Opinion
No. C5-98-1650.
Filed March 30, 1999.
Appeal from the District Court, Carlton County, File No. C196967.
Don L. Bye, (attorney for respondent)
Keith J. Braskich, and Kathleen S. Bray, (attorneys for appellant)
Considered and decided by Davies, Presiding Judge, Peterson, Judge, and Halbrooks, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (1998).
UNPUBLISHED OPINION
Appellant U.S.G. Interiors, Inc. (USG) appeals the trial court's judgment finding notice of forfeiture of vacation benefits was a condition precedent to forfeiture of benefits under USG's plant practices and granting vacation pay to employee Michael Schneider even though he did not follow USG's policy requiring written notice prior to resignation. Because we agree that the notice of forfeiture of benefits is a condition precedent, we affirm.
FACTS
Respondent Michael Schneider was an employee of USG for a total of ten years over the course of two different time frames: 1985-89 and 1990-February 1996. He resigned from his position as a process control engineer on February 5, 1996. At that time he was an hourly employee paid $16.44 per hour. Under USG's policies, Schneider was entitled to three weeks of vacation and a $300 vacation bonus during 1996.
At the time of his resignation, Schneider requested payment for his vacation and vacation bonus. USG refused to pay him on the grounds that Schneider did not provide written notice of his resignation as required by USG's "Plant Practices."
Since 1985, USG has maintained Plant Practices, which are policies applicable to all employees. Among other policies, the Plant Practices document contains the vacation policy and requirements regarding an employee's notice of intent to resign. Schneider was actually or constructively aware of the Plant Practices. The relevant sections of the Plant Practices state:
Subject to the conditions and definitions set out below, each employee who has been continuously employed by the Company shall receive annually a vacation with pay in accordance with the following service schedule:
* * * *
Three weeks vacation and $300.00 after eight years of service.
Conditions and Definitions
1. In addition to other conditions, to be entitled to a vacation and vacation pay in any year, an employee must have worked for at least 1200 hours in the twelve (12) months preceding the date of his or her vacation.
* * * *
6. Length of accumulated service for vacation purposes will be lost, and the employee disqualified for vacation pay if an employee quits * * * .
* * * *
The conditions under which an employee will lose vacation pay, and pension benefits should be told at the time to any employee who gives notice or is planning to quit.
EXCEPTION:
Employees who are otherwise eligible for that year's vacation and give written notice to the Company equal to the length of their individual vacation that they are planning to quit the employ of the Company, will be given vacation pay provided they continue working for the Company for the period of the notice after giving said notice, if the Company so requests it. If no written notice is given prior to leaving the employ of the Company, the employee will forfeit all rights to vacation pay.
Schneider did not provide written notice of his intent to resign, but did orally notify his supervisors. None of the individuals informed of Schneider's resignation plan told him his resignation had to be in writing or he would lose his vacation pay.
In September 1996, Schneider brought an action under Minn. Stat. § 181.14 (1996) for the payment of his vacation pay and bonus. The case was tried to the court and it found in favor of Schneider. The court held that (1) the Plant Practices provision that states USG should notify employees of the potential forfeiture of their vacation pay was a condition precedent to the forfeiture of benefits, and (2) because USG did not follow its own Plant Practices, Schneider was not required to forfeit his vacation benefits. The court found Schneider was entitled to vacation benefits of $2,272.80 and a penalty of $1,972.80 under Minn. Stat. § 181.14, subd. 2 (Supp. 1997).
Forty hours per week at $16.44 per hour for three weeks plus $300 in vacation bonus pay.
Fifteen days at $16.44 per hour.
On appeal, USG contends the language in the "NOTE" sentence of the Plant Practices relating to vacation policy that provides USG "should" tell employees who are planning to quit how to retain eligibility for vacation pay is not a condition precedent to the employee's obligation to provide written notice of resignation because the language is discretionary, not mandatory.
DECISION
Construction of a contract presents a question of law, which this court reviews de novo. Stowell v. Cloquet Co-op Credit Union , 557 N.W.2d 567, 571 (Minn. 1997); Swanson v. Parkway Estates Townhouse Ass'n , 567 N.W.2d 767, 768 (Minn.App. 1997). A court's primary role in interpreting contracts is to "ascertain and give effect to the intention of the parties." Metropolitan Sports Facilities Comm'n v. General Mills , Inc. , 470 N.W.2d 118, 122-23 (Minn. 1991) (citation omitted).
Here, we must determine whether the language in the "NOTE" sentence constitutes a condition precedent to the employee's obligation to provide written notice of resignation. A condition precedent is "any fact or event, subsequent to the making of a contract, which must exist or occur before a duty of immediate performance arises under the contract." National City Bank v. St. Paul Fire Marine Ins. Co. , 447 N.W.2d 171, 176 (Minn. 1989) (citation omitted). Thus, the nonoccurrence of a condition prevents the performance of a duty, subject to the condition, from becoming due. Restatement (Second) of Contracts § 225 cmt. a (1981); see also R.A., Inc. v. Anheuser-Busch, Inc ., 556 N.W.2d 567, 570 (Minn.App. 1996), review denied (Minn. Jan. 29, 1997). "[I]f the [fact or] event required by the condition [precedent] does not occur, there can be no breach of contract." National City Bank , 447 N.W.2d at 176-77 (quoting 451 Corp. v. Pension Sys. for Policemen and Firemen , 310 N.W.2d 922, 924 (Minn. 1981)).
In resolving doubts as to whether an event is made a condition of an obligor's duty, and as to the nature of such an event, an interpretation is preferred that will reduce the obligee's risk of forfeiture, unless the event is within the obligee's control or the circumstances indicate that he has assumed the risk.
Restatement (Second) of Contracts § 227 (1981). Conditions precedent are particularly disfavored when the obligee has no control over the occurrence of the event in question. Mrozik Construction, Inc. v. Lovering Assoc. Inc. , 461 N.W.2d 49, 52 (Minn.App. 1990). A condition precedent to performance of an obligation will not be inferred absent unequivocal contract language. Id.
USG contends the language "conditions under which an employee will lose vacation pay * * * should be told * * * to any employee who gives notice or is planning to quit" is discretionary rather than mandatory and is not sufficiently unequivocal and binding to constitute a condition. USG supports its argument with the Mrozik case and three cases from foreign jurisdictions where courts held "should" was not mandatory under the specific facts of each case, but, instead, indicated desirability or preference. We believe these cases are distinguishable from the case at bar.
Reviewing the terms of USG's policies in their entirety, it appears USG intended the "NOTE" sentence to be a mandatory condition precedent. USG created a mechanism for receiving benefits which included forfeiture upon resignation without written notice by the employee. This system was seemingly designed so USG could receive notice of their employees' departures in order to plan for their replacements. It also demonstrates USG recognized the potential for employees to forfeit their benefits under this system and, therefore, drafted a provision to prevent forfeiture.
There was no reason for USG to incorporate the "NOTE" sentence in their Plant Practices unless they intended to inform their employees of the potential forfeiture of their vacation benefits. Reading the sentence as permissive shifts the burden of preventing forfeiture entirely to the employee and gives no effect to the employer-notice requirement. Contracts should be interpreted to give effective and reasonable meaning to all terms. Restatement (Second) of Contracts § 203(a) (1981); cf. Mixed Local of Hotel Restaurant Employees Union Local No. 458 v. Hotel Restaurant Employees Int'l , 212 Minn. 587, 595-96, 4 N.W.2d 771, 776 (1942) (stating "[w]hen reasonably possible, a construction of a writing should be adopted which gives it full force and effect," and "[l]ikewise, a construction will be avoided which nullifies or invalidates it in whole or in part.").
Moreover, "contracts should be construed to avoid a forfeiture." Hideaway, Inc. v. Gambit Invs., Inc. , 386 N.W.2d 822, 824 (Minn.App. 1986) (citation omitted); see also Trollen v. City of Wabasha , 287 N.W.2d 645, 648 (Minn. 1979) (holding equity relieved the lessee from strict compliance with a lease provision requiring notice of renewal be given six months prior to expiration of the rental period); Kostakes v. Daly , 246 Minn. 312, 318, 75 N.W.2d 191, 195 (1956) (reversing judgment in favor of plaintiff in an unlawful detainer action when plaintiff "stood idly by while [defendant] invested a large sum of money in the property"). "It is well established that forfeitures are not favored and will not be enforced when great injustice would be done and when the one seeking the forfeiture is adequately protected without the forfeiture." Hideaway Inc. , 386 N.W.2d at 824; (citing Warren v. Driscoll , 186 Minn. 1, 5, 242 N.W. 346, 347 (1932).
Construing the contract language as permissive rather than mandatory would result in a forfeiture of Schneider's vacation benefits and a windfall to USG. USG expressly recognized the need to inform employees of the potential forfeiture of their vacation benefits and failed to do so. The terms of Schneider's employment provided pay and vacation in exchange for his work. Schneider completed the work necessary to earn the vacation and provided USG with advance notice of his resignation.
Under these circumstances, we conclude it was appropriate for the trial court to interpret the "NOTE" sentence of the Plant Practices as a condition precedent to the requirement that the employee provide written notice of resignation. See State ex rel. Hagen v. Bismarck Tire Center, Inc ., 234 N.W.2d 224, 226 (N.D. 1975) (holding a contract will not be construed to work a forfeiture unless no other construction is possible); see also Beradi v. General Motors Corp. , 192 Cal.Rptr. 392, 393 (Super. 1983) (holding employee was entitled to vacation benefits when the employer violated its expressed policy of monitoring vacations and its implied-in-law covenant of good faith and fair dealing by failing to advise the employee that he might forfeit his vacation benefits if he did not exercise them prior to going out on disability). Schneider is entitled to payment for his earned vacation and vacation bonus and the penalty assessed by the trial court.