“Handbook provisions [regarding] job security … are enforceable.”

Pine River State Bank v. Mettille, 333 N.W.2d 622 (Minn. April 29, 1983)

The month began with All Fool’s Day on the first day of April and concludes with another noteworthy day: the 40th anniversary of a Minnesota cause of action for violations of handbooks or workplace manuals.

It’s the second ruby anniversary of a Minnesota civil claim in the first trimester of this year, following the 40th birthday of the intentional-infliction-of-distress tort 10 weeks ago. (See Perspectives: “40 years of intentional infliction in Minnesota” in the Feb. 16, 2023, edition of Minnesota Lawyer.)

This cause of action for handbook law, a workplace-related disciplinary claim, was first recognized by the Minnesota Supreme Court on April 29, 1983, four decades ago Saturday. Like its 40-year-old intentional infliction counterpart, it has experienced peaks and valleys over the past four decades and has for a number of legal and pragmatic reasons, come to be a shallow claim for most litigants seek to recover damages for violation of provisions in manuals used in their workplaces.

The 40th anniversary of its adoption provides an opportune occasion to glance at how manual labor law evolved and declined in Minnesota jurisprudence since its inception in 1983.

Doctrine develops

Marshall H. Tanick

That provisions in employment handbooks or manuals may be enforceable in a disciplinary context stems from Pine River State Bank v. Mettille, 333 N.W.2d 622 (April 29, 1983), a case arising at a small bank in the tiny town of Pine River in Cass County, outside of Brainerd. The lawsuit was brought by a teller whom the bank fired without complying with the specific disciplinary provision set forth in the employment manual that was distributed to all employees.

The teller sued, telling the district court judge that he was wrongfully terminated due to a breach of contract for noncompliance with the handbook. The claimant, Richard Mettille Sr., had to overcome the long-standing Minnesota tradition that nearly all employees working the private sector and not members of labor unions are “at will” employees, other than those very few who have employment contracts. As such, they could be discharged or otherwise disciplined at the whim or discretion of their employers.

This age-old doctrine did not provide for general affirmations of workplace conditions or job security to convert at-will relationships into contractual ones. In a mantra that gave employers virtually limitless discretion in disciplinary matters, which the court characterized as being permissible in the hands of management, “for any reason or no reason at all.” Cedarstrand v. Lutheran Brotherhood, 117 N.W.2d 213, 221 (Minn. 1962).

The reluctance of the Minnesota courts to intervene in the disciplinary process was promised on the oft repeated judicial hesitancy in the words of the 8th U.S. Circuit Court of Appeals to become a “super personnel department.” Dorsey v. Pinnacle Automation Co., 78 F.3d 830, 837 (8th Cir. 2002); Wilkening v. County of Ramsey, 153 F.3d 869, 873 (8th Cir. 1998).

But judicial reluctance turned into judicial recognition in the Pine River case. The claimant, discharged for poor performance, asserted that the facility failed to comply with the job security provisions in its handbook, which required two reprimands before suspension or dismissal and allowing termination only if the bank undertook a factual review and the employee’s post reprimand work performance did not improve. Disregarding those provisions, the bank dismissed Mettille without complying with any of them, as well as not following its own internal procedure of conducting a post termination review.

Not surprisingly, his claim was rejected by the Cass County District Court, which ruled that the employment manual did not warrant deviation from the prevailing “at will” employment standard. But the Minnesota Supreme Court, hearing the case a year prior to establishment of the Court of Appeals, reversed by a 5-2 vote. In a meandering but thoughtful decision written by Justice John Simonett, the court held that the employment manual constituted a binding agreement and that the bank’s noncompliance with its traditional provisions entitled the employee to sue for breach of contract. It premised its reasoning on the handbook constituting an offer of employment, with job security provisions, and the employee’s continued work represented acceptance, thus binding the employer contract to follow the specified procedures regarding reprimands and discipline. As the majority concluded that disciplinary and job security provisions in an employment manual are enforceable, whether they are proffered at the time of the original hearing or later when the employee has agreed to be bound thereby.

Right restricted

Although framed as a contractual right, the Pine River case was really a disguised form of tort for wrongful termination. But that right was restricted in subsequent case law, in response, perhaps to the dissenting opinion that the ruing might open up a floodgate of litigation. Crafty employers and their counsel, aided by the courts, found ways to maneuver around the handbook ruing. Rather than retreating from the use of handbook manuals, most employers found handbooks helpful in establishing parameters of workplace expectations. Accordingly, rather than dispensing with them altogether in light of Pine River, they managed to restrict their impact in several ways.

One of them consisted of use of disclaimers to obviate the Pine River doctrine stating in those manuals that the provisions are subject to change, at the whim of the employer, are not binding on the employer and should not be relied upon by the employee. This device is exemplified by a ruling against an employee claimant in another bank case, Audette v. Northwest State Bank of Minneapolis, 436 N.W.2d 125, 126 (Minn. Ct. App. 1996), in which the governing language that doomed the employee’s claim was that the manual stated that its provisions “are not conditions of employment, and that the language is not intended to create a contract [with the employees.]” Similarly, a decade earlier, another Pine River claim sank due to multiple provisions in the handbook that retained discretion of management to “make any change at any time by adding to, deleting, or changing” any policy in the handbook which were deemed to be not necessarily all inclusive,” and permitted management to “vary from the policies [in the handbook] if, in its opinion, the circumstances required” deviation. Simonson v. Meader Distrib. Co., 413 N.W.2d 146, 147 (Minn. Ct. App. 1997).

Another device utilized to preclude Pine River claims was indefinite or vague language, as exemplified in Hunt v. IBM Employees Mid American Federal Credit Union, 384 N.W.2 853 (Minn. 1996), in which the Supreme Court held that vague disciplinary discharge language in a company’s manual fell short of the specificity necessary for a Pine River claim. Similar reasoning prevailed in Ward v. Employee Development Corp., 516 N.W.2 198 (Minn. Ct. App. 1994) in which the Court of Appeals held that the language in a company’s employee handbook was too “indefinite” to impose binding contractual terms, noting the lack of definitions or detailed procedures in the handbook for disciplinary matters. The Minnesota Supreme Court weighed in at the beginning of the millennium in Martens v. 3M, 616 N.W.2d 732 (Minn. 2000) determining that the language in a handbook was too imprecise for enforcement because it lacked “specifics of how an individual employee’s pay, benefits, or promotion is to be determined,” reflecting an absence of “criteria to determine when rights to such benefits have been breached or what standard to apply to enforce them.”

The court viewed the paucity of wording in the manual as to constitute “nothing more than expressions of a general concepts of equivalence of opportunity, which was “too vague and indefinite to constitute” a binding commitment by the employer.

In contrast, however, the Court of Appeals in that same year in Kotera, Inc. v. Natrogas, 2000 WL 1182819 (Minn. Ct. App. 2000) (unpublished) held that a jury was justified in finding an employee breached its employment manual with a failure to follow up a progressive discipline provision in its handbook.

Limited distribution of handbooks is yet another way that the Pine River doctrine was restricted, as reflected in a ruling of the Minnesota Supreme Court in Tobias v. Montgomery Ward, 362 N.W.2d 380 (Minn. 1985) barring a handbook claim that the manual had only been distributed to supervisors and not disseminated to employees, a tenet that was often cited in other Minnesota cases and jurisdictions, as well for reigning-in handbook litigation. This hesitancy was exemplified in Jacques v. Real Estate Equities, Inc., 1991 WL 198451 (Minn. Ct. App. 1991) (unpublished) where the appellate court held that an employment manual that had not been distributed to all employees did not constitute a “communicated offer” that was binding upon employees since the manual was lodged in a central file cabinet at the workplace but not handed out to individual employees. But the limited dissemination doctrine only went so far. In Feges v. Perkins Restaurant, Inc., 483 N.W.2 701 (Minn. 1992), an employee was bound by disciplinary procedures in an employment contract by the Supreme Court, which rejected numerous defenses raised by the employer, including one claiming that the handbook was not disseminated widely enough to fall within the Pine River doctrine. The court there also ruled that a disclaimer in a later handbook did not override the terms of an earlier manual that was given to employees and lacked this disclaimer.

The limited scope distribution defense took another hit in that same year in another appellate court ruling in Campbell v. Leaseway Customized Transport, 484 N.W.2d 41 (Minn. Ct. App. 1992). A disabled employee sued because he did not receive any warnings or hearing, as promised in the handbook. The court upheld a handbook claim that had been dismissed by the lower court after an employee sued because he did not receive any warnings or a hearing prior to his termination, as set forth in his employment manual. A directed verdict for the employer on grounds that the handbook could not be distributed to all employees was rejected by the appellate court, based upon the Feges case. It reasoned that, as in Feges, whether the manual had been sufficiently distributed constituted a jury issue, and that the language in the document may have been sufficiently precise to create liability under the Pine River doctrine.

Unusual undertakings

Handbook litigation has also encompassed some unusual undertakings. Unlike their impact in the workplace, as recognized by the Pine River case, handbooks have not been treated similarly in academic cases.

In Abrariao v. Hamline University School of Law, 258 N.W.2d 180 (Minn. 1977), a half-dozen years before Pine River, the Supreme Court rejected claims of a former law school student who was expelled for poor academic performance. He asserted that a school bulletin, a form of handbook, guaranteed that if his grades were poor, he would be given private tutorial, which the school failed to furnish. While recognizing that some “elements” of contract law had been applied to the “student university relationship,” the court was skeptical whether the document constituted a binding contract and, even if it did, it included a disclaimer which noted that “all provisions within this book are subject to change without notice.”

The same reluctance to extend Pine River analysis to the university level was reflected in Ross v. University of Minnesota, 439 N.W.2d 28 (Minn. Ct. App. 1989) rev. den’d. (Minn. July 12, 1989). The same reluctance doomed a private college student’s handbook claim after he was expelled for sexual harassment in Rollins v. Cardinal Strich, 626 N.W.2d 464 (Minn. Ct. App. 2001). The appellate court ruled that deviations from disciplinary procedural provisions in the student handbook were not actionable because the “student handbook … did not constitute a contract between the school and the student that required strict compliance with every provision.”

Students had similarly failed in asserting handbook claims. In Zellman v. Independent School District No. 2758, 594 N.W.2d 216 (Minn. Ct. App. 1999) rev. den’d. (July 28, 1999), the appellate court, in a case that first impression in Minnesota, held that student handbooks distributed to pupils in public high schools did not fall within the Pine River doctrine. The case was brought by a student who received a “zero” grade for plagiarism in the parties’ history class, claiming that the school failed to follow the disciplinary provisions in the student handbook. But the appellate court rejected that argument, pointing out that the “complex relationship” between the state, parents and students in public schools “dictates against expanding the scope of the Pine River doctrine to high schools to public schools, concluding that the “student handbook provided by public school districts does not form a unilateral contract between the student and the school district.”

The doctrine of promissory estoppel seeped into handbook litigation, albeit unsuccessfully in Erickson v. Cannon Valley Co-Operative, 1999 WL 262124 (Minn. Ct. App. May 4, 1999) (unpublished) in which a terminated employee claimed that his employer failed to follow progressive disciplinary procedures, as in the Pine River case. Facing a disclaimer stating that the employment was “at will,” the employment manual did not constitute a “contract,” and the management reserved the discretion to change the procedures at any time, and the manual “did not guarantee employees the right to progressive discipline.” The employee argued equitable estoppel, rather than breach of contract. The appellate court, however, rejected the argument, knowing that the disclaimers in the manual were so explicit and stark that the employee “could not reasonably rely” upon the progressive discipline procedures outlined in the handbook.

Millennium matters

While the bulk of employment handbook law was established in the last two decades of the 20th century, post-millennium cases have both expanded and diminished the Pine River doctrine.

In Lee v. Fresenius Medical Care, Inc., 741 N.W.2d 117 (Minn. 2004), an employee’s claim in St. Louis County Conciliation Court that a former employer did not compensate her for paid time off that she had earned and was entitled to receive upon her termination. The employee prevailed, requiring the employer to compensate her for the paid time off, plus attorney’s fees, but the case was removed to district court, which ruled in favor of the company, prompting appeals that first went to the Minnesota Court of Appeals and then to the Supreme Court, which overturned the reversal by the Court of Appeals and upheld the determination in favor of the employer. It rejected a claim that the employee was entitled to be paid and awarded her fees under Minn. Stat. § 181.13, which requires prompt payment to an employee of compensation owed on termination of employment. But the court pointed to § 181.13(a), which recognizes the validity of an agreement between an employer and employee to define when wages are deemed to be “earned” for statutory purposes. In this case, the employee had a handbook provided and the employee was terminated for misconduct is ineligible for paid time off (PTO).

In this case, the terms of the employment manual cut against the employee because it provided that employees are eligible for PTO if they resign with proper notice, and this claimant here did not do so because she was terminated for misconduct.

This raised the issue of whether the employment contract trumps the statutory prompt payment requirement, a conclusion reached by the court because the statute “does not prohibit the contractual definition of vacation wages as subject to condition expressed in the contract between an employer and employee, which barred the PTO payment in this case, pursuant to the terms of the handbook.

But an employee achieved a better result more recently in Hall v. City of Plainview, 954 N.W.2d 254 (Minn. 2021), in which the Supreme Court upheld a wage payment claim under the identical statute as the Lee case. It reasoned that the general disclaimer language in a municipality’s handbook was ineffective to bar pay-out of accrued PTO to a departing employee, as recited in the city’s personnel policies. It reasoned that the “general renovation of an employer’s ability to modify … or depart from the handbook’s procedures” was “insufficient” to preclude a PTO claim, leaving that issue for resolution by a jury, while reiterating its Lee holding that §181.13(a) is merely a “timing” statute that does not provide any “substantive” rights to payment.

The four-decade history of employment manual litigation has ebbed and flowed since the Pine River case first recognized the doctrine. These cases show how, on the ruby anniversary of the ruling, it has impacted Minnesota employment law litigation.

But wait, there’s more. The 25th anniversary of the recognition in Minnesota of the common law right of privacy is coming up in four months at the end of July. Watch this space for more details.

PERSPECTIVES POINTERS

Some effective Minnesota disclaimer terms