Is Your PTO Policy a Contract? Minnesota Supreme Court Finds General Handbook Disclaimer Does Not Necessarily Disclaim PTO Obligations

On February 3, 2021, the Minnesota Supreme Court held in Hall v. City of Plainview that a general disclaimer that a handbook should not be construed as a contract may not be effective to prevent a paid time off (PTO) policy contained in the handbook from forming a contract.  The court also upheld its previous interpretation of Minnesota Statutes § 181.13, which outlines the timing requirements for paying unpaid wages, holding that the 2013 amendments to the law did not create a new, independent substantive right to recover compensation.  In light of the decision, employers should review their handbooks or policy statements for language that could create a right to benefits, review their vacation, sick leave, and other PTO policies for clarity, and ensure that any handbook disclaimers are drafted specifically to prevent the formation of contractual rights.

Underlying Facts

In 2017, the City of Plainview terminated the employment of an employee who had accrued a whopping 1,778.73 hours of PTO.  The City’s Personnel Policies and Procedures Manual (the Handbook) included a detailed PTO policy but also contained disclaimers stating that the Handbook’s provisions “should not be construed as contract terms,” and that the Handbook was “not intended to create an express or implied contract of employment between the City of Plainview and an employee.”  The employee sued for breach of contract, claiming the PTO policy contractually obligated the City to pay him the accrued PTO, and for violation of Minnesota Statutes § 181.13, claiming failure to pay “earned and unpaid wages.” The district court dismissed both claims.  The employee appealed, and the court of appeals upheld the district court’s decision, finding both that the disclaimer in the Handbook was “substantially similar to disclaimer language in other cases . . . in which [the court of appeals] has concluded that an enforceable contract did not arise” and that an employment contract must exist to recover under Minn. Stat. § 181.13(a).

Minnesota Supreme Court’s Decision

The employee appealed to the Minnesota Supreme Court. At issue was (1) whether disclaimer language in the Handbook prevented finding an enforceable unilateral contract that obligated the City to pay accrued PTO and (2) whether Minn. Stat. § 181.13(a) created an independent substantive right to payment of accrued PTO absent a contract between an employer and an employee.

The court first found that the Handbook contained sufficiently definite terms to create an offer for a unilateral contract for PTO.  The court reasoned that the Handbook detailed an overview of the objectives of the PTO program, a PTO accrual schedule based on employee seniority and hours worked per year, instructions on how employees could use their PTO, procedures for rolling over PTO year over year, and procedures by which departing employees could cash out PTO.  Further, the City relied on the Handbook’s terms when it initially denied payment of the employee’s accrued PTO benefits.  These provisions, the court reasoned, amounted to “more than general statements of policy; rather, they provide[d] specific information and procedures by which employees [could] comprehend and take advantage of the City’s PTO program.”

Even so, the City argued that the Handbook disclaimers meant that none of the provisions in the Handbook, including the PTO provisions, created an enforceable contractual right.  The court disagreed.  The court first stated that the disclaimer did not affect the employee’s rights to be paid PTO.  Next, the court examined a statement in the Handbook that it set a “uniform and equitable system of personnel administration” and “should not be construed as contract terms.”  The court found that the second disclaimer was broad and general and was ambiguous with respect to its applicability to the PTO policy.

The court then examined whether Minn. Stat. § 181.13(a) created an independent substantive right to payment of accrued PTO absent a contract between an employer and employee.  The court followed precedent, finding that the statute created an independent right to PTO only insofar as a contractual right existed.  The court found that the 2013 amendments to the statute did not create a new independent substantive right to payment.

The court remanded to the district court the questions of whether a contract existed and whether the City owed the employee PTO pursuant to its PTO policy.

Practical Takeaways

Hall did not outright require the City to pay all of the employee’s accrued PTO, but the decision underscores the importance of having clear PTO policies and following them.  In light of this case, employers should take stock of their employment policies.

  • Employers should review disclaimers in their handbooks to ensure that they are clear but recognize that a general disclaimer likely will not absolve them from responsibility to follow all handbook provisions.
  • Minnesota does not require employers to provide PTO, but employers that provide such benefits should ensure that their policies are clear and that they follow them. 
  • While reviewing their PTO policies, employers with employees in Minneapolis, St. Paul, and Duluth should make sure they are complying with those cities’ sick and safe time ordinances and that their policies reflect the ordinances.
  • Employers should include a provision giving them the right to change PTO policies prospectively. 
  • This case is about a PTO policy, but it could also apply to other handbook provisions.  Employers should take the opportunity to review their handbooks to ensure that individual policies include references to employer discretion and that their policies are in line with actual practices. 
  • The plaintiff in Hall had accrued 1,778.83 hours of PTO.  Employers should be mindful of their potential liability for PTO and should encourage employees to actually use their PTO.  After all, PTO is meant to provide employees time to take a break and refresh.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.