Employer's Handbook Created Contract Despite Disclaimer

​The Minnesota Supreme Court affirmed that contract disclaimer provisions in a handbook did not allow an employer to refuse to pay a former employee paid time off (PTO) accrued in accordance with its handbook.

In 2017, the city of Plainview, Minn., terminated the plaintiff from his position as manager of its municipal liquor store. At the time of his termination, the plaintiff had accumulated 1,778 hours of unused PTO.

Prior to his termination, the city offered the plaintiff the opportunity to resign, and if he did so, the city agreed to pay 100 percent of his accrued, unused PTO up to 500 hours. The plaintiff declined the offer, so the city terminated his employment and refused to pay him the accrued PTO.

The city's handbook required employees to provide a written resignation at least 14 days before an employee's departure and stipulated that failure to do so may be cause for denying leave benefits. The introduction to the city's handbook also contained a disclaimer that the policies should not be construed as contract terms.

The plaintiff asserted that a binding contract existed between the city and himself, and that by refusing to pay his accrued PTO, the city breached the contract. The city argued that an express disclaimer stating that an employee handbook is not a contract "means just that," and therefore, none of the provisions in the handbook created an enforceable contractual right.

An employee handbook may constitute terms of an employment contract if the terms are definite in form, the terms are communicated to the employee, the offer is accepted by the employee, and consideration is given. Individual portions of an employee handbook may create contractual rights even if other portions of the handbook do not.

In this case, the court concluded that the handbook contained sufficiently definite terms for a court to discern what the provisions required of the city and determine whether there was a breach. The city's PTO program covered a little over one page of details in the handbook, including the objectives of the program, a detailed PTO accrual schedule based on employee seniority and hours worked per year, instructions as to how and when employees may use PTO, and procedures for rolling over PTO. Additionally, the handbook laid out a procedure by which departing employees may cash out their PTO.

The disclaimer provision in the handbook stated that the purpose of the policies was to "establish a uniform and equitable system of personnel administration for employees" and that they should not be construed as contract terms. The court found the "broad and general contract disclaimer language" in the handbook's introduction ambiguous as to its applicability to the PTO policy. The court suggested an alternative reasonable interpretation of the general disclaimer was that it allowed the city to "alter its uniform and equitable system of personnel administration for employees on a prospective basis at the city's sole discretion without consent or input from its employees."

Additionally, the court noted that the city's interpretation of the general disclaimer language created a conflict with the "detailed and concrete explanation of the city's unilaterally imposed policy to compensate employees who have performed work for the city with accrued PTO when their employment ends." 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, the court determined, then the city should have been more precise and clear about that intent.

Hall v. City of Plainview, Minn., A19-0606 (Feb. 3, 2021).

Professional Pointer: Instead of relying on boilerplate "no contract" disclaimers, employers should draft specific disclaimers that can prevent the formation of contractual rights arising from employee handbook provisions.

Roger S. Achille is an attorney and a professor at Johnson & Wales University in Providence, R.I.