Minnesota Supreme Court Clarifies the Statute of Limitations for Breach of Employment Contract Actions

01/12/2012 / John A. Kvinge

Park Nicollet Clinic v. Hamann, ___ N.W.2d ___, 2011 WL 6057981 (Minn. 2011)
In Minnesota, most actions for breach of an employment contract are governed by the two-year statute of limitations set forth in Minn. Stat. § 541.07(5). This means that employees have two years from the date of the alleged breach of contract to file a lawsuit. In Park Nicollet Clinic v. Hamann, ___ N.W.2d ___, 2011 WL 6057981 (Minn. 2011), the Minnesota Supreme Court was faced with the question of whether each paycheck issued after a breach resets the two-year time period for bringing a claim. The Minnesota Supreme Court’s answer, reversing the Minnesota Court of Appeals, was “No.”
The Facts
Dr. Arlyn Hamann was a physician with the Obstetrics and Gynecology Department at a St. Louis Park clinic. All of the physicians in the Obstetrics department were required to participate in a night call rotation that required them to see patients at night and on weekends. Those who chose not to participate received a reduction in salary. In 1995, the clinic adopted a Length of Service Recognition Policy that allowed physicians over the age of sixty with at least fifteen years of participation in the night call rotation to opt-out without receiving a reduction in salary.
In 2004, Dr. Hamann informed his employer that he planned to take advantage of the Length of Service Recognition Policy and opt-out of the night call rotation after he turned sixty. Due to staffing shortages at the time, his employer asked Dr. Hamann to wait until April 2005 to exercise his rights, and Dr. Hamann agreed. In April 2005, as agreed, Dr. Hamann again informed his employer that he was exercising his rights under the Length of Service Recognition Policy. His employer informed him that that policy no longer existed and would no longer be honored. If he ceased participating in the night call rotation, his salary would be cut.
Rather than accept a reduction in pay, Dr. Hamann continued to participate in the night call rotation for nearly three more years until February 2008, when he withdrew, citing health reasons. The clinic reduced his salary, and in October 2009, Dr. Hamann brought the lawsuit that is the subject of this article
The Lower Courts
At the Hennepin County District Court, the employer filed a motion to dismiss, arguing that because Dr. Hamann’s claim had accrued in April 2005. Since he had waited for more than four years after April 2005 to file his lawsuit, the statute of limitations had run and the claim was untimely. The district court agreed and the case was dismissed for failure to state a claim. Dr. Hamann appealed the dismissal to the Minnesota Court of Appeals. 
At the Court of Appeals, Dr. Hamann argued that each pay period after April 2005 in which he was required to work night call or in which his salary was reduced constituted a separate breach of the terms of the Length of Service Recognition Policy. Since the violations were continuing through the date that the lawsuit was filed, the statute of limitations had not run and his claim was still timely. 
Dr. Hamann is not the first employee in Minnesota to wait several years to file his claim, arguing that because his pay continued to be reduced, his claim continued to be valid. In Hamann, the Minnesota Court of Appeals based their decision on Levin v. C.O.M.B. Co., 441 N.W.2d 801 (Minn. 1989). In Levin, an employee was entitled to an annual bonus equal to a percentage of the company’s sales above $15 million. The employee was paid the bonus for the first year, but then received no bonuses for the next four years. Three years after the company missed his first bonus, the employee brought suit. The employer argued that the two-year statute of limitations had expired, and the claims were barred. The Minnesota Supreme Court disagreed, holding that each failure to pay a bonus was a distinct cause of action, representing “a series of breaches, repeated failures to pay commissions . . . each of which could have occurred only at the close or at some date after a contract year.” Levin, 441 N.W.2d at 803. Other Minnesota cases regarding nonpayment of bonuses have had similar results. Relying on this line of reasoning, the Court of Appeals held that a new cause of action for recovery of wages accrued each time a payment was due but not paid. Dr. Hamann’s employer, Park Nicollet, appealed to the Minnesota Supreme Court.
The Minnesota Supreme Court Distinguishes Between Bonuses and Policies
The Minnesota Supreme Court rejected the argument that each paycheck created a separate breach of the employment contract. Instead, said the Court, “the complaint here alleges a single breach of an obligation that Park Nicollet owed in April 2005, when Hamann sought performance. . . . That Hamann did not fully appreciate the effects of Park Nicollet’s April 2005 breach until some years later does not postpone the accrual of his cause of action based on that breach or transform Park Nicollet’s wrongful conduct in April 2005 into a continuing breach of an ongoing obligation that could give rise to separate causes of action.” Hamann, at *14.
In reaching their holding, the Minnesota Supreme Court instructed the lower courts to “examine the nature of the wrongful conduct at issue in order to determine when the cause of action accrues.” Hamann, at *15. A claim for failure to pay wages earned may accrue with each paycheck, but a claim for failure to honor a policy that allows a change in job responsibilities, like the one at issue in this case, accrues only once, when the employee’s demand under the policy is denied.