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THE LAW. While law doesn't directly regulate employee handbooks, they are extremely important legal tools. A handbook documents your policies, builds trust and helps you comply with federal and state laws. It even allows you to prepare favorable evidence ahead of time in case you are hit with a lawsuit.

But a handbook can work against you if it's written poorly, outdated, inconsistent with the way your company operates or gives employees the impression that it's an employment contract. And handbooks often become prime pieces of evidence in court.

Under most state laws, whenever no employment contract exists, a worker is employed on at "at-will" basis. This means the employee can be fired at any time for any reason.

WHAT'S NEW. Federal and state laws, along with a growing number of court decisions, continue to chip away at this at-will protection. Some situations require employers not to dismiss an employee or to do so in a certain way.

More courts are picking on certain language in handbook disclaimers and are finding fault with detailed policies that lock you in to prescribed progressive discipline procedures.

HOW TO COMPLY. To preserve your at-will status, include a prominent disclaimer in your handbook, upfront. It should state clearly that: 1) all employees are hired on an at-will basis, 2) each person's employment is for no specific term, 3) that the employer reserves the right to terminate the relationship at any time, and 4) nothing in the employee handbook should be construed as a contract or guarantee of continued employment.

To prove that employees reviewed the book, include an acknowledgment page for employees to sign, remove and give to their supervisors.

Regularly audit your manual

Don't let your handbook gather dust; schedule regular updates.

When auditing your manual, keep in mind what courts will consider when reviewing your handbook. Here are a few clues:

Employees' reasonable expectations. If your handbook details a progressive discipline policy, for example, it could be reasonable for a worker to think your company would follow those rules to the letter.

Oral promises. Disclaimers will lose their effect if a company exec infers that jobs are secure.

Consideration. When you alter your handbook to change the employment terms, such as eliminating a seniority system, some courts expect you to provide "consideration": some sort of additional benefit or payment to compensate for the loss. Courts take a dim view of unilateral changes.

Handbooks: What to include, and what not to

Include:

Corporate welcome

Company history/philosophy

Employee classifications

EEO statement

Sexual harassment policy

Transfer policies

Promotion policy

Definition of workweek/hours

Meal and break periods

Overtime policy

Time records

Flexible schedule policy

Pay periods

Performance appraisals

General disciplinary rules

Holidays, vacations, sick leave

Absenteeism and tardiness

Benefits

Grievance policy

Resignation and terminations

Confidentiality

Business ethics

E-mail, Internet and phone use

Dress code

Safety rules

Smoking

Substance abuse policy

Omit:

Instructions to managers (maintain separately)

Arbitration clause (maintain separately)

Details on benefits (refer to summary plan description)

Details that change frequently

Any policy that isn't enforceable

Any promise you don't intend to keep

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