Termination of Employment

Today the Minnesota Department of Labor and Industry (MNDOLI) issued employers yet another reminder not to engage in “wage theft” from employees, and encouraged subscribers to share the message. So, I’ll do my civic duty and share. In short, MNDOLI reminds employers of the following (with my comments below each point):

  • Pay your employees the applicable state minimum wage. Minnesota’s 2019 minimum-wage rates are $9.86 an hour for large employers and $8.04 an hour for small employers. For additional details about the state’s minimum-wage rates, visit www.dli.mn.gov/business/employment-practices/minimum-wage-minnesota. New rates take effect Jan. 1 each year. Employers operating in Minneapolis or St. Paul should understand the requirements of the minimum-wage ordinances in those cities.
    • There are some exceptions to the minimum wage rates such as training wages and youth wages (under 17).
    • Since Minnesota’s minimum wage rates are currently greater than the federal minimum wage rates, Minnesota’s rates apply to Minnesota employers (as they are more favorable to employees).
  • Pay your employees for all hours worked. Employees must be paid for employer-required training and for time needed to prepare to perform work, such as restocking supplies and performing safety checks. If you require employees to meet at a centralized location before driving to a worksite, pay the employee for the drive-time from the location to the worksite. Employers cannot require employees to remain at work and “punch in” only when it gets busy, “punching out” when business gets slow.
    • If you have a Collective Bargaining Agreement, be sure to review those bargained-for terms as well.
    • Tip: have employees drive directly to the jobsite in the morning.  If they have no ride, or need a ride, make it voluntary and be sure they do not do any work before the trip – they are a passenger only.
  • Pay your hourly employees for overtime. Federal law requires most hourly employees to receive overtime after working 40 hours in a workweek. Some employees are exempt from this requirement, but still need to be paid overtime after 48 hours in a workweek under Minnesota law.
    • I wrote about this in an earlier post – just because an employee may be exempt from overtime under federal law does not necessarily mean they are exempt under Minnesota law.
    • There is a bill pending (HF 2274) in the Minnesota legislature that would change overtime from 48 hours to 40 hours – stay tuned.
    • If an employee is not authorized to work overtime but does it anyway, they must be paid for those hours worked but can be disciplined for not following workplace rules.
    • Tip: remember private employers (almost everyone reading this) cannot use “comp” time from week to week – it must be paid out, unlike those employees in the public sector.
    • Employers do not need to pay higher rates in Minnesota (unlike some states) for working on Saturdays, Sundays, or holidays.
  • Pay your employees at least every 31 days, on a regularly scheduled payday that they are notified of in advance.
    • Tip: don’t forget if you terminate an employee they may request their final paycheck be paid within 24 hours. Since this is sometimes difficult, if possible, it is best to just have the final check ready to hand to the employee upon termination.
  • Do not misclassify employees as independent contractors. Such misclassification not only adversely impacts employees, it also creates a competitive disadvantage for employers that comply with state laws related to workers’ compensation, unemployment insurance and tax withholding.
    • Similarly, be careful not to misclassify an employee as exempt from overtime – and keep reviewing this blog for updates on the pending DOL rule to change the salary threshold.  If you missed my post, the update is here.
  • Do not take unlawful deductions from your employees’ paychecks. Deductions that generally cannot be made include:  property loss or damage; cash shortages; and tool or uniform expenses.
    • Tip: you can ask the employee to agree to pay it back after the fact – but it has to be in writing, and deductions cannot take the employee below minimum wage (it’s a bit more complicated than that with taxes, other deductions, etc.).  If the employee refuses, you can discipline the employee for whatever caused the loss.
  • Do not require your employees to pool or share tips.
    • Again, in Minnesota, employers cannot take a tip credit against minimum wage (like many states).
    • Employees may voluntarily agree to share tips, but employers should stay out of it.

And final tip – don’t forget to keep the records of wages, time cards, deductions, etc. for at least three years after their termination.

I cannot count the number of times per month a client calls and explains that they want to terminate an employee, and starts the conversation along the lines of, “I know you are going to tell me I should have terminated him/her a long time ago but [fill in the poor excuse here].”. I used to think this was Minnesota nice. We don’t want to hurt people’s feelings, try to see the best in everyone, and think that everyone needs a second, third, fourth, tenth, etc. chance. For most, I tell them their initial gut was the best one and yeah, after reviewing the file, they should have been terminated long ago (and now they have a mess on their hands as the employee has made discrimination complaints, etc.). If the person is not cutting it, you typically know within 30 or 60 days. They either have it or they don’t. The fit the culture, or they don’t. They can grasp the concept or they can’t. Why keep them longer?

Apparently, this may have less to do with “Minnesota nice”, and more to do with an economic theory called the sunk cost fallacy. I was reading a BBC article today discussing the phenomenon of why we make bad decisions, such as the losing gambler that just keeps losing, the poor business model that we keep trying to pump money into to make it work, watching a bad movie all the way to the end, eating way too much at an all-you-can-eat buffet, staying in a bad relationship, or, yep, you guessed it, keeping a poor performing employee when we know that additional training is not going to make the person perform to expectation no matter how much more money we spend on him/her. What about the recruit that you relocated? The high-dollar guaranteed severance executive? The sign-on bonus for the new CDL? The more money/time/effort put into an employee, the harder it becomes to terminate the employee when need be.

These economists and physiologists theorize that people hate cutting their losses. We are more likely to irrationally continue to sink money into a lost cause, rather than to admit failure. And, according to the University of Minnesota’s own study, it is not just humans that do this. Mice and rats are apparently sensitive to time invested in something and resisting giving up something after the decision has been made to plow forward without any indication of future success. How do we fix this thinking? According to the BBC article, it is simply to pause, step back and ask yourself the pros/cons with staying the course and the pros/cons with changing the course. In our world, it usually means calling your employment law attorney and having them tell you what you already know should happen, but you need us to tell you. Which is fine by me.  Oh the stories I could tell…

On June 6, 2018, in Ayala v. CyberPower Systems (USA), Inc., the United States Court of Appeals for the Eighth Circuit, applying Minnesota law, confirmed that a compensation agreement did not alter the employee’s at-will status. As I know you all know, under Minnesota law, the general presumption is of at-will employment, meaning employers are free to terminate an employee for any lawful reason, and employees may resign at any time for any reason. While the employers and employees can contract around this presumption, the parties must have a clear intention to do so. So, how did it get to a lawsuit?

In 2006, Daniel Ayala began working for CyberPower Systems as the Vice President, an at-will employee. Six years later, Ayala was promoted to Executive Vice President and General Manager for Latin America. As a result, Ayala and CyberPower entered into a new agreement entitled “Compensation Agreement,”  that outlined the Ayala’s salary and bonus structure under his new position. The agreement was to “remain in place until sales reached $150 million USD.” Under the “Employment terms,” section, the agreement stated, “[t]he above mentioned agreement outlines the new salary and bonus structure to remain in place until $150 million USD is reached. It is not a multiyear commitment or employment contract for either party.”

CyberPower terminated Ayala before sales reached $150 Million. Ayala then filed a lawsuit against CyperPower, claiming the agreement altered the at-will employment presumption, and instead promised him employment until $150 million in sales was reached. The court disagreed, and found the agreement “unambiguously did not modify Ayala’s status as an at-will employee.” The court’s analysis focused on that fact the title and content of the agreement solely concerned compensation. This is notable as the majority of employers title such a document “Employment Agreement,” not “Compensation Agreement”. Further, the court noted, “the agreement later reiterates that, rather than guaranteeing Ayala’s employment, it sets out only his compensation until the sales threshold is met.” Therefore, the court found the agreement did not express CyberPower’s clear intention to alter the at-will employment status.

Accordingly, employers looking to enter into a compensation agreement with an employee without altering the at-will employment status should clearly state the agreement pertains only toward a compensation plan, and consider titling it “Compensation Agreement” instead of “Employment Agreement.” In addition to the title, the content in the agreement should focus only on compensation terms and avoid detailing or describing other employment terms.

clickAs a result of President Obama’s White House Summit on Worker Voice, on October 28, 2016, the U.S. Department of Labor’s Wage and Hour Blog announced its new beta website – Worker.gov. This website is, according to the DOL, designed to provide “easy-to-access” solutions for employees who need answers “fast”. The DOL admits that “Even the best government websites can be difficult to navigate” – true, true. That being said, it makes it only about 4 clicks for a worker to file a claim electronically.

In short, the website, which is in beta and therefore undergoing constant changes, is designed to provide employees with an easy way to determine whether their rights are being violated, then provides them with a simple click to file a claim against an employer. Partnering with the NLRB, EEOC, and DOJ, the DOL wants the website to provide “critical information” to employees about their rights, who may not know whether they have a “FLSA” or “FMLA” problem, but an “unfairness-on-the job problem”. Employees answer a “few simple questions” and voila! The website will supposedly provide the relevant information, expanding in the weeks and months to come, and “learning” from the workers that use it about what kind of information is being sought – and the site will supposedly begin to feature that information prominently for similar workers.

The beta site provides a drop down, under which five job titles are currently available – day laborer; office worker; nail salon worker; restaurant worker; and construction worker. From there, it takes to you a “Tell Us what happened. We can help.” screen with several options such as – “You have the right to be treated equally.”, “You have the right to engage with others to improve wages and working conditions”, “You have the right to a safe and healthy work environment”, and “You have the right to be paid.”  From there, the employee can chose what happened (i.e. suggestions – all are in the negative – such as “I was not paid for work I performed”) , and then be taken to a “File a Claim” screen.

What does this mean for employers? I have to believe we will see an increase in filed complaints, as that is the whole purpose of the website – to make it easy for employees to complain about unfair work treatment – and provide a simple click to do so.

OfferOn September 28, 2016, the Minnesota Supreme Court confirmed that the Minnesota Payment of Wages Act does not allow an employer to offset liabilities owed by the employee to the employer when determining whether an employee “recovers” a greater sum of wages than the employer tendered in good faith where there is a dispute concerning wages owed. Toyota-Lift of Minnesota, Inc. v. American Warehouse Systems, LLC (Minn. 2016). Remember from my earlier post, the Minnesota Payment of Wages Act provides that when an employee’s employment terminates, the employer must promptly pay all wages due (or suffer double damages plus attorneys fees). If there is a dispute, the employer can make a “legal tender of the amount which the employer in good faith claims to be due” and then is not liable for any sum greater than the amount tendered, unless the employer recovers more than that amount in a lawsuit. Generally clients are advised to make a “payment” of the alleged wages due, then attempt to recover the over payment. This opinion appears to be a game changer.

Most notable (to me, anyway), is what the Court didn’t hold…but what it put in dicta (meaning, it’s two cents, but not binding law) in a footnote. The Court notes that the Act does not define “legal tender”, and goes on to state that it is not, “entirely clear that a ‘tender’ under subdivision 3 is the same thing as a ‘payment'”. Noting that “tender” is defined by Blacks Law Dictionary and others as an “offer”, “these factors suggest that a settlement offer might be considered a ‘tender,’ regardless of whether the settlement offer is accepted.” But, unfortunately, the employer failed to raise that argument in its brief, and so the Court did not formally make a ruling on that issue. Adding further insult to injury, the Court also noted that the employer argued at oral argument that the Act should be interpreted for extinguishing liability for penalties whenever an employer makes good faith tender of the amount allegedly due (regardless of whether the employee recovers more than the tender), but as they failed to brief that issue, it too, would not be considered.

This opinion could have huge impacts on the treatment of the payment of wages upon termination. Historically, when an employer terminates an employee, and a dispute arises as to unpaid wages, the employer is advised to pay the disputed amount within 24 hours, so long as it is in the realm of reason, then attempt to settle the dispute with the employee (knowing that rarely you are actually going to recover monies paid). This most often occurs with salespersons and their commissions.

This case, however, hints that it would be acceptable for an employer to tender an offer to pay that amount as part of a settlement agreement, and still be able to avoid the liability under the Act for not paying wages timely. Again, someone is going to have to challenge this, unfortunately, and properly bring the issue before the court to rule on. In other words, pay what is undisputed upon demand, and tender (an offer) to pay the remainder as part of a settlement. So long as the employee is not awarded more than the tender (settlement offer), the employer is not liable for anything else (such as double damages or the employee’s attorneys’ fees – the real penalty).

MinnesotaJudicialCenterHope is on the horizon for Minnesota restaurants! On September 20, it was announced that the Minnesota Supreme Court will hear the appeal from the novel decision, Burt v. Rackner, Inc. d/b/a Bunny’s Bar & Grill (MN App. June 27, 2016). As I wrote about on August 4, 2016, the plaintiff, Todd Burt, was terminated by Bunny’s Bar and Grill for not sharing tips with other employees. Despite not losing tips/money, the Minnesota Court of Appeals held (for the first time in 40 years) that the termination of his employment for refusing to share his tips with other employees resulted in his lost employment, and thus, he had an actionable claim to recover future lost wages under the Minnesota Fair Labor Standards Act (MnFLSA). This may not sound like a big deal, but it is – here’s why.

The MnFLSA already provides remedies when an employee is wrongfully forced to share tips – the Minnesota Human Rights Commissioner may require the employer to pay the employee the lost wages. The problem is obvious, right?  Here, the employee didn’t lose any wages – because he wouldn’t share – so he sued under this new theory that it was wrongful discharge in violation of the MnFLSA. This opens up an entirely different box of remedies – and litigation. Good for the employee.  Bad for the employer. The question is, what remedies does the MnFLSA allow, as interpreted by the courts (this is called “common law”).

In the Court of Appeals opinion, the Court held, for the first time: “Where an employer requires, as a condition of employment, that an employee consent to working rules expressly prohibited by the MFLSA, the employee is authorized by the statute to sue for damages normally associated with a wrongful-discharge cause of action.” This decision was monumental, creating a new exception to Minnesota’s at-will employment.

Not surprisingly, and a great relief to many restaurants and employers, on July 27, 2016, Bunny’s Bar & Grill, petitioned the Minnesota Supreme Court to review (and overturn, obviously) the Court of Appeals decision. Here is the issue on appeal:

Whether the MFLSA, Minn. Stat. §§ 177.24 and 177.27, creates a claim for the retaliatory discharge of an employee who refused to share gratuities, abrogating the common law of at will employment without any expression of legislative intent to do so.”

That’s fancy lawyer speak for asking the Supreme Court to decide that the Court of Appeals decision improperly interprets the MnFLSA to create an action for wrongful discharge, when the law does not itself provide such an action. Bunny’s position is that the Minnesota legislature must change the law, not the courts, which are only tasked with interpreting the law. On August 17, the Minnesota Restaurant Association (MRA) asked the Minnesota Supreme Court to allow it to file a brief in support of Bunny’s Bar & Grill petition. On September 20, the Minnesota Supreme Court announced that it would take the extraordinary step and review the Court of Appeals decision, and also allowed the MRA to file an amicus curiae brief (a brief supporting why Bunny’s is right and the Court of Appeals was wrong) in support of Bunny’s.

Keep in mind that the decision, while applicable to tips sharing, will certainly be broadly interpreted (beyond tip sharing) and used for other wage situations. Accordingly, I would not be surprised to see more employer associations or large employers ask to file a “me too” amicus curiae brief. After that, it’s the hurry up and wait game – after briefing and oral arguments, I wouldn’t expect to see a decision until Spring 2017, so we’ll just have to wait.

When isn’t an asset purchase an asset purchase?  When the purchase of the assets are intended to run the business as a going concern.  So said the Eighth Circuit Court of Appeals on July 5, 2016, in Day v. Celadon Trucking Services, Inc.  So, what’s the big deal?  Well, on a 10,000 foot level, in a typical asset purchase (versus stock purchase), employees may or may not be hired by the new entity. In this case, the buyer, Celadon Trucking Services, Inc., decided to hire 201 of the 658 employees of the seller, Continental Express, Inc.  The rest remained employed by the seller to terminate. Unfortunately, the seller did not provide the remaining employees with the required 60 day Worker Adjustment and Retraining Notification (“WARN”) Act notice for a mass layoff. Thus, the terminated employees sued the buyer (deep pockets since the seller was broke), seeking damages under the WARN Act.

Here is where things take a detour, and to those of us on the employer side, defies logic at first blush.   Continue Reading 8th Circuit Holds That A Buyer In An Asset Purchase May Be Liable Under the WARN Act For the Seller’s Failure to Provide Advance Notice of Mass Layoff