News & Articles

Published on Tuesday, May 16, 2017

Michigan Appeals Court Looks to Handbook Language to Settle Compensation Claim

A recent Michigan Appeals Court decision (unpublished) again affirms that courts regularly and purposely use employee handbook policy language to determine what the employer means when a dispute arises about payment of wages or fringe benefits. In the case of Robert E. Heine v. Mack 1 Global Services, Inc. (No.328964) 4/25/2017, the issue for the court was whether the organization’s incentive plan was properly followed in the payment of monies allegedly earned under the employer’s policy. The question for the court was whether the earnings were wages or fringe benefits.

The petitioner-employee argues the pay earned was wages and due upon his termination of employment pursuant to Michigan’s Payment of Wages and Fringe Benefits Act (PWFBA) that requires wages owed to be paid as soon as the amount can be determined. The respondent-employer argued that the earnings were not wages, but a fringe benefit, and are paid pursuant to the employer’s policy as “set forth in the written contract or written policy.”

An Administrative Law Judge and a lower Circuit Court found the payment owed to be wages - or specifically, commissions earned. The Circuit Court reviewed whether the agency and the lower court misapplied the PWFBA to the facts. The Appeals Court, looked at the statutory definitions of both Fringe Benefits and Wages:

(e) “Fringe Benefits means compensation due to an employee pursuant to a written contract or written policy for holiday, time off for sickness or injury, time off for personal reasons or vacation, bonuses, authorized expenses incurred during the course of employment, and contributions made on behalf of an employee.”

(f) “Wages means all earnings of an employee whether determined on the basis of time, task, piece, commission, or other method of calculation for labor or services except those defined as fringe benefits under subdivision (e) above.” 

MCL 408.471

It was here that the Appeals Court also turned to both the employer’s contract that addressed compensation and the employer’s handbook policy statement.

The employer’s contract term clearly stated the payment owed was considered to be a fringe benefit. The employment contract stated that only wages are due if the employee terminates employment voluntarily.  One point of confusion the Appeals Court clarified was that the employer’s handbook stated “commissions,” and both the contract and the handbook policy stated that commissions were fringe benefits as per the “incentive plan.”

The Court noted that the employment contract could only be revised if all parties agreed to a change. However, the handbook policy could be revised unilaterally by the employer. Except for minor inconsistencies, the Court found both documents “belied the existence of any ambiguity” regarding compensation. The petitioner-employee hoped that this position would compel the Court to make a ruling against the author of the policy and contract.

The Appeals Court found that the monies were incentive plan based under the employment contract and the handbook policy – not wages earned.  This lead it to reverse the ALJ and Circuit Court’s rulings and find that the monies were not owed because of the employer’s policy that incentive pay is forfeited if the employee was not employed at the time payment was distributed.

The law holds that employers must clearly state their benefit and pay practices in their handbook policies.  Otherwise, the Court may be compelled to interpret the contract term or policy statement against the employer as too ambiguous – a contract drafting flaw that usually results in a ruling against the person or entity that did the writing.

ASE provides employee handbook review services that look for legal compliance concerns, policy inconsistencies and better ways to layout the handbook so employees can easily find what information they are looking for. If your handbook has not been reviewed in a while, chances are it has some policies that are out of date and even potentially illegal. For information on ASE employee handbook review services call Michael Burns at (248) 223-8039 or email him at mburns@aseonline.org.

Source: Robert E. Heine v. Mack 1 Global Services, Inc. (No.328964) 4/25/2017. State of Michigan Court of Appeals

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