As should come as no surprise, the new administration has begun to dial back some Trump administration guidance and rules – including the clarification/analysis of an independent contractor under the Department of Labor that we wrote about just last month. In addition, the Minnesota Supreme Court has issued a few opinions which employers should be aware.
Minnesota courts have long held that broad disclaimer language in an employment handbook is sufficient to convey the employer’s intent not to create an employment contract with its employees. The Minnesota Supreme Court’s recent opinion in Hall v. City of Plainview, 2021 WL 359508 (Minn. 2021), now calls longstanding handbook practices into question.
In this case, Donald Hall, a manager of a liquor store owned and operated by the City of Plainview, accumulated 1,778.73 hours of paid time off (“PTO”). Upon termination, Hall sought a payout for the entirety of his accrued PTO, citing the detailed PTO payout policies in the City’s employee handbook. The City refused to pay Hall his PTO, citing a general disclaimer in its handbook that directed that the handbook “is not intended to create an express or implied contract of employment between the City of Plainview and an employee.” Hall then sued the City for breach of contract stemming from the City’s refusal to pay his PTO.
The trial court dismissed Hall’s breach of contract claim, finding he had no claim due to the disclaimer in the employee handbook. The Minnesota Court of Appeals agreed. However, on February 3, 2021, the Minnesota Supreme Court reversed the lower courts, finding that Hall could have an actionable claim for breach of contract despite the broad disclaimer. The Minnesota Supreme Court found that the handbook’s PTO policies were sufficiently specific as to create a contract between the City and Hall, and that the general handbook disclaimer was too broad and ambiguous as to allow the City to get out of that policy (of payment upon termination). Accordingly, the Court held that Hall was entitled to his PTO payout.
Employers should pay careful attention to how policies are communicated to employees (via handbook or otherwise), keeping in mind that detailed policies may be found to create contractual obligations on behalf of the employer. Employers who communicate specific policies via a handbook should be aware of the possibility that the policies may create obligations on the part of the employer, despite the presence of a general contract disclaimer in the handbook. Employers should review and potentially revise broad disclaimer language in favor of precise and detailed language that more clearly communicates an employer’s desire not to create contractual obligations as to each and every policy.
In Abel v. Abbott Northwestern Hospital, 947 N.W.2d 58 (Minn. 2020), the Minnesota Supreme Court held that an unpaid graduate student may file a charge of discrimination the Minnesota Human Rights Act (“MHRA”), and thereafter sue, even though not an “employee.” In this case, Abel, a graduate student fulfilling her practicum requirements at Allina, filed a charge with the Minnesota Department of Human Rights and thereafter brought a lawsuit on claims of race and sex discrimination, resulting from inappropriate and harassing behavior from Allina’s practicum training director. The most notable takeaway for employers is that the Court held that Abel was an Allina employee, despite the fact that Allina does not pay students fulfilling their practicum requirements. In the past, compensation has generally been required for employees to bring employment discrimination claims, but the Court determined she must be classified an employee, even without a paycheck, where Allina billed and received compensation for her work.
On January 6, 2021, the U.S. Department of Labor (“DOL”) issued a final rule on the employee versus independent contractor test, referred to as the “economic reality test,” set to go into effect on March 2021 (and which we wrote about last month). However, the Biden Administration issued a regulatory freeze via memorandum requesting that all department or agency heads withdraw or postpone effective dates for any rules not yet in effect. On February 5, 2021, the DOL delayed the economic reality test’s effective date to May 7, 2021. The Biden Administration will likely scrap the economic reality test, in favor of a test that more closely resembles California and other states’ three-prong “ABC test.” The ABC test presumes that a worker is an employee unless the employer proves otherwise. Employers should also be aware that on February 19, 2021, the DOL withdrew Opinion Letter FLSA 2019-6, in which the DOL concluded that workers for “virtual marketplace companies” (i.e., app-based companies) should be classified as independent contractors under the economic reality test.