Minnesota Court of Appeals

Earlier this year, the Minnesota Court of Appeals held a per diem payment does not fall within the definition of wages under Minnesota Statute § 181.13, resulting in the reversal of a penalty against the employer issued for non-payment of wages.

In Schreader v. D, C & D Enterprises, LLC, Case #: A15-1140 (Minn. Ct. App. 2016), Ms. Schreader was terminated from her employment.  On the day of her termination she e-mailed DC & D Enterprises LLC and notified them she had forgotten to add five days of per diem to her last time sheet.  She received a per diem rate of $30 for each day she was out of town for work.  She also requested payment of ten hours of paid time off and her full wages to the date of her termination.  She received payment for her full wages, but was not paid the per diem rate for 5 days or the ten hours of paid time off.  Ms. Schreader sued and was awarded judgment of $3,109.62.  $2,884.62 of the $3,109.62 was the penalty for failure to make the per diem payments.  DC & D Enterprises appealed the Court’s imposition of the 15 day wage penalty.

Minnesota Statute § 181.13 provides, “…If the employee’s earned wages and commissions are not paid within 24 hours after demand… the employer is in default. In addition to recovering the wages and commissions actually earned and unpaid, the discharged employee may charge and collect a penalty equal to the amount of the employee’s average daily earnings at the employee’s regular rate of pay or the rate required by law, whichever rate is greater, for each day up to 15 days, that the employer is in default, until full payment or other settlement…”

According to the Court of Appeals when a statute provides for a penalty, it must be strictly construed.  Therefore, the plain meaning of the words “per diem” and “wages” prevail.  The common definition of “per diem” is a daily allowance used to cover expenses.  The Court relied on the common definition of wages when it determined the per diem payments are not considered wages within the meaning of Minn. Stat. 181.13.

Minnesota employers should refer to Minnesota Statute 181.13 so they don’t run the risk of having to pay penalties in regards to compensating a terminated employee.  Don’t forget to pay them within 24 hours of a request from the terminated employee.

Ms. Kern worked for the Minneapolis Institute of Arts (MIA) from August 2004 to July 1, 2014.  In 2012, Ms. Kern received a demotion.  Following the demotion she filed a sex-discrimination complaint with the Minnesota Department of Human Rights.  The parties reached a settlement and Ms. Kern was paid $6,000 “to extinguish any liability whatsoever that the MIA has or allegedly has for claimed lost wages.”  The Minnesota Department of Employment and Economic Development (DEED) determined the $6,000 was deductible from any unemployment benefits Ms. Kern was to receive.  Ms. Kern appealed and the Unemployment Law Judge (ULJ) agreed with DEED.  Ms. Kern appealed to the Minnesota Court of Appeals, for a de novo review.

Minnesota Statute § 268.085, Subd. 3 defines, “back pay” as a payment by an employer to an employee or former employee for lost wages.  The Court looked at the plain language of Minnesota Statute § 268.085 and determined the ULJ correctly determined the $6,000 was back pay and covered the period of time immediately following Ms. Kern’s termination of employment.

Most Employers and Employees don’t realize settlements may affect an employee’s unemployment compensation.  Clearly, Ms. Kern was expecting to receive unemployment compensation in addition to any settlement reached with MIA.  However, receipt of unemployment compensation is not automatic or guaranteed for employees.  Employers should know both settlements and severance packages can affect an employee’s unemployment compensation benefits.