IN THE DISTRICT COURT OF SHAWNEE COUNTY, KANSAS
DIVISION 12
A. O. SMITH CORPORATION
Petitioner,
v. Case No. 03 C 1383
KANSAS DEPARTMENT OF
HUMAN RESOURCES
Respondent.
MEMORANDUM DECISION AND ORDER
This case comes before the Court on A.O. Smith Corporation’s Petition for Judicial Review pursuant to the Kansas Act for Judicial Review and Civil Enforcement of Agency Action, K.S.A. 77-601 et seq. The issues have been fully briefed by the parties, and oral arguments were presented on June 29, 2004. Thus, this matter is now deemed to be submitted for ruling.
FINDINGS OF FACT.
On January 10, 2001, A.O. Smith Corporation (hereafter “A.O. Smith”) sold one of its Divisions, the Engineered Storage Products Company, to CST Industries. This Division manufactured steel storage tanks for municipal, industrial and agricultural use at three locations. The manufacturing plants were located at DeKalb, Illinois, Winchester, Tennessee and Parsons, Kansas. This action arises out of the sale of the Parsons plant.
With limited exceptions, all of the employees of A.O. Smith at the Parsons plant became the employees of CST Industries immediately upon completion of the sale on January 10, 2001, and the plant continued in operation. Less than one month after the sale, the Kansas Department of Human Resources began receiving claims against A.O. Smith for past wages. Over a period of several months, 166 claims were filed. Each of the claimants sought to recover earned vacation pay. Attached as exhibits to most of the claims were the last two weekly paycheck stubs from A.O. Smith. The A.O. Smith paycheck stubs for the first week of 2001, which ended on January 7th, included a box at the bottom entitled “Vacation Hrs YTD” and listed the “End Balance” hours as of that date. (See Agency Record, Volumes 1 and 2, Exhibit 1.) The paychecks issued by A.O. Smith were dated January 12, 2001, two days after the sale to CST Industries was completed. (Id.)
Also attached to most of the claims filed with the Kansas Department of Human Resources were A.O. Smith paycheck stubs dated January 17, 2001. (Id.) These paycheck stubs were for the final pay period as employees of A.O. Smith. Not only did the paycheck stubs not include pay for vacation, the box entitled “Vacation Hrs YTD” had been removed. (Id.) During the investigation into the wage claims, it became apparent that A.O. Smith was contending that it had changed its vacation policy in June of 2000, to be effective January 1, 2001. However, the facts relating to the alleged change in the vacation policy and the notice given to employees of the Parsons plant were disputed. Thus, Douglas A. Hager, an attorney
licensed to practice law in the State of Kansas, was appointed by the Secretary of the Kansas Department of Human Resources to serve as the Administrative Hearing Officer in this case.
A Prehearing Conference was conducted on March 20, 2002. Following discovery, a Final Hearing was held on October 1, 2002, in Parsons, Kansas. The hearing was held on the record, and the Court has reviewed the Transcript of Hearing in its entirety. The parties stipulated to the amount of $370,798.43 for vacation wages due in the event that the claimants prevail in this case. Following the submission of legal argument and supplemental argument, the Administrative Hearing Officer issued his Initial Order on June 6, 2003. In his decision, the Administrative Hearing Officer set forth 30 Findings of Fact with citations to the record. In addition, he concluded that A.O. Smith owed the claimants earned vacation benefits as wages pursuant to the terms of Kansas Wage Payment Act. Moreover, the Administrative Hearing Officer held that A.O. Smith’s failure to pay these wages on the claimant’s last payday was a willful violation of the Kansas Wage Payment Act. Thus, A.O. Smith was ordered to pay $370,798.00 in wages, $94,953.55 in interest and $366,552.28 in penalties.
On June 23, 2003, A.O. Smith filed a Petition for Review of the Initial Order pursuant to K.S.A. 77-527. The Secretary of the Kansas Department of Human Resources denied the Petition for Review and a Final Order was entered on August 15, 2003. On September 11, 2003, A.O. Smith filed a Petition for Judicial Review in the District Court of Shawnee County, Kansas. This case was originally assigned to Division 5. However, in light of the retirement of the Honorable James M. Macnish, the case was reassigned to Division 12 on June 15, 2004. The Court heard Oral Arguments on the Petition for Judicial Review on June 29, 2004. Thus, this case is now deemed to be submitted for ruling.
After due consideration of the record presented in this case, the Court hereby adopts the Administrative Hearing Officer’s Findings of Fact as set forth in his Initial Order, with the exception of Finding of Fact No. 30. The Court will not repeat all of the facts set forth in the Initial Order. Rather, it will summarize and discuss the facts in its Discussion and Conclusions of Law.
DISCUSSION AND CONCLUSIONS OF LAW.
A. Standard of Review.
This action is brought by the Petitioner pursuant to the Kansas Act For Judicial Review and Civil Enforcement of Agency Actions, K.S.A. 77-601 et seq. This Act establishes the exclusive procedure for judicial review of agency actions in Kansas. K.S.A. 77-606. The Court’s review of issues of law is unlimited. See Hamilton v. State Farm & Cas. Co., 263 Kan. 875, 879, 953 P.2d 1027 (1998). However, the Court’s review of questions of fact are limited to the agency record. K.S.A. 77-618. In resolving disputed questions of fact, the Court must review the evidence in the light most favorable to the prevailing party. Lacy v. Kan. Dental Bd., 274 Kan. 1031, 1037, 58 P.3d 668 (2002). The burden of proving the invalidity of an agency action is on the Petitioner. K.S.A. 77-621(a). The Court may grant relief only under the following circumstances: 1) the agency
action is unconstitutional; 2) the agency acted beyond the jurisdiction conferred by law; 3) an issue requiring resolution was not decided; 4) the law was interpreted or applied erroneously; 5) unlawful procedures were followed or the prescribed procedure was not followed; 6) the decision making body was improperly constituted; 7) the agency findings of fact were not supported by substantial evidence when viewed in light of the record as a whole; and/or, 8) the agency action was unreasonable, arbitrary or capricious. K.S.A. 77-621(b). In performing a judicial review, the Court must also consider the harmless error rule. K.S.A. 77-621(c).
B. Contentions of the Petitioner.
In this case, the Petitioner contends that the agency action was based on an erroneous interpretation or application of law; that it was not supported by substantial evidence; and, that it was unreasonable, arbitrary or capricious. Specifically, the Petitioner argues that K.S.A. 44-315(a) is inapplicable in this case since the employees were not discharged from their employment. In addition, the Petitioner contends that the agency failed to properly interpret the vacation policy and that it failed to apply the correct vacation policy under the facts of this case. Further, the Petitioner contends that the agency decision is arbitrary and capricious because it allows for a “windfall” for the claimants. Finally, the Petitioner argues that there is not sufficient evidence in the record to support a finding of a knowing and willful violation of K.S.A. 44-315(a).
C. Application of K.S.A. 44-315(a).
Interpretation of a statute is a question of law to be decided by the Court. See Citizens’ Util. Ratepayer Bd. v. State Corp. Comm., 264 Kan. 363, 410, 956 P.2d 685 (1998). However, an agency’s “interpretation of a statute that it is charged to interpret and enforce, using its expertise, is entitled to a great deal of judicial deference by the courts.” Id. (quoting City of Wichita v. Pub. Employees Relations Bd., 259, Kan. 628, 631, 913 P.2d 137 (1996).) The burden of proof is on the party challenging an agency’s statutory interpretation. Nat’l. Council on Comp. Ins. v. Todd, 258 Kan. 535, 905 P.3d 114 (1995). “Yet, an agency’s interpretation is not binding. If an agency is mistaken as to a question of law, the court has an obligation to cure the agency’s action.” Id. at 539.
The Petitioner alleges that the Kansas Department of Human Resources erroneously interpreted and applied the law by finding that the Claimants were discharged within the meaning of the Kansas Wage Payment Act. The applicable statute states:
“Whenever an employer discharges an employee or whenever
an employee quits or resigns, the employer shall pay the employee’s
earned wages not later than the next regular payday upon which he
or she would have been paid if still employed as provided under
K.S.A. 44-314. . . .”
K.S.A. 44-315(a) (emphasis added).
It is undisputed that the claimants in this case did not quit or resign from their employment. Rather, the issue is whether the claimants were discharged from their employment when the factory was sold by the Petitioner. The parties agree that the claimants became the employees of the new owner upon completion of the sale to CST Industries on January 10, 2001. However, the parties disagree regarding whether this set of facts is
sufficient to constitute a discharge in order to permit the claimants to recover under the terms of K.S.A. 44-315.
The Petitioner contends that the word “discharges,” as used in K.S.A. 44-315(a), is synonymous with the word “terminates” as used in Kansas case law. Unfortunately, the term “discharges” was not defined in the Kansas Wage Payment Act by the Kansas Legislature. It is uncontroverted that in this case, following the sale of A.O. Smith’s factory to CST Industries, the claimants continued in the same jobs and at the same rate of pay. However, no cases have been cited to the Court which are directly on point regarding whether K.S.A. 44-315(a) is applicable under the facts presented.
In interpreting a statute, the Court must give words their “ordinary meaning, and a statute should not be so read as to add that which is not readily found therein or to read out what as a matter of ordinary English language is in it.” GT, Kan., L.L.C. v. Riley County Register of Deeds, 271 Kan. 311, 316, 22 P.3d 600 (2001). It should be noted that the words discharge, discharges and/or discharged have been used in Kansas wage statutes for over 100 years. See Livingston v. Oil Co., 113 Kan. 702, 704, 216 P. 296 (1923); Gawthrop v. Missouri Pac. Rly. Co., 147 Kan. 756, 757, 78 P.2d 854 (1938). Although the statutes considered in these cases have long ago been repealed and replaced with the Kansas Wage Payment Act, they do provide the Court with guidance regarding the interpretation of the current language contained in K.S.A. 44-315.
Moreover, the Kansas Supreme Court has held that “K.S.A. 44-315(a) provides that when an employee’s employment is terminated the employer is to pay the earned wages not later than the next regular payday upon which he would have been paid if still employed.” (Emphasis added.) Holden v. Kan. Steel Built, Inc., 224 Kan. 406, 409, 582 P.2d 244 (1978). In so holding, it is apparent that the Kansas Supreme Court was using the word “terminated” to include any situation where an employee was discharged, quit or resigned from his or her employment. Thus, for the purposes of interpreting K.S.A. 44-315, the Court finds that the words “discharge” and “terminate” are synonymous.
The Petitioner cites the Kansas Court of Appeals decision in Safelite Glass v. Fuller, 15 Kan. App. 2d 351, 807 P.2d 677 (1991), in support of its position that K.S.A. 44-315 is not applicable in this case. Unfortunately, the Safelite decision provides this Court only limited guidance. At the outset, it is important to recognize that the Safelight decision does not involve a wage claim. Rather, it deals with the interpretation of an asset purchase agreement between Lear Sigler, Inc. (LSI) and Fuller, which contained a covenant-not-to compete. Safelite Glass, 15 Kan. App. 2d at 352. The asset purchase agreement was subsequently assigned to Safelight Glass when it purchased the assets of LSI’s auto glass operations. Id. at 353. Fuller became an employee of Safelite upon completion of the sale. Id.
In Safelight, the Kansas Court of Appeals held that “an employee is not terminated upon the sale of a business when the employee continues in the same position and at the same salary with the successor employer as with the previous employer.” Id. at Syl. 2. “As a practical matter, the only effect of the LSI-Safelite transfer of assets was a change in the name of Fuller’s employer.” Id. at 363. Thus, at first glance, the Safelite decision appears to support the Petitioner’s contention that the sale of assets from A.O. Smith to CST Industries does not constitute a discharge or termination since the claimants continued in the same positions and at the same rate of pay with their new employer.
When reviewing the Safelite decision more closely, however, the application of its holding in this case is not so clear. Notwithstanding the portion of the decision quoted above, the Kansas Court of Appeals also found in Safelite that “[o]bviously Fuller’s employment relationship with LSI terminated when LSI ceased to exist as a corporate entity.” Id. (Emphasis added.) Thus, it is just as reasonable for one to conclude that the Safelite decision supports the position taken by the agency since the claimants’ employment relationship with A.O. Smith terminated at the time the sale to CST Industries was completed.
Based on the Safelite decision, the claimants’ argument (that they were discharged or terminated from their employment relationship with A.O. Smith) and the Petitioner’s argument (that the sale between A.O. Smith and CST Industries did not constitute a discharge or termination) are both reasonable and plausible. However, since the Kansas Department of Human Resources is charged with interpreting and enforcing the Kansas Wage Payment Act, this Court should yield to the agency’s expertise and give great deference to its interpretation of K.S.A. 44-315(a). Moreover, the agency’s interpretation appears to be
consistent with the “apparent remedial purpose” of the Kansas Wage Payment Act. Morton Bldgs. Inc. v. Dep’t of Human Res., 10 Kan. App. 2d 197, 199, 695 P.2d 450 (1985).
“The agency’s interpretation of a challenged statute may, in fact, be entitled to controlling significance in judicial proceedings. This deference is sometimes called the doctrine of operative construction. [Kan. Bd. Of Regents v. Pittsburg State Univ. Chap. of K-NEA, 233 Kan 801, 809, 667 p.2d 306, 313 (1983).] Further, if there is a rational basis for the agency’s interpretation, it should be upheld on judicial review. Pittsburg State, 233 Kan. at 810.” Kan. Ass’n of Pub. Employees v. Pub. Employee Relations Bd., 13 Kan. App. 2d 657, 659, 778 P.2d 377 (1989). After reviewing the record in its entirety, the Court finds that there was a rationale basis for the agency’s interpretation of K.S.A. 44-315. Thus, the Court affirms the agency’s decision that K.S.A. 44-315(a) is applicable to this case.
D. Interpretation of A.O. Smith’s vacation policy.
The Petitioner contends that the agency erred in its interpretation of the vacation policy in place at the time of the sale to CST Industries. Although the Petitioner does not dispute that vacation is a form of wages pursuant to K.S.A. 44-313(c), it argues that the claimants did not have any accrued vacation as of January 10, 2001. This position, however, conflicts with the facts as found by the Administrative Hearing Officer in this case. As the Hearing Officer accurately concluded, based on the conflicting evidence presented at the hearing, the actual vacation policy in effect was “so confusing, ambiguous and contradictory, that reading it adds almost nothing to a person’s understanding of the facility’s then-new vacation policy, either in terms of what it meant or how it was to be implemented.” (Initial Order, Finding of Fact No. 10.)
During oral argument, counsel for the Petitioner recognized that the issue of what vacation policy was in effect at the time of the sale is a mixed question of law and fact. The 2000 Employee Handbook published by A.O. Smith includes a vacation policy, found on page 19 of the Employee Handbook dated January 1, 2000. This policy, provided, in part, as follows: “Vacation eligibility is determined by your completed years of service. After completion of your first year, vacation time is earned each January 1st. Your vacation pay will be calculated on your base rate, including shift premium, if any, in effect at the time of your vacation.” (Transcript, Claimants’ Exhibit 1.)
At the hearing, the interpretation of the vacation policy contained in the 2000 Employee Handbook was disputed. In fact, representatives of both A.O. Smith and CST Industries testified that the policy was unclear. However, the application of the policy was clear. Even after the 2000 Employee Handbook was published, A.O. Smith continued to pay the employees of the Parsons plant for vacation earned during the previous year. (Transcript, pp. 142-143 and 172.)
A.O. Smith contends in this case that the 2000 Employee Handbook actually contained a “pop up” vacation policy under which all of the vacation for a given year was earned or accrued on January 1st. A.O. Smith further contends that a new “earn as you go” vacation policy was adopted at some point in June of 2000, which was to be effective in January of 2001. However, the evidence presented at the agency hearing was unclear
regarding when, if ever, the new “earn as you go” vacation policy ever actually went into effect. Moreover, even if it is assumed that the policy was officially changed, it is impossible to determine from the record when A.O. Smith actually made the change, and it is impossible to determine the procedure which was used to implement the change. The representatives of A.O. Smith who testified at the hearing had no personal knowledge of the alleged change in the vacation policy in June of 2000 and indicated that Phil Amberg, Vice President of
Human Resources for Engineered Storage Products Company would be the person who could testify regarding the alleged change in policy. However, Mr. Amberg never testified at the hearing.
Steve W. Rettler, Vice President of A.O. Smith for Business Development, testified that “I know I was advised in the month of June that it was in place, either the month of May or June. It could have been May.” (Transcript, p. 365.) Mr. Rettler did not know the steps taken to constitute the alleged policy change nor did he know what notice was given to the employees of the Parsons plant. (Id. at 366.) Similarly, Edward J. O’Conner, Vice President of Human Resources and Public Affairs for A.O. Smith, testified that he did not know if the employees at the Parsons facility were notified of a change in policy in June of 2000 and, other than a memorandum dated June 1, 2000 (which will be discussed below), he was aware of nothing which would document the alleged change in the vacation policy. (Id. at 103-104.)
The record reveals that only one of the claimants was given actual notice of the alleged change in the vacation policy prior to the sale in January of 2001. Judy Harper, the former Human Resource Administrator at the Parsons plant, testified that she was not notified of the alleged change in policy until December 13, 2000. (Transcript, p. 11.) On that date, she received an e-mail from Phil Amberg entitled “Notice the date, policy has been in place since June 1st.” (Transcript, Claimants’ Exhibit 2.) Attached to the e-mail was a memorandum dated June 1, 2000, which stated, in part, as follows: “All ESP locations will adopted [sic ] the corporate vacation policy (PR-1) effective June 1, 2000. All salaried and non-union employees will follow the policy guidelines . . . employees who terminate will only receive vacation pay for that portion of the calendar year which they actually work.” (Id.)
Ms. Harper responded to Mr. Amberg’s December 13th e-mail with the question, “Are we going to post this?”(Id.) Mr. Amberg replied, “No, not at this time.” (Id.) Ms. Harper testified that after she received Mr. Amberg’s reply, she did not post the alleged change in policy for the employees at the Parsons plant. (Transcript, p. 12.) It should also be noted that Mr. O’Conner testified that Ms. Harper was “probably” telling the truth that she was not informed of the alleged policy change until December 13, 2000. (Id. at p. 130.) He further agreed that the employees were not told about the alleged policy change following Mr. Amberg’s e-mail on December 13, 2000. (Id. at p. 133.)
In addition, Ms. Harper testified that when employees left the employment of the Parsons plant during the 2000 calendar year, A.O. Smith paid them for accrued vacation. (Id. at p. 18.) She also testified that the 2000 Employee Handbook had been distributed to employees. (Id. at p. 28.) Ms. Harper further testified that the 2000 Employee Handbook contained the vacation policy which she believed was applicable to the claimants. (Id.) Ms. Harper testified that the actual administration of the vacation policy at the Parsons facility was that “[a]n employee had to work the entire year, prior year, before they received their vacation on January 1 of that year.” (Id. at p. 61.) According to Ms. Harper, she had never even heard the term “pop up” policy prior to the agency’s hearing in the case. (Id. at p. 144.)
Mr. O’Conner testified that the policy contained in the 2000 Employee Handbook was a “pop up” policy under which an employee would earn all of his or her vacation as of January 1st and would be entitled to be paid for all of the unused time upon his or her termination of employment. (Id. at p. 85-86.) He testified that the “pop up” policy actually came into effect as of January 1, 1999, even though it was not listed in the Employee Handbook until 2000. (Id. at p. 99.) According to Mr. O’Conner, the Parsons facility previously had a vacation policy based on time earned in the prior year. (Id. at pp. 24-25.) In his opinion as an Officer of A.O. Smith, the 2000 Employee Handbook represented “a move to a pop-up policy.” (Id. at p. 100.) However, Mr. O’Conner admitted that the policy in the handbook was “not clearly written. . . .” (Id.) Mr. O’Conner stated that the new policy which was allegedly adopted in June of 2000, “really for existing employees went into effect
January 1 of 2001 and provided that they begin earning vacation on an earn-as-you-go kind of approach from that point forward.” (Id. at p. 108.)
Mr. O’Conner testified that one of the types of employees which the new policy “impacts, and in this case negatively, is the employee who is terminated.” (Id.) He also recognized that A.O. Smith payroll documents reflected that the claimants were terminated at the time of the sale to CST Industries. (Id. at pp. 282-284.) In his testimony, Mr. O’Conner explained the “pop up” policy as follows: “An employee arrives at that point in time on January 1st and they at that point earn vacation for that year. That’s how they earn it, by being employed as of January 1st. So that’s, in a sense, a vested piece of vacation they
have if it’s two weeks or four weeks, whatever their service, if you will, entitles them to.” (Id. at p. 298.)
In addition, Mr. O’Conner explained the “earn as you go” policy as follows: “January 1 just marks the beginning of earning vacation for that year. We allow them to use the vacation well in advance of them actually earning it day by day. If they decide to retire during the year, even though they haven’t earned it, we will fully vest them because that’s -- we feel that’s the proper thing to do.” (Id.) In addition, Mr. O’Conner testified that “[i]f the company makes a decision to abolish your job under our earn-as-you-go policy -- and let’s say that occurs midstream -- we fully vest for vacation.” (Id.) Likewise, he testified that if A.O. Smith had abolished an employee’s job during 2000, “we would have [paid them] -- we did that before.” (Id. at p. 308.)
As indicated above, Steve Rettler is the Vice President of Business Development for A.O. Smith. He testified that he “was ultimately the primary person responsible” for the sale of the Parsons plant to CST Industries. (Id. at p. 314.) He further testified that in April of 2000, he asked Tom Goyke, who was the Vice President of Finance for the Division which included the Parson’s plant, to explain why expenses had gone up dramatically in March of 2000. (Id. at p. 315.) Mr. Goyke advised him that it was “to make up for an error that had been made at the end of 1999 on the Parsons books to reverse substantially all of the vacation accrual that had been on the books up to that point in time.” (Id.) Mr. Goyke told Mr. Rettler that an error had been made in 1999 in which almost $200,000 in vacation accrual had been removed from the books. (Id. at p. 318.) Mr. Rettler testified that most accountants would handle accruals for an “earned-in-arrears” policy and a “pop-up” policy in the same way. (Id. at p. 321.)
Based on the vacation policy which was in effect on January 1, 2000, Mr. Rettler testified that he would have expected to have a large accrual on the book at the beginning of the year. (Id. at p. 338.) Similarly, if the same vacation policy was still in effect at the end of 2000, he would have also expected a large accrual on the books. (Id.) Mr. Rettler testified that due to the alleged change in policy in June of 2000, the accrual for vacation benefits was removed from the books. (Id.) According to Mr. Rettler, the interpretation of Mr. Goyke regarding the vacation policy contained in the 2000 Employee Handbook was “to earn in one year, pay the next.” (Id. at p. 343.) Moreover, using Mr. Goyke’s interpretation of the policy contained in the 2000 Employee Handbook, the amounts paid for vacation in the year 2000 were actually earned in 1999. (Id. at pp. 356-357.) Likewise, using Mr. Goyke’s interpretation of the policy contained in the 2000 Employee Handbook, “at the end of 2000 we would have had the same accrual on the books for vacation earned in 2000 to be paid in 2001.” (Id. at pp. 358-359.) Mr. Rettler was concerned that if the large vacation expenses continued to appear on the books that it would potentially have an impact on “ the sale or the price.” (Id. at p. 362.)
Ron Stier, Vice President of CST Industries, testified that A.O. Smith had given him the policy contained in the 2000 Employee Handbook during negotiations for the purchase of the Parsons plant. (Id. at p. 205.) After reviewing the policy, it was unclear to Mr. Stier whether or not there was a liability for earned vacation pay. (Id.) When asked whether the claimants lost any vacation time when CST Industries took over ownership of the Parsons facility, Mr. Stier testified as follows: “I’ll be darn. You know, it wasn’t clear to us. And we did, as a group, decide that it was worth being -- making a point of bringing it to the table [during negotiations], making sure that it was clearly not going to be our liability.” (Id. at pp. 211-212.)
Mr. Stier further testified that CST Industries was advised by its accountants in November of 2000 that the seller “has reduced its accrued vacation reserve by approximately 200 -- and these are in thousands, the numbers are in thousands -- 200 during FY2000 and plans on reducing the accrued vacation liability an additional 250 in the closing balance sheet. This will effectively reduce the accrued vacation liability to zero, and A.O. Smith will be assuming a use-it-or-lose-it vacation policy prior to the end of November. This has not been communicated to employees and should be discussed further between [CST] and [A.O. Smith].” (Id. at pp. 219-220.) Mr. Stier testified that as a result of receiving this report from its accountant, CST Industries required that Section 2.17.3 be included in the purchase agreement. In this Section, A.O. Smith represented that it had “taken all necessary actions to implement the [new] vacation policy. . . .” (Id. at pp. 223-225.) Mr. Stier explained CST’s rationale for requiring this provision in the agreement as follows: “We saw, you know, $450,000 there that went away. And if it came back, we didn’t want to be sitting on the hook.” (Id. at p. 226.)
According to Mr. Stier, he had never heard the term “pop up” policy prior to the hearing. (Id. at p. 230.) His “interpretation” of the language in the 2000 Employee Handbook was that employees “earned [vacation] on January 1, of the current year for service performed in the prior year.” (Id. at pp. 230-231.) He further understood that under the policy set forth in the 2000 Employee Handbook that an employee would be paid the full amount of unused vacation upon termination or discharge. (Id.) As such, Mr. Stier’s “concern was that even if we changed the vacation policy to, to a earn-as-you-go that liability still existed [and] if an employee was terminated, we would owe the entire vacation.” (Id. at p. 232.)
“When an employee is made aware of company policy which is part of the terms of the employee contract, the employee will be held to those terms.” Dangerfield v. Montgomery Ward Co., 236 Kan. 594, 600, 694 P.2d 439 (1985) (quoting Sweet v. Stormont-Vail Reg’l Med. Ctr., 231 Kan. 604, 647 P.2d 1274 (1982).) Likewise, when an employee is made aware of such terms, the employer should also be held to the announced policy. Dillard Dep’t Stores, Inc. v. Dep’t of Human Res., 28 Kan. App. 2d 229, 233, 13 P.3d 358 (2000) (The issue of whether a terminated employee should be paid for vacation “must be decided based on the employment agreement and company policies in any given case.”) Although an employer in Kansas has a right to modify benefits, once it has made the employees aware of the terms of an employment contract, it is reasonable to conclude that it also has an obligation to inform the employee of such a modification. Here, the Administrative Hearing Officer found, after weighing the evidence presented, that A.O. Smith did in fact have a policy of paying terminated employees for accrued vacation time
and that, with the exception of one employee, the claimants were not made aware of the alleged change in vacation benefits until after the sale to CST Industries had been completed. (Initial Order at 13 and 15).
As indicated above, the Court must review the record in this case based on a “substantial evidence” standard. Substantial evidence is “evidence which possesses both relevance and substance, and which furnishes a substantial basis of fact from which the issues can be reasonably resolved.” Kan. Racing Mgmt., Inc. v. Kan. Racing Comm’n, 244 Kan. 343, 365, 770 P.2d 423 (1989). Only when an agency’s determination is “so wide of the mark as to be outside the realm of fair debate” can the court invalidate the action. Cent. Kan. Power v. K.C.C., 221 Kan. 505, 507, 561 P.2d 779 (1977) quoting Kansas-Nebraska Natural Gas Co. v. K.C.C., 277 Kan. 604, 617, 538 P.2d 702 (1975).) Based on a review of
the record in its entirety, the Court finds that there is substantial evidence to support the Administrative Hearing Officer’s findings regarding the payment of earned vacation benefits in this case.
There was extensive testimony presented at the hearing, which is outlined in the Initial Order, upon which the Administrative Hearing Officer could have reasonably based his conclusion that the employees of the Parsons plant continued to receive vacation benefits at the beginning of a new year for work performed during the previous calendar year. Moreover, there is substantial evidence in the record that those in positions of authority at A.O. Smith, specifically Vice President Tom Goyke, continued to interpret the vacation policy in the 2000 Employee Handbook to mean that the amounts paid for vacation in one year had been earned by work performed in the previous year. The record also contains substantial evidence of the confusion related to the interpretation of the vacation policy contained in the 2000 Employee Handbook.
There is also extensive testimony in the record which reveals that there was little, if any, attempt on the part of A.O. Smith to inform the claimants of the alleged new vacation policy. The evidence suggests that the only employee of the Parsons plant who was advised of the alleged change in vacation policy prior to completion of the sale to CST Industries was the Human Resources Administrator, and she was not told until six (6) months after the change was allegedly adopted. In addition, even after being advised of the alleged change approximately two (2) weeks before it was to become effective, an A.O. Smith corporate
officer advised the Human Resources Administrator at the Parsons plant not to post his
e-mail regarding the alleged change in the vacation policy.
Perhaps most telling, even after the e-mail was sent to the Human Resources Administrator at the Parsons plant on December 13, 2000, after the new vacation policy allegedly went into effect on January 1, 2001, and after the sale to CST Industries was completed on January 10, 2001, the A.O. Smith Corporation issued paychecks to the claimants on January 12, 2001, which continued to list accrued vacation benefits. At the very least, this is evidence that a new “earn as you go” vacation policy had not in fact been implemented by A.O. Smith. It was not until five (5) days later, a week after the sale was completed, that the claimants’ vacation benefits disappeared on the final paychecks issued by A.O. Smith on January 17, 2001. Since the claimants were discharged or terminated from their employment with A.O. Smith at the time of the sale, the Court finds that the Petitioner owed its former employees the accrued vacation benefits pursuant to the terms of K.S.A. 44-315(a), as reflected on the paystubs dated January 12, 2001.
The Court finds that there is substantial evidence in the record to conclude that the Administrative Hearing Officer’s interpretation of the vacation policy contained in the 2000 Employee Handbook was sound and that this policy continued to be in effect at the time the sale to CST Industries was completed. However, even if it is assumed that A.O. Smith was correct that the 2000 Employee Handbook contained a policy under which all of the vacation for a particular year “popped up” on January 1st, the claimants would have been entitled to all of their vacation for 2001 as of January 1, 2001. As Edward O’Conner, Vice President of Human Resources and Public Affairs for A.O. Smith, testified at the hearing in this case, under a “pop up” policy the employees earn vacation simply “by being employed as of January 1st.” (Transcript at p. 298.) As of January 1st, it becomes “a vested piece of vacation . . . whatever their service, if you will, entitles them to.” (Id.) Thus, whether the vacation policy set forth in the 2000 Employee Handbook is interpreted as an “earn in one year, pay the next” policy or as a “pop up” policy, A.O. Smith would still be responsible for paying the accrued vacation benefits listed on the paycheck stubs on January 12, 2001.
As in the case now before this Court, the Kansas Court of Appeals in Dillard Dep’t Stores, Inc., 28 Kan. App. 2d at 236, was also faced with construing the terms of a corporation’s vacation policy. In so doing, the Dillard court found: “The terms of the policy are not crystal clear; they are open to different, yet reasonable interpretations. It is a common-law rule of interpretation that in such situations, a court should construe the terms of a writing against the drafter.” Id. at 236, (citing Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 63, 131 L.Ed. 2d 76, 115 S. Ct. 1212 (1995); Francis v. Shawnee Mission Rural High Sch., 161 Kan. 634, 639, 170 P.2d 807 (1946).) “The purpose for this rule ‘is to protect the party who did not choose the language from an unintended or unfair result.’” Dillard, 28 Kan. App. 2d at 236, 13 p.2d at PP (quoting Mastrobuono, 514 U.S. at 63.) In the Dillard case, the employer “chose the language and chose poorly.” 28 Kan. App. 2d at 236. Similarly, in the present case, the Court finds that the vacation policy for the Parsons plant was, at best, confusing and that its terms should be interpreted in favor of the claimants. Under the facts presented, the claimants had a reasonable expectation that they would be paid for the accrued vacation which was still listed by A.O. Smith on the paychecks it issued on January 12, 2001.
Although reasonable minds could certainly differ regarding the conclusions to be reached in this case based on the disputed evidence presented, the Court finds that the record contains substantial evidence in support of the agency’s conclusions. The evidence in the record was sufficient to conclude that accrued vacation benefits were due and owing at the time of the sale from A.O. Smith to CST Industries. At that point, the claimants’ employment with A.O. Smith was terminated and the terms of K.S.A. 44-315(a) were applicable.
Further, it was reasonable for the Administrative Hearing Officer to determine that the claimants would not get an unjust windfall based on the facts presented in this case. “It has been held that double payment voluntarily made by an employer is not against public
policy. . . .” Southwestern Bell Tel. Co. v. Employment Sec. Bd. of Review, 189 Kan. 600, 604, 371 P.2d 134 (1962). The situation in the present case is not substantially different from a situation wherein a person is terminated from one job and immediately starts to work for a new employer. The prior employer would still be responsible for the payment of unpaid wages pursuant to K.S.A. 44-315(a) regardless of the wages and benefit package the employee may be receiving from his or her new job. Thus, since the Court does not find the agency’s findings “to be outside the realm of fair debate,” its conclusions regarding the payment of accrued vacation benefits in this case are affirmed.
E. Penalty Pursuant to K.S.A. 44-315(b).
In this case, the agency imposed a penalty against the Petitioner in the amount of $366,552.28. “Under K.S.A. 44-315 . . . the penalty authorized can be collected only if the employer knowingly or willfully fails to pay the wages due.” Holder v. Kan. Steel Built, Inc., 224 Kan. 406, 411, 582 P.2d 244 (1978). Thus, the issue presented is whether “[t]he evidence was adequate to support a finding . . . that the employer had knowingly failed to pay and that the employer willfully violated the act.” Id. at 411-12.
“An act performed with a designed purpose or intent on the part of a person to do wrong or to cause an injury to another is a willful act.” (Emphasis added.) PIK-Civil 3d, 103.04. In this case, it is uncontroverted that CST Industries initially desired to have all of the employees of the Parsons factory terminated from their employment at the time of the sale so that each employee would have had to reapply in order to seek employment with the purchaser. (Transcript, p. 209.) However, A.O. Smith would not accept such a proposal during the course of negotiations and required CST Industries to hire the claimants as part of the purchase agreement. (Id.) In his Initial Order, the Administrative Hearing Officer specifically found in Finding of Fact No. 25: “Because of concern over successor liability, Purchaser wouldn’t accept anything but a termination and rehire of employees but [A.O. Smith] didn’t want to do that.” (Initial Order, p. 13.) Thus, based on the evidence in the record, as well as the Administrative Hearing Officer’s Findings of Fact, it is clear that A.O. Smith took positive action to protect its employees during the negotiations leading to the sale of the Parsons plant.
Clearly, the public policy of the State of Kansas is to promote the continued employment of its workers. See DSG Corp. v. Shelor, 239 Kan. 312, 316, 720 P.2d 1039 (1986) (“the Kansas Legislature declared it to be the public policy of the state that involuntary unemployment is a subject of general interest and concern”); State ex rel. Ludwick v. Sherlock Auction & Realty, Inc., 235 Kan. 232, 234, 678 P.2d 630 (1984) (“public policy of the State of Kansas to protect against involuntary unemployment”); and, Puncil v. Kan. Employment Sec. Bd. of Review, 268 Kan. 470, 484, 997 P.2d 715 (2000) (“Public policy favors employers taking steps to prevent harm to employees”). The Kansas Supreme Court has held that “running through all of our cases are the positive statements that the public policy of this state is founded in the Constitution and the statutory enactments, and that this court is not warranted in . . . holding they mean something else merely because the result under the particular circumstances leaves something to be desired.” Southwestern Bell Tel. Co. v. Employment Sec. Bd. of Review, 210 Kan. 403, 502 P.2d 645 (1972) (quoting In re Estate of Pyke, 199 Kan. 1, 14, 427 P.2d 67 (1967)). Thus, this Court is bound to uphold the clear statements of public policy as set forth by the Kansas Legislature and in Kansas case law.
K.S.A. 44-702, which was first enacted in 1937, clearly sets forth the public policy of the State of Kansas. “Economic insecurity, due to employment, is a serious menace to health, morals, and welfare of the people of this state. Involuntary unemployment is therefore a subject of general interest and concern which requires appropriate action by the legislature to prevent its spread and to lighten the burden which now so often falls with crushing force upon the unemployed worker and his family.” Id. These words ring as true today as they did on the day they were first written.
Both K.S.A. 44-315 and K.S.A. 44-702 are part of the “Labor and Industries” statutes enacted by the Kansas Legislature to protect Kansas workers. Such statutes are part of comprehensive legislation by the Kansas Legislature and the federal government “to carry out a common public purpose” and should not be viewed in isolation. DSG Corp. v. Shelor, 239 Kan at 316. The Kansas Department of Human Resources is charged with administering both the Kansas Employment Security Law and the Kansas Wage Payment Act. Although it is certainly important that employees receive the wages which they earn in a timely manner, the clear statement of the public policy of the State of Kansas found in K.S.A. 44-702 should not be ignored.
In the present case, the Administrative Hearing Officer specifically found that CST Industries was a “successor company” and that “none of the claimants lost their jobs.” (Initial
Order, pp. 20 and 32.) Moreover, as indicated above, but for the insistence of A.O. Smith, all of the employees would have lost their jobs at the time of the sale to CST Industries. (Initial Order, p. 13.) Although the employees of the Parsons factory could have applied for positions with CST Industries, there would have been no guarantee of continued employment had it not been for the actions taken by A.O. Smith during the negotiations. Moreover, as addressed in Section C above, A.O. Smith had a good faith legal argument in light of the Kansas Court of Appeals decision in Safelite Glass v. Fuller, 15 Kan. App. 2d 351, 807 P.2d 677 (1991) to support its position that the sale of the factory under these circumstances did not constitute a discharge or termination since the employees continued in the same positions and at the same wages with the successor employer as with the previous employer.
Based on the evidence presented in this case, the Court finds that the award of the actual wages in the amount of $370,798.43 plus interest pursuant to K.S.A. 44-323(a) will adequately compensate the claimants in this case. Moreover, the Court finds that the uncontroverted evidence regarding the steps taken by A.O. Smith to protect its employees during the sales negotiations with CST Industries serves to negate the allegations of a “design, purpose, or intent” by the Petitioner “to do wrong or to cause an injury” to the claimants. As the Administrative Hearing Officer found, the claimants “continued working in the same jobs, at the same pay rate with substantially the same benefits, and with all of
their years of service recognized for purposes of calculating their vacation and benefits.” (Initial Order, p. 20.) Thus, the Court finds that the actions taken by A.O. Smith to make sure
that none of its employees lost their jobs when the factory was sold promoted stability and continuity of employment in furtherance of the public policy of the State of Kansas.
In Holder v. Kan. Steel Built, Inc., 224 Kan. 406, 582 P.2d 244 (1978), the Kansas Supreme Court held that “the penalty provisions of K.S.A. 44-315 are themselves punitive in nature. . . .” Although the Court understands the Administrative Hearing Officer’s concern over the e-mail regarding the alleged change in the vacation policy sent in December of 2000, the entire record must be viewed in light of the clear statement of Kansas public policy encouraging employers to protect the jobs of their employees. In reviewing the record in its
entirety, the Court does not find substantial evidence to support a finding by the agency that A.O. Smith should be punished for its actions in this case.
In addition to the above, the record reveals, and the Administrative Hearing Officer found, that there was a great deal of confusion regarding the implementation and interpretation of the A.O. Smith vacation policies. After the sale was completed, A.O. Smith attempted to clear up the confusion by providing written answers to questions for its former employees. (Initial Order, p. 15.) The fact that A.O. Smith was willing to indemnify the purchaser for any potential vacation wage liability and was willing to stipulate with the claimants regarding the amount of vacation pay due should the company fail to prevail on its legal arguments, supports the position that the Petitioner believed in good faith that it had
modified the vacation policy in June of 2000. There is also substantial evidence in the record
that A.O. Smith representatives believed that the attempted change in vacation policy would not adversely affect current employees since they had been able to take their vacations in
2000 and would still be able to take their vacations from CST Industries in 2001. (Transcript, p. 119.)
As the Administrative Hearing Officer also found, A.O. Smith had a legal right to change its vacation policy. (Initial Order, p. 26.) Although the type of confusion noted by the Administrative Hearing Officer may constitute negligence or carelessness on the part of A.O. Smith, the Court does not find that “confusion” constitutes willfulness as that term is defined by Kansas law. To punish A.O. Smith under the facts presented would send a negative message to other Kansas employers who sell their businesses and would discourage the protection of jobs during such transactions. Thus, for the reasons set forth above, the Court hereby reverses the agency’s imposition of a penalty pursuant to K.S.A. 44-315(b).
CONCLUSION.
The Court grants the Petition for Judicial Review, in part, and denies it, in part. The Court finds that the decision of the Kansas Department of Human Resources should be affirmed as to the award pursuant to K.S.A. 44-315(a) plus interest at the statutory rate. However, the Court finds that the Kansas Department of Human Resources decision should be reversed as to the imposition of a penalty pursuant to K.S.A. 44-315(b). This Memorandum Decision and Order shall serve as the Order of the Court. No further Journal Entry is required.
IT IS SO ORDERED.
Entered on this day of October, 2004.
David E. Bruns
District Court Judge
CERTIFICATE OF SERVICE
The undersigned hereby certifies that on the day of , 2004, she served a true and correct copy of the above and foregoing pleading by United States mail, first class postage prepaid; telefax, and that the transmission was reported as complete and without error and the telefax machine complied with Supreme Court Rule 119(b)(3); or hand delivery; addressed as follows:
Elliott Shaller
Attorney at Law
7111 West Edgerton Ave.
Milwaukee, WI 53220
Patrick Hughes
Attorney at Law
155 N. Market, Ste. 600
PO Box 1034
Wichita, KS 67201
Heather Wilke
Attorneys at Law
401 Topeka Blvd.
Topeka, KS 66603
Ross Hollander
Attorney at Law
500 N. Market St.
Wichita, KS 67214
Felicia M. Theel
Administrative Assistant