In a recent case, the Minnesota Supreme Court held that an employee has not earned the right to payment in lieu of paid time off when she has failed to or cannot meet the conditions in a valid employment contract entitling her to the payment. In Lee v. Fresenius Medical Care, (Minn. 2007), a provision in the employee handbook allowed employees who chose to resign and provide acceptable notice to receive pay in lieu of earned but unused paid time off, but employees terminated for misconduct were not eligible for pay in lieu of earned but unused paid time off. Since employees are not entitled to vacation pay under Minnesota law, the court determined that pay in lieu of paid time off is a benefit offered to employees at the discretion of the employer and, thus, can be subject to conditions on eligibility within the employment contract. In reaching their decision, which reversed a Court of Appeals holding to the contrary, the court interpreted Minn. Stat. 181.13(a) as solely a timing requirement indicating when an employer must pay earned wages to a discharged employee as opposed to declaring what the employer must pay.

As a result of the court's ruling in Lee, employers are encouraged to examine their employee handbooks and to consider placing conditions on discharged employees' eligibility for pay in lieu of paid time off. Under Lee, employers that choose to offer paid time off as a benefit may provide circumstances under which employees are entitled to paid time off and payment in lieu of paid time off as long as the contract provisions are not in conflict with existing statutes.