genmar sold the business to Brunswick Corporation. Genmar granted vacation time for the entire year to each employee on July 1. Employees received the cash value for any vacation time that was unused on June 30 of the following year. When Brunswick purchased the company, it required employees to use their vacation time by the end of a calendar year or forfeit the unused portion.
The employees' lawsuit alleged that Genmar had contractually agreed to provide them one year's worth of vacation time on July 1 of each year in exchange for their work during the preceding 365-days, and that Brunswick breached the contract by refusing to credit them with earned vacation pay.
The Minnesota Court of Appeals held that no contract for vacation benefits existed due to a disclaimer in Brunswick's handbook stating that nothing in the handbook created a contract with its employees. The court of appeals also concluded that "even if a contract had been formed, no breach occurred" because the employer informed the employees of the change and the employees continued their employment — thus modifying any contract.
Before Roberts, the Minnesota Court of Appeals held in an unpublished decision that a handbook disclaimer would not prevent the formation of a contract for vacation benefits. In Berglund v. Grangers, Inc., C8-97-2362, 1998 WL 328382 (Minn. Ct. App. June 23, 1998), the court reasoned that because vacation benefits were fundamentally part of an employee’s compensation, the employer could not use a handbook disclaimer to retroactively change the employee’s right to vacation time.
Roberts rejected the reasoning in Berglund, holding a valid disclaimer effectively prevents the formation of a contract with respect to vacation benefits. The court found no inconsistency between its decision and the Minnesota Supreme Court case, Lee v. Fresenius Medical Care, 741 N.W.2d 117 (Minn. 2007) — which held that although PTO constitutes "wages" under Minnesota statute, employers can contractually limit or condition an employee's entitlement to PTO — because Fresenius did not discuss the effect of a disclaimer in the handbook.
After Roberts, employers have another defense to a claim for entitlement to vacation benefits or paid time off. Employers should ensure that the disclaimer language in their handbooks does not only address an employee's at-will status, but states that nothing in the handbook should be construed as a contract.
In a shift from several lower court decisions, the Minnesota Supreme Court recently held that employees whose job duties involve reporting potentially illegal conduct are not excluded from filing a claim under Minnesota's Whistleblower statute. But these employees must overcome a high hurdle to establish that any complaints qualify as protected activity — I.e. blowing the whistle — and not merely the performance of their job duties.
Brian Kidwell worked as in-house counsel for Sybaritic, Inc. Kidwell sent an e-mail to Sybaritic's management titled, "A Difficult Duty," in which Kidwell expressed concern that Sybaritic employees were intentionally withholding important e-mails in a pending lawsuit and that the company was pervaded with a culture of dishonesty. He stated his intent to inform authorities about the potential obstruction of justice. Three weeks later, Sybaritic terminated Kidwell's employment, citing performance and a violation of his fiduciary duties for sending the "Difficult Duty" email to his father.
Kidwell alleged that his employment was terminated because he reported illegal conduct in violation of Minnesota's Whistleblower statute. A jury awarded Kidwell $197,000, and $138,000 in attorney's fees. The Minnesota Court of Appeals reversed the jury verdict, holding that under the "job duties exception," an employee cannot engage in protected activity under the Whistleblower statute where the employee’s job duties require him to report potentially illegal activity.
The Minnesota Supreme Court upheld the court of appeals' decision, but refused to adopt a blanket rule excluding employees whose job duties involve reporting potentially illegal conduct from recovery under Minnesota's Whistleblower statute. The court explained that it may be possible for an in-house lawyer to make a protected report under the Whistleblower statute if the purpose behind the report was to expose an illegality, rather than merely the performance of his job. The "whistleblowing" purpose might be shown, for example, if the employee reports the wrongdoing "outside normal channels." But in Kidwell's case, the Minnesota Supreme Court affirmed judgment for Sybaritic because no reasonable person could have viewed the e-mail as whistleblowing activity as opposed to the performance of Kidwell's job duties as Sybaritic's lawyer.
Although Kidwell eliminated the automatic defense to Whistleblower claims based on an employee's job duties, employees who investigate potentially illegal activity as part of their job still have a difficult burden to establish a claim under the statute.
Background. Enacted in 1990, the Americans with Disabilities Act applies to employers with 15 or more full-time, part-time or temporary employees for at least 20 weeks during a calendar year. Under the original and amended ADA, plaintiffs must establish that they either have or are regarded as having a "disability," defined as a physical or mental impairment that substantially limits a major life activity. In 2002, the United States Supreme Court held that in order to be substantially limited in a major life activity, an individual must have an impairment that prevents or severely restricts the individual from doing activities that are of central importance to most people’s daily lives. Toyota Motor Manufacturing, Kentucky, Inc. v. Williams, 534 U.S. 184 (2002). This interpretation, along with other similar court decisions has made it difficult for plaintiff’s to establish a claim for discrimination under the ADA.
2008 Amendments. In September 2008, President Bush signed into law the ADA Amendments Act of 2008 ("ADAA"), which rejected the Supreme Court’s interpretation of the term "disability" and sought to establish a "broad scope of protection" for employees. The ADAA instructs examining courts to provide coverage to plaintiffs "to the maximum extent permitted." The most significant changes include:
What employers need to know. Employers should continue to carefully monitor requests for disability accommodations, and create records showing the basis for decisions to grant or deny requests for accommodation. Employers also should consider providing additional training for managers or human resource professionals regarding the ADAA’s changes and reasonable accommodations available.
Background. In November 2008, the Department of Labor issues more than 700 pages of final regulations implementing changes to the Family Medical Leave Act. Some of the changes relate to new amendments authorizing eligible employees to take protected FMLA leave to: (1) care for a family member with a serious injury or illness incurred while on active duty; and (2) deal with any "qualifying exigency" arising from a family member’s active duty or imminent call to active duty status. The new FMLA regulations contain a detailed definition for "qualifying exigency," as well as forms that employers may use to provide notice of employees’ FMLA rights.
What employers need to know. The new regulations require employers to take steps by January 16, 2009 to come into compliance. Employers covered by the FMLA must post a general FMLA notice even if they have no FMLA-eligible employees. Employers need to post notice to employees of their FMLA rights in the workplace, and may do so electronically if all employees have access. Employees must receive the FMLA notice upon hire, either in an employee handbook or separately. In addition, employers usually must notify employees of their eligibility to take FMLA leave within five business days after an employee requests FMLA leave, or when the employer knows that an employee’s leave may be for an FMLA-qualifying reason. If employers encounter issues surrounding military leave, either for their employees or an employee’s family member, they should seek legal advice regarding how the new FMLA regulations will affect their obligations.
Background. The Employee Free Choice Act is intended to "amend the National Labor Relations Act to establish an efficient system to enable employees to form, join, or assist labor organizations, to provide for mandatory injunctions for unfair labor practices during organizing efforts, and for other purposes." The Act would require the National Labor Relations Board to certify a bargaining representative without directing an election if a majority of the bargaining unit employees have authorized designation of the representative (through a "cardcheck") and there is no other individual or labor organization currently certified or recognized as the exclusive representative of any of the employees in the unit. Once employees agree to unionize, employers will be required to meet with the union representative within ten days to negotiate a collective bargaining agreement. If the parties fail to reach a collective bargaining agreement, their dispute will be presented to a federal mediator and, failing mediation, an arbitration panel that will issue a binding decision.
The U.S. House of Representatives is expected to approve the Act in 2009, but it is unclear whether the legislation will pass through the Senate. If congress enacts the Act president-elect Obama has promised to sign it into law.
What employers need to know. If the Act passes, employers should expect additional union-organization activity and consider training management employees about rules associated with union organizing. If employees authorize a union representative, employers will need to act quickly to negotiate collective bargaining agreement or else face binding arbitration.
On January 28, 2008, President Bush signed into law H.R. 4986, the National Defense Authorization Act for FY 2008 (NDAA), which represents an effort to address the large number of employees affected by the military service of family members. The NDAA amends the Family and Medical Leave Act (FMLA) to permit a "spouse, son, daughter, parent, or next of kin" to take up to 26 workweeks of leave [during a 12-month period] to care for a "member of the Armed Forces, including a member of the National Guard or Reserves, who is undergoing medical treatment, recuperation, or therapy . . . for a serious injury or illness." "Serious injury or illness" is, in turn, defined as "an injury or illness incurred by the member in line of duty on active duty in the Armed Forces that may render the member medically unfit to perform the duties of the member’s office, grade, rank, or rating."
This amendment became effective immediately and applies to all employers covered by the FMLA (fifty or more employees). Until the Department of Labor issues further guidance, employers should follow their FMLA procedures already in place, such as substitution of paid leave and notice, as appropriate. The FMLA leave to care for covered service members runs concurrently with non-military FMLA leave. For example, a qualified employee could take leave to care for a covered service member in addition to leave for the employee’s own serious health condition; however, the total amount of leave in a 12-month period may not exceed 26 weeks.
The NDAA also amends the FMLA to allow an employee to take FMLA leave for "any qualifying exigency (as the Secretary [of Labor] shall, by regulation, determine) arising out of the fact that the spouse, or a son, daughter, or parent of the employee is on active duty (or has been notified of an impending call or order to active duty) in the Armed Forces in support of a contingency operation." This amendment will not go into effect until the Secretary of Labor issues final regulations defining "any qualifying exigency." In the interim, the Department of Labor encourages employers to provide this type of leave to qualifying employees.
Employers should immediately amend their leave policies to provide the 26-weeks of leave to care for covered service members, and carefully consider all military leave requests while awaiting the final regulations. Please note that the new FLMA leave requirements are in addition to military leave already required by Minnesota law.
UNITED STATES SUPREME COURT
In Federal Express Corp. v. Holowecki, --- S.Ct.----, No. 06-1322, 2008 WL 508018 (U.S. Feb. 27, 2008), current and former couriers over the age of forty sued their employer, Federal Express Corporation ("FedEx"), for age discrimination under the Age Discrimination in Employment Act ("ADEA"). One of the couriers filed with the Equal Employment Opportunity Commission ("EEOC") an intake questionnaire and affidavit supporting her claim that certain FedEx programs discriminated against older couriers in violation of the ADEA. The employees subsequently brought an age discrimination claim in federal district court. FedEx moved to dismiss the case alleging that no employee had filed an actual charge of discrimination with the EEOC.
The Supreme Court held that "in addition to the information required by the regulations, i.e., an allegation and the name of the charged party, if a filing is to be deemed a charge it must be reasonably construed as a request for the agency to take remedial action to protect the employee’s rights or otherwise settle a dispute between the employer and the employee."
The Supreme Court concluded that while the EEOC intake form will not always suffice to constitute a charge, here the intake form along with the detailed affidavit asking the EEOC to "[p]lease force Federal Express to end their age discrimination plan so we can finish out our careers absent the unfairness and hostile work environment..." was deemed a charge and did request the EEOC to act. The Supreme Court also admonished the EEOC to establish a "clearer" and "consistent" charge-filing process "to reduce the risk of further misunderstandings by those who seek its assistance..."
Sprint/United Management Co. v. Mendelsohn, --- S.Ct. ----, No. 06-1221, 2008 WL 495370 (U.S. Feb. 28, 2006), involved an age discrimination claim where a former employee attempted to introduce "me, too" testimony of other employees who also claimed to have been the subject of age discrimination by Sprint. Sprint moved to exclude this testimony on the grounds that it was irrelevant and prejudicial as the employees were not "similarly situated" because they had different supervisors. The district court excluded the evidence and the appellate court reversed. The Supreme Court eventually took review of the case to determine whether "me, too" evidence is admissible in an ADEA case. However, the Court did not reach that issue. The Court instead remanded the case to the district court for clarification of its ruling, thus leaving it to the district court to decide whether "me, too" evidence should be admissible in these cases.
MINNESOTA SUPREME COURT
This week, the Minnesota Supreme Court heard argument in Frieler v. Carlson Marketing Group, Inc., which addresses the state legislature’s intent in removing the following language from the MHRA’s definition of sex harassment: "...in the case of employment, the employer knows or should know of the existence of the harassment and fails to take timely and appropriate action."
The plaintiff sued her employer for sexual harassment based on allegations that her supervisor physically and sexually assaulted her. The district court dismissed the claim, finding that the plaintiff failed to show the employer knew or should have known about the harassment. The court of appeals agreed that a claim of sex harassment requires that the employer knew about the conduct and failed to take remedial action.
The plaintiff contends that the 2001 amendment to the MHRA means that employers are now liable for hostile environment harassment perpetrated by a supervisor regardless of the employer’s knowledge of the conduct. The defendant contends that the amendment did not adopt a new standard of employer liability.
Whether the "knows or should have known," requirement remains part of the plaintiff’s case in Minnesota, or whether the legislature intended to adopt either strict liability or the standard of vicarious liability applicable to sexual harassment claims under federal law, will be decided this term. Stay tuned.
At long last, the Minnesota Supreme Court ruled on a controversial decision by the court of appeals last year regarding the treatment of vacation pay and paid time off (“PTO”) under Minnesota’s wage payment statute. In Lee v. Fresenius Medical Care, Inc., (2007 WL 3378653), the Minnesota Supreme Court held that, although vacation pay and PTO constitute “wages” under Minnesota Statute section 181.13, an employer’s obligation to pay out unused vacation or PTO upon termination is “wholly contractual.” Thus, employers may lawfully enforce a policy to refuse payment of PTO to an employee terminated for misconduct.
The case involved a claim by Susan Lee against her former employer, Fresenius Medical Clinic, earned but unpaid vacation time under Minn. Stat. section 181.13.Statute section 181.13 requires employers to pay “wages or commissions” to a discharged employee within 24 hours of demand or face penalties and attorney’s fees. Lee’s employment handbook provided that she would receive payment for earned but unused vacation time if she gave proper notice, but not if her employment was terminated for misconduct. The court of appeals held that this policy, and the denial of accrued vacation pay under the policy, was invalid, as “a party cannot provide by contract what is prohibited by statute,” referring to section 181.13(a).
The Minnesota Supreme Court reversed, holding that section 181.13 does not create a substantive right to vacation pay, but is simply a timing statute. Although the statute mandates when the employer must pay earned wages, the employer’s contract or policy will govern what wages an employer must pay to a discharged employee. The court reasoned that because Minnesota law does not provide for employee vacation time or pay as of right, employers have the discretion to choose whether and under what conditions employees will earn vacation benefits. Similarly, employers can “set conditions that employees must meet in order to exercise their earned right to vacation time with pay.”
What does this mean for Minnesota employers? This decision is significant because, as vacation is a benefit and not a right guaranteed by Minnesota statute, an employer can establish the terms and conditions under which an employee is eligible for PTO or vacation upon termination of employment and that policy will not be invalidated by section 181.13.
It is also noteworthy because the court held that the employee handbook, which contained the vacation policy, was an enforceable contract. Because employers typically include disclaimers in their handbooks – so that they are not construed as a binding contact—it might now be a good idea to set forth the PTO policies in a separate document which is clearly a binding contract between the employer and the employee. That way, a policy placing conditions on the exercise of vacation pay will not be at risk as being unenforceable.
Finally, the Minnesota Supreme Court implicitly approved written policies capping the amount of vacation or PTO an employee can accrue, as well as “use-it-or-lose-it” vacation or PTO benefits. Accordingly, to prevent escalating vacation balances, an employer can prohibit or limit the carryover of unused vacation or PTO from year to year.
If you have any questions please do not hesitate to contact Susan Ellingstad at seellingstad@locklaw.com or 612-339-6900.
Employment Law Update, July 2004
Learn more about the recently issued regulations governing overtime pay.
Employment Law Update, February 2004
2003 Significant Employment Law Developments: The Year in Review
Employment Law Update, April, 2003
What Every Employer Should Know About the HIPAA Privacy Rule. What is the Privacy Rule? Who must comply? What are the penalties for non-compliance with the Privacy Rule?
Employment Law Update, January, 2003
Employment Law Issues: 2002 In Review. New Corporate Fraud Statute Prohibits Retaliation; U.S. Supreme Court-2002 In Review; Minnesota Courts-2002 In Review; Wage and Hour Litigation on the Rise; Upcoming Changes in the Fair Labor Standards Act.
Home | Site Map | People | Contact | Terms of Use
Minneapolis 612-339-6900 · Washington D.C. 202-544-9840
Copyright 2010 Lockridge Grindal Nauen P.L.L.P.