Over the next several weeks, I will be re-posting articles on diverse legal subjects that I wrote over the years, updated (as necessary) to conform with recent changes in the law.
Pay for Employment
It is unlawful for an employer or supervisor to demand or accept a portion of an employee’s pay, or any other form of consideration, in exchange for being hired. Minn. Stat. § 181.031. An “employer,” for purposes of Minnesota’s wage payment laws, is a person having one or more employees in Minnesota, and includes the state and all subdivisions of the state. Minn. Stat. § 181.171.
Statement of Earnings
Employers must provide all employees a written or electronic statement of earnings at the end of each pay period that states the pay period, rate of pay, hours worked, gross pay and any deductions from pay, among other things. Minn. Stat. § 181.32.
Frequency of Payment
Minnesota law requires employees be paid no less frequently than once every 31 days on a regular payday, except wages earned in employee’s first half month must be paid on the first “regular payday” after hire (so an employee hired mid-month needn’t wait 1 ½ months for his/her first pay check, if employer pays monthly rather than the customary bi-weekly). An employer’s failure to do so may result in action by the Department of Labor and imposition of penalties and costs, or private litigation by an employee. Minn. Stat. § 181.101.
By statute, terminated employees must be paid all “earned and unpaid” wages and commissions within 24 hours of termination. Minn. Stat. § 181.13. If no wage agreement exists, the earned amount is the “reasonable value” of the employee’s labor. O’Kronglis v. Broberg, (Minn. App. 1990). If an employer fails promptly pay, the employee may make a formal written demand for payment. For each day the wages go unpaid following such demand, the employee may recover in court a day’s wages, up to a maximum of 15 days, plus attorney fees, which the court must award to a prevailing employee. To recover such penalty, the employee’s wage demand must be in writing. Wages, for purposes of the statute, exclude per diem payments. DC & D Enterprises, LLC v. Schreader (Minn. App. 2016).
In 2015, the legislature clarified that wages are “unpaid” for purposes of this statute if all those contractually or statutorily due are not paid. Thus, employers who dispute the amount of wages or commissions owed in good faith are subject to penalties and attorneys fees, even if they pay the undisputed portion thereof, where the employee recovers a greater amount than that tendered. Minn. Stat. § 181.14. In determining whether a “greater” amount is awarded, a court may not consider offsetting judgments in favor of an employer based on other, non-wage-related legal claims. Toyota-Lift of Minn., Inc. v. Am. Warehouse Sys., LLC (Minn. App. 2015).
Employees Who Quit or Resign
Employees who quit or resign must be paid no later than the next regular pay period. The statute provides similar penalties to those allowed terminated employees. Minn. Stat. § 181.14. If a discharged employee was entrusted with money or property while employed, the employer has ten working days to adjust the person’s owed wages. This would apply to include loans of money, as well as computers, cellphones and other equipment provided to the employee. Schimming v. Equity Servs. of St. Paul, Inc. (Minn. App. 2012)
Terminated Independent Contractors
Independent contractors paid on a commissioned basis may sue to recover unpaid wages earned through the last day of employment. Minn. Stat. § 181.145. This applies whether the contracting party is an individual or corporation. McClure v. Davis Engineering (Minn. App. 2006). Covered commissions must relate only to “services or merchandise which have actually been delivered to and accepted by the customer by the final day of the salesperson’s employment.” Minnesota courts interpret this to further apply only to commissions that were payable as of that date, not some future date, as per the parties’ contract. Johnson v. Grand Rapids Realty, Inc. (Minn. App. 2011).
To be payable as of that date, the amount must be calculable as of that date. Ehlen v. Hanratty & Assoc. (Minn. App. 2009). Payment is due within 3 work days of either termination or resignation upon 5 days’ notice, 6 work days where no such notice is given. Violations of this statute subject employers to similar penalties, up to 15 days, and attorney fees. The daily penalty is calculated at a rate of 1/15th the total amount of earned but unpaid commissions.
giving receipts for wages in an amount greater than the amount paid, demanding a rebate or refund of wages, making it seem the wages paid are greater than the amount actually paid, and altering the method, timing or manner of payment of commissions for terminated commissioned employees are all prohibited acts. In a civil suit for damages, employees subjected to such practices may recover double their actual damages as a penalty. Minn. Stat. § 181.03.
In the 2014 case Christensen v. LumiData, the Minnesota Court of Appeals upheld a trial court’s award of double commissions, even though the employee violated a post-employment noncompetition provision in his employment agreement that contained a forfeiture clause. In doing so, the court rule the employer failed to meet a required condition precedent of terminating the employee upon five days’ notice.
Statute of Limitations
Unlike most contract claims in Minnesota, which are governed by a six year statute of limitations, an employee seeking payment of unpaid wages has only two years in which to bring suit, or three years if the employer’s non-payment of wages was intentional as opposed to inadvertent. The two-year statute applies to independent contractor claims under Minn. Stat. § 181.145, even if the contractor in question is a corporation. McClure v. Davis. To date, courts have not ruled on the question of whether contractor claims falling outside the statute (e.g., for commissions earned or payable following termination of the contractor) would be subject to the two-year or six-year statute.
They have ruled, however, that the attorney fee provision of section 181.145 doesn’t apply to unpaid commissions that become due after termination. Johnson v. Grand Rapids. Accordingly, contractors with sufficient bargaining power should demand, as a condition of contracting, an attorney fee provision in their contracts in the event of non-payment of commissions.
Contractually mandated paid time off or vacation pay are wages for Minnesota’s wage payment statutes. Swanson v. Industrio Marketing, LLC (Minn. Dist. Ct. 2006). However, “use it or lose it” and other policies governing the forfeiture of vacation pay are enforceable under Minnesota law. In Lee v. Fresenius Medical Care, Inc. (Minn. 2007), the Minnesota Supreme Court ruled that employer policies calling for employee forfeiture of vested but unused vacation time upon separation from employment are legally enforceable.
The specific forfeiture provision at issue in Lee, set forth in an employee handbook, applied to terminations based on misconduct. Accrued vacation, according to the court, is an earned right to paid time off, not payment when discharged, unless an employment contract states otherwise. Because contracts may be verbal, however, all employers should clearly specify in writing, e.g. in an employee handbook or offer letter, employees’ vacation pay rights during and following employment. Failure to do so could result in expensive and distracting litigation.
Wages and Hours Laws
Minnesota’s laws governing overtime pay are more expansive than their federal counterparts. To give but three examples: (1) Minnesota does not have an overtime exemption for computer employees; (2) Minnesota’s overtime laws cover smaller employers than are covered under federal law and (3) overtime pay kicks in after 48 hours per week under Minnesota law, rather than 40 hours under federal law.
A commissioned employee who has completed all the work necessary to obtain a commission is not entitled to payment if his or her contract states that commissions are not “earned” until all specified contingencies are met. The most common one requires that the employee remain employed at the time the customer makes payment for the goods or services in question.
However, there is some authority in the law for wrongful termination claims based upon firings deliberately timed to avoid the payment of commissions, the vesting of stock options or other forms of compensation or benefits. This is an exception to the at-will employee doctrine, under which employees who are neither employed under a contract nor members of a collective bargaining unit may be terminated for any reason or no reason at all.
Owners of Closely Held Companies
Under Minnesota law, owners of small, closely held companies who are also employees may have a reasonable expectation of continued employment. In practice, this means that they cannot be fired except for good cause shown. Employers wishing to avoid such exposure should require that employee owners sign a contract of employment acknowledging they are employed at-will.
If you are an employer or are in the process of starting up a company that plans to employ employees or engage independent contractors, it is advisable to consult with an employment law attorney to ensure that you are in compliance with the complex web of federal and state laws that relate to employment. I am available to review or draft up your employee handbook and ensure that all of your workplace policies are in compliance with the law. The adage “an ounce of prevention is worth a pound of cure” applies well to the area of employment law.