When an employee handbook contains a clause that reserves the right of management to change the handbook’s provisions, the employer can change those provisions, even if the provisions provided employees with a benefit. In Barker v. County of Lyon, 813 N.W.2d 424 (Minn. Ct. App. 2012), former employees argued that it was reasonable for them to rely upon a handbook’s provision granting them a health insurance benefit after retirement. The defendant employer’s handbook contained a disclaimer which allowed for the Lyon County Board of Commissioners (the “Board”) to change the handbook’s provisions at any time. The Minnesota Court of Appeals held that this disclaimer made it unreasonable for the plaintiffs to rely upon the handbook’s promise of future benefits.
The Facts of Barker
The 1991 version of the employee handbook for Lyon County (“County”) provided a health insurance benefit for retired County employees. Specifically, “[a]ny employee retiring while in active service [was] entitled to 4% per year of service towards their health insurance premium.” Barker, 813 N.W.2d at 425. The handbook also contained a provision which stated that “[t]he Board reserves the right to change any of these policies, after notice to and input from employees.” Id. Subsequently, the Board made several changes to the handbook, the most recent of which took place in 2009, which provided that only employees who were hired prior to May 1, 1997 were entitled to the health insurance benefit, and that the benefit maximum was $330 monthly. Id. at 426.
Employees who had been hired prior to 1997 and who had not retired prior to this change were predictably unhappy, as their future health insurance benefits for retirement had been negatively impacted by the new provision. They sued the County under the theory of promissory estoppel.
No Promissory Estoppel Claim for Reliance upon a Handbook Which Disclaims Possible Change in Terms
The County’s handbook expressly stated that it was not a contract in its introductory language, so rather than a breach of contract claim, the plaintiffs resorted to the theory of “promissory estoppel” to bring suit. Promissory estoppel is a legal theory stating that in the absence of consideration, a promise that is made may be enforced if a person can show that:
- a clear and definite promise was made;
- the promisor intended to induce the promisee’s reliance on the promise;
- the promisee in fact relied on the promise;
- the promisee’s reliance was to his or her detriment; and
- in order to prevent injustice, the promise must be enforced.
Barker, 813 N.W.2d at 426 (citing Martens v. Minn. Mining & Mfg. Co., 616 N.W.2d 732, 746 (Minn. 2000)). Additionally, “[t]he promisee’s reliance on the promise must be reasonable.” Id. (citing Nicollet Restoration v. City of St. Paul, 533 N.W.2d 845, 848 (Minn. 1995)) (emphasis added). The Barker plaintiffs claimed that the “promise” in this case was the retirement health-insurance benefit, and that they were induced to reasonably rely upon that promise despite the handbook’s change disclaimer.
The issue for the Barker court was whether it was “reasonable” for an employee to rely upon a handbook provision that was subject to change. The court reasoned that under the handbook’s disclaimer, the benefit could be changed or even eliminated, so it would be unreasonable for the plaintiffs to rely on receiving the benefit. The plaintiffs in Barker also alleged that the County’s agents made oral promises in addition to the promises made in the handbook, but the court noted that reliance on an oral promise that contradicts a provision in an employee handbook is, as a matter of law, unreasonable. Id. (citing Johnson Bldg. Co. v. River Bluff Dev. Co., 374 N.W.2d 187, 194 (Minn. App. 1985)).
In sum, the court held that it was unreasonable for the Barker plaintiffs to rely upon a promise in the handbook that was subject to change. Because the plaintiffs failed to show that their reliance was reasonable, the court ruled that they had no valid claim under the theory of promissory estoppel.
The Takeaway for Employers
There are a few takeaways that employers may benefit from in light of the Barker court’s holding:
Include a Disclaimer Allowing for Future Changes in Your Handbook. It would be wise to update employee handbooks to include a provision that disclaims future changes. Including a provision such as this helps ensure that changes your company makes to employee benefits contained in a handbook are enforceable if challenged under a promissory estoppel theory.
This Holding Does Not Apply to Employees Who Retired Before The Handbook Change. The court noted that the plaintiffs in this case were either currently employed or had retired after the effective date of the handbook change. The holding in Barker does not address the applicability of a handbook change to employees who retired prior to the handbook change and already received the benefit.
This Holding May Not Apply to Employees Who Were Hired Prior to the Amendment Adding the Change Disclaimer. The County’s handbook did not always include a provision which disclaimed future changes by the Board; in fact, this provision was not enacted until 1991. The court was not clear as to whether the employees who were precluded from relying upon the handbook were all hired after 1991.
Many employee handbooks include a provision that allows the employer to change the benefits contained in the handbook. The holding of Barker permits such a disclaimer, which would preclude employees from asserting a promissory estoppel claim that they are entitled to benefits contained within handbook provisions that were subsequently removed or altered. If you have a question about your employee handbook’s change disclosure provision, or if you are considering amending your employee handbook, please contact the business and employment lawyers at Trepanier & MacGillis, P.A.
About the Author:
Minnesota business attorney James C. MacGillis practices extensively in the field of business and commercial litigation and regularly advises and represents businesses in employment and business disputes. Jim may be reached at 612.455.0503 or firstname.lastname@example.org. Trepanier MacGillis Battina P.A. is a Minnesota employment law firm located in Minneapolis, Minnesota.