Minnesota Supreme Court Rules In Vacation Pay Case
By: ANNE M. RADOLINSKI
November 2007
On November 15, 2007, the Minnesota Supreme Court issued the long awaited decision in the vacation pay case, Lee v. Fresenius Medical Care, Inc. In the case, the Minnesota Court of Appeals determined last year that the employee should have been paid for her accrued and unused vacation pay upon termination of employment, despite the employer’s vacation pay policy which would have made her ineligible for payment because she was terminated for misconduct. The Minnesota Supreme Court yesterday reversed that decision. In light of the Minnesota Supreme Court decision, company policy can and will determine when an individual is entitled to payment for accrued and unused vacation or payment for other accrued paid time off upon resignation or termination.
In Lee v. Fresenius, the employer’s vacation pay policy provided, in part, that an employee who resigned from employment would be paid for earned but unused vacation time if the employee provided proper notice. The policy also provided that an employee would not be paid for earned but unused vacation time if the employee did not give proper notice of resignation or if the employee was terminated for misconduct. Lee was terminated for what the employer described as a “pattern of behavior” which resulted in “performance and patient safety issues,” and she was not paid her earned but unused vacation time. Lee filed a claim in conciliation court about two years after her termination seeking her vacation pay. The conciliation court found in her favor and the employer appealed the matter to the district court, which ruled in favor of the employer. Lee appealed to the Court of Appeals which ruled that Lee must be paid for her earned but unused vacation time despite the vacation policy provisions, reasoning that earned vacation constitutes wages under Minnesota law and must be paid upon termination. The Court of Appeals had specifically relied on Minn. Stat. § 181.13 (a) which provides, among other matters, that upon termination, an employee must be paid all wages earned within 24 hours of the employee’s demand for payment.
The Minnesota Supreme Court, in rejecting the Court of Appeals’ ruling, determined that the Fresenius employee handbook constituted a contract of employment between the company and its employees, and that the vacation pay policy in the handbook could and did govern when and how vacation was to be paid. The Supreme Court agreed with the Court of Appeals that vacation constitutes wages under Minn. Stat. § 181.13 (a) but reasoned that vacation is different from the wages an employee receives for work performed. Contractual terms, for instance in an employee handbook, can impose conditions on the payment of vacation and will determine when vacation is paid.
Again, in light of the Minnesota Supreme Court decision, company policy will determine when an individual is entitled to payment for accrued and unused vacation or payment for other accrued paid time off upon resignation or termination. It is important, however, to have vacation and PTO policies reviewed by counsel to ensure that the language clearly sets forth the employer’s intentions with respect to payment, and to ensure that it does not create contractual rights or other complications that the employer did not intend. For instance, the employee in Lee v. Fresenius also argued on appeal that her case should be remanded to the trial court for trial on whether she was justifiably terminated for misconduct. The Supreme Court declined to rule on the issue because Lee did not raise it in the trial court below. The wording of the particular vacation pay policy in the Lee case could invite litigation in every instance where vacation pay is denied to determine, as a factual matter, whether the conduct rose to the level of misconduct. A further discussion of the Lee decision will appear in our upcoming Employment & Labor Law Newsletter.
If you have any questions about vacation and PTO policies, please contact an attorney in Fredrikson & Byron’s Employment & Labor Law Group.