Court Opinion

ID: 9739647
Source: CourtListenerOpinion
Date Created: 2023-08-26 20:19:01.266401+00
Date Added: 2024-06-11T07:24:13.313711
License: Public Domain

PAGE, Justice
(dissenting).
Under Minn.Stat. § 181.13(a) (2006), when an employer discharges an employee, “the wages * * * actually earned [by the employee] and unpaid at the time of the discharge are immediately due and payable upon demand of the employee.” The court correctly holds that paid time off constitutes wages for purposes of section 181.13(a).
While it appears, as the court states, that the legislature did not intend to create in section 181.13(a) a substantive right to *131vacation pay, it is obvious from the language of the statute that the legislature intended to create in section 181.13(a) a substantive right to be paid for wages actually earned. Therefore, once it is agreed that paid time off constitutes wages, the critical question in this case becomes whether, at the time Lee was terminated, she had earned the 181.86 hours of paid time off, i.e., the wages, that she had accrued before she was terminated. If the wages were earned before she was terminated, section 181.13(a) required that Lee be paid for them immediately upon termination. If the wages were not earned before Lee was terminated, she is not entitled to be paid for them.
The court is also correct to the extent that it holds that because no Minnesota statute requires an employer to provide paid vacation or paid time off, the provision of paid vacation or paid time off is a matter of contract between the employer and the employee. The court correctly looks to the contract between Fresenius and Lee to determine whether Fresenius agreed to provide Lee with paid time off. Here, the contract is the Fresenius employee handbook, which provides, in relevant part:
Resignation and Termination of Employment
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An employee who gives proper notice, as described above, is eligible to be paid for earned but unused Paid Time Off (PTO). Unless otherwise required by state law, if you do not give acceptable notice, you may not be paid for earned but unused PTO and you may not be considered eligible for re-employment. In addition, if your employment is terminated for misconduct, you will not be eligible for pay in lieu of notice or payment of earned but unused PTO unless required by state law.
* * * *
Paid Time Off
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The Paid Time Off (PTO) program allows you to receive paid time off based on individual preferences and varying needs. It may be used for vacation, holiday, short-term sick time, and personal time. Regular full-time and regular part-time employees scheduled to work 20 hours or more per week are eligible for PTO. You accrue PTO hours at a set rate per pay period. Your accrual rate depends on your length of service and number of hours worked. There is a maximum amount of PTO that may be accrued. If the cap is reached, the additional earned time will be added to your Extended Sick Leave (ESL) bank, instead of your PTO bank. New full-time employees begin to earn PTO upon hire at a rate of 7.69 hours per pay period (200 hours, or 5 weeks per year). PTO accrual is pro-rated for part-time employees. Accrual rates increase with length of service at given intervals.
A minimum of three months must be worked before your earned PTO can be used, except for a company Fixed Holiday. PTO is paid out at your base hourly rate and does not include overtime, shift differentials, on-call pay or any other type of additional pay.
PTO may be requested and scheduled at any time during the year. Approval of requests will be based on the timeliness of your request, authorization by the appropriate supervisor, and the needs of the department.
(Emphasis added.)
The contract between Fresenius and Lee unequivocally provides that Lee earned paid time off each pay period. Because the 181.86 hours of paid time off at *132issue here were, under the terms of the contract, earned each pay period, and because the court correctly holds that earned paid time off is considered wages for purposes of section 181.13(a), that should be the end of the inquiry.
The court grounds its conclusion that Lee was not entitled to be paid after she was terminated for the 181.86 hours of paid time off she had already earned, in part, on the general proposition that
[i]f an employer does offer an employee paid time off, what is earned during the specified pay period during which paid time off accrues is not a right to a direct, monetary payment; what is earned is instead a right granted by the employer for the employee to take time off from work in the future but nevertheless be paid, subject to the terms specified in the employment contract that grants paid time off.
There are a number of problems with this general proposition.
First, the court is wrong to say that vacation pay or paid time off is strictly a matter of contract and is therefore unaffected by statute. The contract between employer and employee may govern when and how much paid time off is earned— just as the contract between employer and employee may govern how much the employee earns for her labor (provided, for example, that it is at least the statutory minimum and is not discriminatory) and how often she is paid. But if paid time off is wages, once it has been earned Minn. Stat. § 181.13(a) requires that it be paid, just as once monetary wages have been earned Minn.Stat. § 181.13(a) requires that they be paid. Indeed, the contract here explicitly acknowledges that the payment of earned but unused paid time off is subject to applicable state law. In Minnesota, that applicable state law is, in the case of a former employee, section 181.13(a).
Second, the contract in this case imposed no conditions on the employee’s right to “earn” paid time off. To “earn” is “[t]o acquire by labor, service, or performance.” Black’s Law Dictionary 547 (8th ed.2004). That is to say, once the labor has been performed, the wages are earned. See, e.g., Langager v. Crazy Creek Prods., Inc., 287 Mont. 445, 954 P.2d 1169, 1175 (1998) (concluding that “vacation pay is earned by virtue of an employee’s labor and once it has accrued, it has by definition been earned”). The court’s conclusion that “what is earned” once the employee has performed the labor is not “a right to a direct monetary payment,” but is instead a right subject to additional conditions imposed at the employer’s discretion, flies in the face of the traditional definition of what it means to earn wages and does violence to the concept of what constitutes wages. A conditional right to wages for work actually performed is no right at all.
Third, the court’s statement is contrary to the express terms of the contract governing Lee’s employment. The Fresenius handbook, as noted above and as drafted by Fresenius, provides that employees “accrue” paid time off “at a set rate per pay period” and that “[n]ew full-time employees begin to earn PTO upon hire at a rate of 7.69 hours per pay period (200 hours, or 5 weeks per year).” (Emphasis added.) The handbook does not differentiate between paid time off that merely “accrues” (to be “earned” at some later date) and paid time off that has been “earned” in the first instance. In fact, the handbook uses the terms “accrued” and “earn” interchangeably. While the handbook places some conditions on when an employee may use earned paid time off, one example being that an employee must have worked for Fresenius for a minimum of three *133months before paid time off can be used, the handbook places no additional requirements on the earning of paid time off. For example, the handbook does not provide that an employee must work a certain number of weeks or months before she begins to “earn” paid time off. Nor does the handbook provide that paid time off is earned only at the end of a calendar month or quarter. Rather, the handbook is clear: employees both “accrue” and “earn” paid time off from their first day of employment and continue to earn it each pay period. Because Lee had performed the labor that resulted in the accrual of paid time off, that paid time off had been earned. Indeed, even Fresenius describes the 181.86 hours of paid time off that Lee had accrued at the point her employment was terminated as having been “earned,” and in describing the situations that will result in paid time off not being paid the handbook refers only to paid time off that has already been earned but not used. It is also worth noting that the court describes Lee’s paid time off as having been “earned.”
Fourth, although the court asserts that conditioning the payment of paid time off on whether Lee is terminated constitutes a condition precedent to her earning or accruing the right to be paid for the paid time off, the court is simply wrong. That is clear from the language of the contract: employees “earn” and “accrue” paid time off from their first day of employment. Thus, termination can only occur subsequent to paid time off being earned. The termination condition imposed by Freseni-us does not affect the earning or accrual of paid time off. The law does not allow and we would not permit an employer to withhold an employee’s paycheck simply because the employee was terminated, even for cause. That raises the question of why we would treat earned wages in the form of paid time off differently. The simple answer is that we should not. To allow Fresenius to divest Lee of paid time off, which Fresenius acknowledges has been earned, is to say that paid time off is not really “wages” at all.
The court states that because “[n]o statute or case law in Minnesota mandates the terms on which paid time off must be offered, or that it be offered at all,” “employers are permitted to set conditions that employees must meet in order to exercise their earned right to vacation time with pay.” On this point, the court is also wrong. While it is correct that an employer may place reasonable conditions as to when an employee can take earned paid time off, just as an employer may determine that the employee’s wages will be paid monthly rather than weekly, an employer may not set conditions as to whether an employee will be paid wages for work already performed and therefore earned. That is so whether the wages are in the form of a direct monetary payment or paid time off. Tying the payment of wages to a condition, such as whether the employee is terminated, which may or may not arise after the work has been performed, is impermissible.
The court bolsters its interpretation of section 181.13(a) with comparisons to two cases interpreting wage-payment statutes in other jurisdictions that the court characterizes as “similar.” But those statutes are readily differentiated. In Indiana Heart Associates, P.C. v. Bahamonde, for example, the statute requires only the payment of “ ‘the amount due’ ” to the employee. 714 N.E.2d 309, 311 (Ind.Ct.App.1999) (quoting Ind.Code § 22-2-5-1). The definition of “the amount due” is a matter of contract between employer and employee, and nothing in the statute bars the parties from agreeing (by virtue of an employee handbook or otherwise) that an employee can be divested of vacation pay otherwise *134earned. Similarly, the Maryland statute at issue in Rhoads v. F.D.I.C., 956 F.Supp. 1239, 1259-60 (D.Md.1997), requires only the payment of “all wages due for work that the employee performed before the termination of employment” without defining when wages are “due.” Md.Code Ann., [Lab. & Empl.] § 3-505 (LexisNexis 2006). As a result, Maryland law also allows the employer and employee to contract when wages become “due” and allows the employee to be divested of wages after they are otherwise earned. In contrast to both of these, Minnesota’s statute requires the payment of wages “actually earned and unpaid at the time of the discharge.” Minn.Stat. § 181.13(a). The statute allows for employer and employee to define when wages are “earned,” but does not allow for divestiture of wages once they are earned.
The court also bolsters its interpretation of section 181.13(a) with a reference to Tynan v. KSTP, Inc., 247 Minn. 168, 77 N.W.2d 200 (1956), a ease in which we addressed a former employee’s entitlement to vacation pay. Tynan was subject to a collective bargaining agreement as a member of the Radio Broadcast Technicians Union. Id. at 170, 77 N.W.2d at 202. The collective bargaining agreement in effect on Tynan’s last day of work provided that someone in Tynan’s position “continuously employed for six (6) months, but less than one (1) year, shall receive a vacation of fourteen (14) consecutive days” and further provided that “[ljength of service for vacation purposes only shall be determined as of May 1st of each year.” Id. at 170 n. 1, 77 N.W.2d at 202 n. 1. The collective bargaining agreement automatically renewed on October 1 of each year; Tynan’s last day of work was April 5, 1950. Id. at 171-72, 77 N.W.2d at 203. The employer argued Tynan was not entitled to vacation pay because he had not fulfilled the terms of the collective bargaining agreement, namely, that he be employed on May 1, in order to receive vacation pay. Id. at 173-74, 77 N.W.2d at 204. We rejected this argument on grounds that once vacation pay was earned under the terms of the collective bargaining agreement, it became “in legal effect choate”:
It is clear that, under the collective bargaining agreement in force since 1948, the technicians surrendered all previous holiday-pay arrangements which had been contained in prior union agreements and they received in lieu thereof the right to certain granted vacations with pay conditioned upon fulfilling certain continuous periods of employment. These were 6 months of continuous service within the year covered by the annual agreement in order to become entitled to a vacation of 14 consecutive days and continuous employment as a technician for at least one year during the period of the annual contract in order to become entitled to a vacation of 21 consecutive days. At the end of each respective period of service, the granted vacation with pay as then established became earned and in legal effect choate. It would be highly technical, and inequitable, taking into account the apparent conditions under which these granted periods of vacations with pay were entered into as successor provisions to all previous holiday-pay arrangements, to hold that another condition precedent for which the defendant contends exists, namely, that plaintiffs rights would be lost if he was not in the service of the employer on May 1 of the year following the completion of the period of service.
Id. at 179-80, 77 N.W.2d at 207 (emphasis added).1 Similarly in this case, once paid *135time off has been earned — and under the terms of the contract it is earned at the end of each pay period — it is “in legal effect choate.”2
Simons v. Midwest Tel. Sales & Service, Inc., 433 F.Supp.2d 1007 (D.Minn.2006), applies the Minnesota statute at issue here and concludes that the terminated employee was not entitled to be paid, but the facts of that case differ from those here. The contract in Simons provided that the employee earned vacation at the rate of 2-1/2 *136days per calendar quarter: 2-1/2 days on March 31, 2-1/2 days on June 30, 2-1/2 days on September 30, and 2-1/2 days on December 31. Id. at 1009. Simons took vacation on January 2, March 29, and April 23; her last day of work was May 6, 2004. Id. Thus, the issue was whether vacation days were “earned” at the beginning of the calendar quarter (as the employee advocated) or at the end of the calendar quarter (as the employer advocated). Id. at 1011. The court agreed with the employer that under the terms of the contract, vacation was not earned until the end of the calendar quarter, meaning that the employee had already taken more vacation days than she had earned as of her last day of work. Id. That is, the employee in Simons had no vacation “actually earned and unpaid at the time of discharge” under Minn.Stat. § 181.13(a).3 In contrast, in this case Fresenius concedes that Lee had paid time off earned and unpaid on the date of the termination of her employment.
The statute is clear: the employer must immediately pay a terminated employee for wages earned and unpaid at the time of discharge. If paid time off constitutes wages, which it does, and if the paid time off has been earned, which in this case it has, then under Minn.Stat. § 181.13(a) an employer must immediately pay a terminated employee for all paid time off earned and unused at the time of discharge. Because the paid time off at issue in this case had been earned, Fresenius’s refusal to pay Lee for it violated Minn.Stat. § 181.13(a).
I therefore respectfully dissent.

. The court contends that my discussion of Tynan “fails to take into account the court’s *135immediately subsequent discussion of a Michigan case in which the contract provided for compensation in lieu of vacation subject to two conditions.” But the Michigan case, Treloar v. Steggeman, 333 Mich. 166, 52 N.W.2d 647 (1952), involved two conditions precedent to the earning of vacation in the first place: that the employee be on a “seniority list” on December 1, 1947, and that the employee “have completed at least six months’ work since December 1, 1946.” Id. at 167, 52 N.W.2d at 648. Here, there are no conditions precedent on the earning of vacation.
We have said that a condition precedent is "any fact or event, subsequent to the making of a contract, which must exist or occur before a duty of immediate performance arises under the contract.” Nat'l City Bank v. St. Paul Fire & Marine Ins. Co., 447 N.W.2d 171, 176 (Minn.1989). In this case, the employee handbook is the contract, which Lee accepted by virtue of her employment. Once Lee had earned vacation and once she had been employed by Fresenius for at least three months, Fresenius had “a duty of immediate performance” to allow Lee to take her earned vacation and, although Fresenius could impose reasonable conditions on when Lee did so, it could not otherwise have prevented her.
And so what the court characterizes in this case as a condition precedent — that the employee not have been terminated for cause — is a condition subsequent, not a condition precedent, to the taking of or payment for paid time off, the effect of which is to divest Lee of that which she had earned. We have said that forfeitures are not favored and will not be enforced when great injustice would thereby be done and when the one seeking the forfeiture is adequately protected without it. Warren v. Driscoll, 186 Minn. 1, 5, 242 N.W. 346, 347 (1932). In this case, Fresenius could have sued Lee for monetary damages due to her alleged misconduct, and thus could have been adequately protected without resorting to confiscation of her earned wages; indeed, that is the implication of Minn.Stat. § 181.79 (2006).
Finally, even if we were to permit a forfeiture here, our case law severely limits what can be forfeited. In Marsh v. Minneapolis Herald, Inc., 270 Minn. 443, 134 N.W.2d 18 (1965), the employee sued his former employer for unpaid overtime; the employer counterclaimed for alleged disloyalty and sought forfeiture of the entire amount paid to the employee during his tenure. Id. at 444, 134 N.W.2d at 19. We stated that "[s]ince plaintiff’s compensation was payable weekly, each week is an entire and separable contract. Misconduct that goes to the essence of the contract must be established for each week worked before his right to compensation can be defeated or the wages previously paid, forfeited.” Id. at 448, 134 N.W.2d at 22. Even if a forfeiture were available here, which it is not, under Marsh Fresenius would be entitled to withhold only the paid time off earned and unpaid for the pay periods in which it contends that Lee committed misconduct. It could not do what it has done here, namely, confiscate paid time off earned during pay periods in which Lee allegedly committed no misconduct.

. The court characterizes my position as giving "no force to the related terms of the contract that define what is earned in terms of paid time off or payment in lieu of paid time off — that is, the conditions under which paid time off or payment in lieu of paid time off are allowed.” If my position gives no force to such things (a position with which I do not entirely agree), it is only because the statute gives them no force. I agree, for example, that the employer can require employees to give reasonable notice before taking paid time off. And I agree, for example, that employers can require new employees to work for a reasonable period of time before taking paid time off. But those are restrictions on when, not on whether, paid time off is either taken or paid out. On the question of whether a former employee must be paid for earned paid time off, the legislature has spoken and the statute controls.

. To the extent the federal court’s decision in Simons rested on a provision of the employer’s vacation policy that purported to divest an employee of vacation pay already earned, it is contrary to Minn.Stat. § 181.13(a). In any event, we are not bound by the federal court’s interpretation of the statute.