Montana Supreme Court Upholds Employers Right to Change Sick Leave Payout Policies


Employees at the Kalispell Regional Medical Center, upon being hired, signed a probationary employment contract that read, "Upon expiration of this Probationary Employment Contract, if the Employer and Employee elect to continue the employment relationship, the Employee shall attain regular employee status, subject to the policies and regulations of the Employer, as they may exist from time to time." KRMC’s policy and procedure manual contained the statement, "benefits may change from time to time…" and that "policies and benefits…may be modified, added to, or discontinued from time to time." At the time plaintiffs were hired the sick leave policy allowed employees to bank unused sick leave into a Continuous Illness Bank, for use during long term illness. KRMC did not pay out the unused Bank upon termination except to employees with more than 25 years of service.

Due to financial liability concerns, KRMC terminated the Continuous Illness Bank except as to employees who at that time already had 25 years of service. The plaintiffs sued on behalf of all employees with less than 25 years of service in a class action alleging breach of their employment contract, breach of the covenant of good faith and fair dealing, and violation of the Montana Wages and Wage Protection Act (MWWPA). In an earlier appeal, the Montana Supreme Court affirmed the trial court's certification of the class of employees. However, the trial court granted KRMC’s motion for summary judgment on all claims. The Montana Supreme Court affirmed.

The Court found that: (1) the KRMC had clearly expressed an intention not be contractually bound to pay out the benefits in the future thus there could be no claim for breach of contract or breach of the covenant of good faith and fair dealing; and (2) under Montana law, sick leave is not wages unless the employer has agreed to pay out accrued but unused time. Therefore it further held that because the language of the employee handbook explained that pay-out benefits "…are not payable upon termination…", the employees' accrued sick leave hours did not constitute deferred compensation or earned wages; and that the employers did not divest any benefit to the employees. Thus, the employees did not have a right to be compensated for the hours they accumulated prior to the employers' termination of the benefit and the KRMC did not violate the MWWPA. (Chipam vs. Northwest Healthcare Corporation et al. DA 13-0329.)

This case underscores the importance of clearly reserving the right to change policies in all employment documents. Note that KRMC did not cancel the benefit for those employees who had arguably “vested” in the benefit by completing 25 years of service, had it done so the analysis might have been different.

Source: Quirky Employment Questions Blog


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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