Pennsylvania Court Finds Employee Handbook Creates Contract, Upholds $187.6 Million Award

The year 2011 saw a number of employee-friendly changes to the laws governing the workplace. The U.S. Supreme Court expanded the scope of retaliation claims under Title VII and under the Fair Labor Standards Act. The Equal Employment Opportunity Commission (EEOC) implemented regulations further broadening the definition of “disability” under the ADA. The National Labor Relations Board actively protected employee social media use. And the EEOC has cracked down on inflexible leave of absence and attendance policies.

Pennsylvania courts have not shied away from the action. In 2011, the Pennsylvania Superior Court upheld one of the largest awards in a wage and hour class action in the state’s history. In Braun v. Wal-Mart, the court awarded $187.6 million in back wages, damages, and fees to employees of Wal-Mart stores throughout Pennsylvania for paid rest breaks they were not permitted to take. Approximately 187,000 current and former hourly Wal-Mart employees claimed that the employee handbook promised paid rest breaks, but they were forced to work during those breaks and were not compensated for the missed breaks.

The employees brought their claims under Pennsylvania’s Wage Payment and Collection Law (WPCL). The WPCL does not entitle employees to wages or fringe benefits, but rather provides a remedy when an employer fails to pay for wages or benefits due under the terms of a contract or agreement. According to the court in Braun, payment associated with paid rest breaks pursuant to a contractual agreement between an employer and employee constitutes wages as that term is broadly defined in the WPCL. And the court ultimately found such a contractual agreement for paid rest breaks under the facts before it.

Particularly, Wal-Mart had several policies in place regarding rest breaks. The policies not only guaranteed, but also mandated, a single fifteen-minute rest break to an employee who worked more than three hours in a shift, and two such breaks if an employee worked more than six hours. Pursuant to the policy, the breaks were to be “full, timely, uninterrupted,” and employees were to receive compensation for break time at the applicable rate of pay. The rest break policy was set forth in Wal-Mart’s employee handbook, which was provided to all employees at the start of employment. Even though the employees were required to sign an acknowledgment page stating that the handbook was not a contract, the court found that Wal-Mart had promised employees paid rest breaks during which time they were to perform no work, and that promise amounted to a contract.

In finding a contract, the court not only relied upon Wal-Mart’s written policies, but also that paid rest breaks were repeatedly and consistently presented to employees as a benefit of employment. Not only was the policy presented in the employee handbook, but it was also referenced at orientation and in numerous postings throughout Wal-Mart stores. Employees and managers received in-person and computer-based training that emphasized compliance with Wal-Mart’s policies on breaks. Wal-Mart further reinforced the mandatory nature of the paid rest breaks by providing for disciplinary action for missed or shortened rest breaks. Ultimately, the court found that Wal-Mart’s employee handbook, as reinforced by its business practices, business records, orientation and training sessions, and policy of disciplining managers and employees who violated the rest break policy, created a contract between Wal-Mart and its employees promising paid rest breaks. The court held that when Wal-Mart required its employees to miss these paid rest breaks without additional compensation, it breached this contract. As a result, Wal-Mart was ordered to pay the class of employees for all of their missed breaks.

Employers may find it difficult to understand how employees were in fact denied compensation for missed rest breaks when they were paid regardless of whether they took a break or not. The court, however, reasoned that given the policy guaranteeing paid rest breaks in which the employee was to perform no work, Wal-Mart essentially promised to pay hourly employees for periods of work and for limited periods of uninterrupted rest. Accordingly, when an employee was denied that rest period and instead required to work additional hours, Wal-Mart owed him additional compensation. To summarize the court’s reasoning: “the WPCL does not permit an employer to escape liability when it receives the benefit of … an employee’s eight hours of labor when that employee agreed to be paid to work seven-and-a-half hours and to rest for one-half hour.”

The message of the Braun case is simple—an employee handbook can create a contract as to the form and amount of compensation, and such a contract can be enforced under the WPCL. Where policies, employee handbooks, and other communications make statements, representations, or other promises regarding wages or fringe benefits (or even rest breaks), employers may be legally bound by such promises. A disclaimer that a handbook does not change the at-will relationship and does not create a contract of employment may not be effective in preventing a court from finding that a contractual relationship exists as to certain terms and conditions of employment that are promised. 

In the shadow of the court’s $187.6 million verdict against Wal-Mart, the start of 2012 affords a timely opportunity to review and update your policies and handbooks, with a particular focus on wage and hour practices. As the past year has demonstrated, the laws governing employment relationships are ever changing. The Labor and Employment Practice Group at McNees Wallace & Nurick is always available to assist you with auditing your Human Resources practices and to answer your questions regarding new laws, regulations, and court decisions.

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