Minnesota Supreme Court Attempts to Clarify Payment of Wages Act and Safe Harbor Provision

On September 28, 2016, the Minnesota Supreme Court held that the Minnesota Payment of Wages Act, Minn. Stat. § 181.14, does not allow a court to “offset liabilities” owed by the employee to the employer when deciding whether a statutory penalty may be imposed on the employer. Toyota-Lift of Minnesota Inc. v. American Warehouse Systems-LLC-et-al, No. A14-1159 (Sept 28, 2016).

Toyota-Lift of Minnesota, Inc. (“TLM”) sued Mark Juelich (“Juelich”) and American Warehouse Systems, LLC (“AWS”), for breach of contract, among other claims, arising out of an asset purchase agreement. In the same lawsuit, Juelich and Steven Thoemke (“Thoemke”), former employees of TLM, claimed TLM owed them commissions earned under their employment agreements and sought penalties for nonpayment under Minn. Stat. § 181.14.

The district court ruled that Juelich and Thoemke were owed $104,000 in additional commissions from TLM, but also found that TLM could recover approximately $815,000 from AWS. The district court denied Juelich and Thoemke’s request for statutory penalties under Minn. Stat. § 181.145 for failure to pay wages, reasoning that the $815,000 judgment owed to TLM from AWS more than offset the unpaid commissions owed to Juelich and Thoemke and therefore the statute’s “safe harbor” clause precluded a penalty. The Court of Appeals affirmed the separate awards of damages, but reversed the court’s denial of statutory penalties to Juelich and Thoemke, finding TLM liable for statutory penalties under Minn. Stat. § 181.14.

The Supreme Court affirmed the judgment at the Court of Appeals and then attempted to clarify how the safe harbor clause in Minn. Stat. § 181.14, subd. 3 should be interpreted alongside the statutory penalty provision. Under Minn. Stat. § 181.14, subd. 2, an employer has 24 hours to pay outstanding wages and commissions demanded by an employee before a statutory penalty of up to 15 days of pay is imposed. If the amount due is disputed, the statute provides a “safe harbor,” allowing the employer to escape liability for the penalty if the employee recovers less in court than the amount “tendered” by the employer. See Minn. Stat. § 181.14, subd. 3.

The Minnesota Supreme Court read the statute to say that when the amount the employee recovers in court is greater than the amount “tendered” the employee is entitled to recover the full amount resulting from the cause of action, including statutory penalties. Because the statute is silent regarding whether an employee’s recovery of a greater sum can be offset for non-wage claims, the Court concluded that “offsetting liabilities is not permitted.”
The Court may have raised more questions than it resolved. In footnote 2 of its decision, it noted that Minn. Stat. § 181.14 does not define “legal tender” but that the parties assumed it meant an “unconditional case payment.” The Court suggested that an “offer” might constitute a “tender,” and even a settlement offer (which is not necessarily unconditional), “regardless of whether the settlement offer is accepted” and then concluded that it would “express no opinion on the subject” that it raised.

The safe harbor provisions of Minn. Stat. § 181.14, subd. 3 is arguably unclear regarding timing as well. The provision states as follows:

Subd. 3.Settlement of disputes. If the employer disputes the amount of wages or commissions claimed by the employee under the provisions of this section or section 181.13, and the employer makes a legal tender of the amount which the employer in good faith claims to be due, the employer shall not be liable for any sum greater than the amount so tendered and interest thereon at the legal rate, unless, in an action brought in a court having jurisdiction, the employee recovers a greater sum than the amount so tendered with interest thereon; and if, in the suit, the employee fails to recover a greater sum than that so tendered, with interest, the employee shall not pay the cost of the suit, otherwise the cost shall be paid by the employer.

Section 181.14, Subdivision 2 requires an employer to pay earned wages or commissions within 24 hours of a demand by a former employee who has resigned, assuming the wages or commissions were not in their final paycheck. The safe harbor provision in Subdivision 3 does not state whether the tender of wages must occur within the 24-hour period. Logically, however, if an employer paid the full amount within the 24-hour period, and the employee did not recover more at trial, the penalty would not apply anyway, making the provision pointless. The safe harbor provision, therefore, arguably allows an employer to tender the amount after the initial 24 hours, and even after the 15 days. (In furtherance of this interpretation is the practical fact that a true dispute regarding calculation of commissions or wages would likely take more than 24 hours to investigate). A clear road map may not be available until the appellate courts weigh in on the Payment of Wages Act in a future decision.

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About the Author:
Trepanier MacGillis Battina P.A. is a Minnesota unpaid wages law firm located in Minneapolis, Minnesota. Their attorneys can be reached at 612.455.0500.