A.O. Smith v. Dept. of Human Resources
| Decision Date | 09 December 2005 |
| Docket Number | No. 93,477.,93,477. |
| Citation | 144 P.3d 760 |
| Parties | A.O. SMITH CORPORATION, Appellee/Cross-appellant, v. KANSAS DEPARTMENT OF HUMAN RESOURCES and Gregg A. Allen, et al. Appellants/Cross-appellees. |
| Court | Kansas Court of Appeals |
Ross A. Hollander, of Joseph & Hollander, PA, of Wichita, for appellants/cross-appellees, Gregg A. Allen, et al.
Patrick B. Hughes, of Adams & Jones, Chartered, of Wichita, Timothy G. Costello, of Krukowski & Costello, S.C., of Milwaukee, Wisconsin, Kenneth J. Maciolek, of A.O. Smith Corporation, and Elliot H. Shaller, of Krukowski & Costello, P.C., of Washington, D.C., for appellee/cross-appellant.
Before RULON, C.J., GREENE and BUSER, JJ.
This appeal reviews a final action by the Kansas Department of Human Resources (KDHR) concluding that A.O. Smith Corporation (AOS) willfully violated the Kansas Wage Payment Act (KWPA), K.S.A. 44-313 et seq., by failing to pay former employees for accrued vacation time. AOS appealed to district court, which affirmed KDHR's order to pay the accrued vacation plus interest but reversed KDHR's imposition of penalty under the statute. We reverse the district court's reversal of penalty, affirm the KDHR's final action, and remand with directions.
AOS is a Delaware corporation headquartered in Milwaukee, Wisconsin, which purchased a manufacturing facility and related business in Parsons, Kansas, in 1995. At the time of acquisition, the former plant owner had an "earn-in-arrears" vacation policy, where employees earned vacation for work in the current year but were permitted to use that vacation in the following year. AOS assumed this policy but claims that it first attempted to change the policy in 1997, transitioning to a "pop-up policy," wherein employees could take vacation in the year earned or in subsequent years, based on number of years of service. The human resource manager at the Parsons plant, however, testified that the 1997 policy did not change the policy in practice and that employees continued to earn in the current year for vacation to be taken in the following year.
Beginning in January 1999, the policy changed or was clarified to provide that employees actively employed on January 1, 1999, earned vacation on that date and could use their vacation anytime during the 1999 calendar year. Again, AOS contended that this was a "pop-up" policy because the vacation was earned for the entire year merely through being employed on January 1 of that year. This policy was reflected in an employee handbook dated January 1, 2000.
In early 2000, AOS decided to work toward a divestiture of the Parsons plant and as a part of that decision determined that the existing pop-up vacation policy should be changed to an "earn-as-you-go" policy to achieve compatibility with industry preference. Although a new policy was issued in December 2000 dated June 1, 2000, the local human resources manager was directed not to post or communicate the new policy to employees.
During negotiations for a sale of the facility with CST Industries, AOS advised that its position was there was no outstanding vacation liability at the plant in light of the new vacation policy. Although CST initially stated that CST would not accept anything but a termination and rehire of AOS employees, AOS successfully negotiated the sale of the facility to CST, together with retention of nearly all of the plant employees at the same jobs, for the same rates of pay, and for nearly identical benefits. The issue of accrued vacation payable was prominently discussed during negotiations, and AOS asked that CST not promote its concerns about this issue to the employees. Ultimately, the asset purchase agreement provided that AOS employees would be eligible to take vacation from CST in 2001 under CST's vacation policy based upon their years of service with AOS and that AOS would indemnify and hold CST harmless for any accrued vacation liability.
Within a couple of days of CST's acquisition of the plant, employees were advised of CST's earn-as-you-go vacation policy. Based upon inquiries and complaints from the employees, CST determined its vacation policy was a significant change from what employees believed they had with AOS. On January 22, 2001, AOS sent correspondence to some employees explaining the change in the vacation policy that purportedly occurred in June 2000 and asked CST to post this response at the Parsons plant. In June 2001, former employees of AOS began filing claims for wages under the KWPA with the KDHR. The claims were solely for vacation pay accrued during 2000 eligible for taking or compensation in 2001.
In June 2003, after a formal evidentiary hearing, the presiding officer for KDHR, issued a comprehensive initial order. In his factual findings, the presiding officer determined that although a vacation policy was issued by AOS effective January 1, 1997, the policy was "confusing, ambiguous and contradictory" and did not effectively change its administration as an earn-in-arrears policy. Similarly, the 1999 policy reflected in the 2000 employee handbook was also administered to confer vacation benefits as payment for prior service. The presiding officer found that AOS discovered a discrepancy between its corporate vacation policy and that effective at the Parsons plant in April 2000. This triggered efforts in late 2000 to change the Parsons plant's policy to an earn-as-you-go policy, but the presiding officer found there was no credible evidence that the company ever advised employees of the 2000 change of vacation policy until after the sale.
In his conclusions of law, the presiding officer found that a "discharge" under the KWPA involved any separation from the employer, regardless of subsequent re-employment of the workers. In reviewing AOS employment policies, the presiding officer found that the company regularly paid employees for unused accrued vacation upon their departure from employment, making such liabilities "wages" under the KWPA. Finally, the presiding officer found evidence that AOS's failure to pay accrued vacation was "willful." Accordingly, the presiding officer ordered Respondent to pay $370,798.43 in wages, $94,953.55 in interest, and a $366,552.28 statutory penalty to the claimants. The initial order was adopted by KDHR as the agency's final action in August 2003.
AOS filed a petition for judicial review in district court, and after argument and briefing, the district court issued its memorandum decision and order. The district court deferred to KDHR's interpretation of the statute and concluded the claimants were discharged from their employment with AOS, notwithstanding their immediate re-employment with CST, and that accrued vacation was "wages" under the KWPA. The district court also agreed with KDHR that, despite conflicting evidence regarding AOS's vacation policy at the Parsons plant, there was substantial evidence that the policy in practice at the Parsons plant was that employees earned vacation time in 1 year to be utilized in the next.
With respect to KDHR's assessment of a statutory penalty, the district court reversed, finding that the evidence established AOS took "positive action to protect its employees during the negotiations leading to the sale." Citing public policy favoring the continued employment of workers, as reflected in the unemployment compensation statute, and AOS's efforts to ensure CST would be obligated to offer employment to nearly all the plant workers, the court concluded public policy weighed in favor of AOS. Accordingly, the district court affirmed KDHR's decision finding AOS had failed to pay claimants' earned wages under the KWPA but reversed the imposition of a penalty under K.S.A. 44-315(b).
The KDHR and claimants appeal the reversal of penalty. AOS cross-appeals the order to pay accrued vacation plus interest.
In reviewing the district court's actions in such matters, we must first determine whether the district court observed the requirements and restrictions placed upon it by the statute and then apply the same standards as the district court in reviewing the administrative tribunal's action. Kansas Dept. of Health & Environment v. Banks, 230 Kan. 169, Syl. ¶ 2, 630 P.2d 1131 (1981).
The standards of review applicable to judicial review of agency actions are specified in K.S.A. 77-621 and require the court to grant relief where, inter alia, the agency has erroneously interpreted or applied the law, has engaged in an unlawful procedure or has failed to follow prescribed procedure, or has made a determination of fact that is not supported by evidence that is substantial when viewed in light of the record as a whole. K.S.A. 77-621(c)(4), (5), and (7). The statute also requires us to grant relief where the agency action is otherwise unreasonable, arbitrary, or capricious. K.S.A. 77-621(c)(8); see Zinke & Trumbo, Ltd. v. Kansas Corporation Comm'n, 242 Kan. 470, 474, 749 P.2d 21 (1988).
Interpretation of a statute is a question of law over which this court exercises unlimited review. Matjasich v. Kansas Dept. of Human Resources, 271 Kan. 246, 250-51, 21 P.3d 985 (2001). Because this appeal involves in part the interpretation of statutory language by an administrative agency, the doctrine of operative construction is applicable. Under this doctrine, "the interpretation of a statute by an administrative agency charged with the responsibility of enforcing the statute is entitled to judicial deference." The doctrine is not without limits because the prior agency determination, "while persuasive, is not binding on the court." 271 Kan. at 250, 21 P.3d 985.
To continue reading
Request your trial
-
Simpson v. City of Topeka
...a panel of our court appeared to adopt the opposite conclusion under a different set of facts in A.O. Smith v. Kansas Dept. of Human Resources , 36 Kan.App.2d 530, 144 P.3d 760 (2005), rev. denied 281 Kan. 1377 (2006). There, the company sold its plant and negotiated with the successor the ......
-
Coma Corporation v. Kansas Department of Labor
...to its interpretation providing KWPA coverage to undocumented workers such as Corral. Cf. A.O. Smith Corp. v. Kansas Dept. of Human Resources, 36 Kan.App.2d 530, 535, 144 P.3d 760 (2005) (applying operative Application of the KWPA to undocumented workers As mentioned, Coma's "illegal contra......
-
Coffey v. Hamilton Cnty. Hosp.
...defendant failed to pay Ms. Coffey her accrued PTO, she may have a viable KWPA claim. See, e.g., A.O. Smith Corp. v. Kan. Dep't of Human Res., 144 P.3d 760, 765 (Kan. Ct. App. 2005) (explaining that the Kansas Court of Appeals has "held that where an employer's policies provide for payment ......
-
Fotouhi v. Mobile RF Solutions, Inc.
...and years of service is "compensation . . . for the layoff" and is a substitute for lost wages); A.O. Smith Corp. v. Kansas Dep't of Human Resources, 144 P.3d 760, 765-66 (Kan. App. 2005) (severance pay serves "a distinctly different function" than wages; severance protects employees from e......
-
"use-it-or-lose-it" Benefit Policies and the Colorado Wage Claim Act
...Oak Ridge Treatment Ctr. Acquisition Corp., 856 N.E.2d 280 (Ohio App. 2006). See also A.O. Smith Corp. v. Kansas Dep't of Human Resources, 144 P.3d 760 (Kan.App. 2005). 10. CRS § 8-4-109(1)(a) and (b). 11. Id. 12. CRS § 8-4-105. 13. CRS § 8-4-109(1)(a) and (b). 14. CRS § 8-4-121 ("Any agree......