Employee Handbooks: Overview

You severely compromise your ability to manage your business if you don’t clearly communicate your personnel policies to your work force.

Consider this case: A court ordered a company to reinstate an employee who’d been fired for using his office computer for personal use after business hours. The court found that the employer had not specifically forbidden the use of company property for personal purposes.

This example illustrates how easily you can get into trouble if your workers don’t know about or fail to understand your rules. That’s why employee handbooks are extremely valuable business tools. But if you’re not careful, your handbook could land you in court. In particular, more and more employees are suing for wrongful discharge, pointing to a handbook they claim guaranteed them employment indefinitely.

Your handbook serves many important roles. It documents your policies, orients new hires, encourages employees to stay productive, builds trust for your company and helps you comply with government regulations. It even allows you to prepare favorable evidence ahead of time in case you ever face an employment lawsuit.

But a handbook can also work against you if it’s outdated, inconsistent with the way your company operates or gives employees the impression that it’s an employment contract.

Protect your at-will status

Under the law in most states, when there’s no employment contract, a worker is employed on at “at will” basis. This means an employee can be fired at any time for any reason or no reason at all.

That doctrine is eroding, however, as federal and state laws and court decisions find more and more instances in which the employer is obligated not to dismiss the employee or to do so only in a certain way. Those situations involve anti-discrimination laws, implied contracts, public policy concerns, civil wrongs and “implied covenants of good faith and fair dealing.”

Oftentimes in court, the handbook becomes a prime piece of evidence, showing the employer’s policies and promises. By the same token, the absence of a handbook can provide evidence that a company has no consistent policy.

You must pay careful attention to the handbook to help protect your status as an at-will employer, to the extent allowed by law, and to reduce your chances of losing in court. While the wording of an “at-will” doctrine sounds harsh, in reality it’s a rare employer who would fire someone for no reason at all. However, if you guarantee employees that they’ll be fired only “for cause,” you open yourself to having outsiders examining your employment decisions to determine if your reason for firing the plaintiff was justified.

Always insert disclaimers

The standard practice for preserving an employer’s at-will status is to include a disclaimer in the handbook stating that (1) all employees are hired on an “at-will” basis, (2) each person’s employment is for no specific term, (3) 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 a guarantee of continued employment. Some states require these disclaimers to be in bold type, capitalized, underlined (or some combination of the three) and be signed by employees. Check the laws in your state to ensure your handbook complies. Even if not required by your state law, it’s generally a good idea to have employees sign a form acknowledging receipt of the handbook and stating they’ve read and understood it.

Some employers include other items on the acknowledgment, such as an agreement to submit any disputes with the company to binding arbitration, as described in the handbook. (If you’re insisting that the handbook is not a contract, this move provides a way to distinguish your arbitration requirement, if you have one. Otherwise, an employee could argue in court that the arbitration requirement, as part of the handbook, isn’t binding.)

A dangerous book

Routinely, employees distraught about losing their jobs or missing out on a big promotion turn to the handbook for evidence that the employer has breached a contract. Courts have often been sympathetic to their claims, especially when the handbook makes promises the company has not kept.

The handbook might set forth procedures for progressive discipline, which could serve as the basis for a wrongful-discharge suit by an employee who was summarily dismissed for dishonesty. It might list causes for discharge, giving the impression that it’s a complete list—and therefore the company can’t fire someone for other reasons. It might include a brief summary of the health benefits, which the employee might rely on instead of reading the summary plan description.

Consider these cases:

  • A woman who took leave to adopt a foreign child was fired upon her return to work. While she was overseas, her employer discovered that she had failed to send receipts for large donations made to the organization she worked for. Part of her job description was, in fact, to acknowledge promptly all gifts and donations. The company handbook provided that employees would be disciplined on a progressive basis. The woman sued, arguing that the handbook was a contract, and therefore her immediate discharge violated the contract. Her employer argued that the handbook contained a statement that it wasn’t a contract and a clause saying the employer “reserves the right to immediately discharge associates without progressing through the first three disciplinary steps.” A federal appeals court concluded that even if the handbook was a contract, the company had reserved the right to fire her. It dismissed the case. Smith v. Memorial Foundation of Allen Hospital, F.3d (8th Cir. 2002) As this case shows, it’s a good idea to place a disclaimer in the handbook to the effect that the company doesn’t have to follow every procedure outlined in the manual. 
  • A group of employees sued Smith Food & Drug Centers over a pattern of favoritism and harassment in its Payson, UT, store. All the employees were members of the United Food & Commercial Workers Union and subject to the collective bargaining agreement between Smith’s and the union. The employees claimed the company’s failure to eliminate sexual harassment and favoritism violated the terms of their employee handbook. The employees admitted they signed acknowledgments of receipt of the handbook. The acknowledgements stated the handbook was not a contract and wherever conflicts existed, the union’s collective bargaining agreement took precedent. The court was satisfied and ruled in favor of Smith’s. Jeff Clements, et al. vs. Smith’s Food & Drug Centers, Inc., No. 2:05CV467DAK, U.S. Dist. (2007)    

  • An employer doesn’t reserve the right to fire employees for serious offenses without going through the progressive discipline process. Even though U.S. Bancorp’s employee handbook explicitly said that “policies and procedures do not constitute a contractual obligation” and “employment with the company is an at-will relationship,” Susan Messinger sued after it fired her. Her claim? The handbook stated that the company’s progressive counseling “will provide with a reasonable opportunity to make the necessary improvements in order to succeed.” The 9th Circuit Court of Appeals sided with Messinger, concluding the handbook’s promise to provide employees a reasonable opportunity to improve negated the disclaimer language. Messinger v. U.S. Bancorp. No. 04-35548 (9th Cir. 2006)

Even if your handbook contains a conspicuous disclaimer, you could negate employees’ at-will status by offering oral reassurances of job security:

  • A metropolitan transportation district petitioned the Oregon Employment Relations Board to reclassify its foremen as supervisors, which would remove them from the protection of their collective bargaining agreement. At a meeting with managers, the foremen expressed concern that they’d be fired if they lost union protection. The department director told them that as long he felt they were doing good work, there would be no problem. He reassured them that their jobs were secure. A few months later, one newly reclassified supervisor who’d recently received good to very good ratings in a performance review was demoted, allegedly for poor performance. The supervisor argued in court that Tri-Met had breached an oral employment contract and a covenant of good faith and fair dealing. Even though Oregon is an at-will state, the 9th Circuit reversed a lower court’s dismissal of the case: “Under these extraordinary circumstances, a reasonable jury could conclude that this promise created an enforceable employment contract to fire the foreman only for cause.” In effect, the director’s promise changed the employees’ at-will status. Koepping v. Tri-County Metropolitan Trans. Dist. of Oregon, et al., 120 F.3d 998 (9th Cir. 1997)

Also, make sure you aren’t making any specific promises in your handbook’s introductory sections. Avoid the temptation to explain why you’re providing certain benefits. That may come back to haunt you if an employee argues that your explanatory words amount to an expansion of your benefits.

Consider, for example, what happened when a handbook section on maternity leave contained this statement: “Purpose: To permit parents who have care-giving responsibility to take time off to spend time with a child.” While the section provided six weeks of paid maternity leave following birth, men weren’t eligible for the paid time off. A new father sued, alleging that he’d met the criteria set out in the purpose statement. The father lost the case but only after his employer spent time and money defending itself. Plus, the court said it was “troubled” because the policy language didn’t mesh with the purpose statement. The better approach would have been to leave the introductory material out of the handbook. Johnson v. University of Iowa, No. 05-1184 (8th Cir. 2005)

Union considerations

If your organization isn’t unionized, certain aspects of the employee handbook can either help or hinder your chances of staying that way.

First, be careful with the wording of disclaimers. If you state too harshly that your company makes no commitment to continue employment and may fire employees at any time for any reason or no reason at all, union organizers may point to the disclaimer as evidence that workers have no job security and need a union. Soften the language by, for example, explaining the reason for the disclaimer: that just as employees may leave a job for any reason without legal obligations, the company reserves the right to terminate employees for any reason it deems necessary.

Second, make the handbook (the work environment) friendly enough so that employees won’t feel the need to have a union. For example:

  • Emphasize the company’s commitment to good communication with every employee.
  • Establish effective channels for resolving problems, and make sure employees feel at ease expressing their concerns.
  • Don’t be afraid to mention the fact that the company doesn’t have a union, and that you’re committed to creating a work environment where no union is needed.

If your workers are already represented by a union, make sure the employee handbook acknowledges the existence and authority of the union. In particular:

  • If certain groups of workers are required to join the union after a given probationary period, say so in the employee handbook so that it won’t come as a surprise to new employees.
  • Instead of describing benefits, pay practices and other procedures detailed in the collective bargaining agreement (risking inconsistency and confusion), refer covered workers to that agreement.
  • Inform union employees that they should speak with their steward about any issues covered in the union agreement.
  • State that no information in the handbook shall be construed to alter the union agreement.

Employers’ 10 Most Common Mistakes

Employment lawyers point to the following mistakes that employers make in handbooks, which could spell trouble for your organization:

  1. Using form handbooks, which usually have many provisions that have nothing to do with your organization.
  2. Meshing policies and procedures, which confuses employees and provides more fodder for plaintiffs’ lawyers.
  3. Including a probationary period, implying that anyone who stays with the company 90 days is then a permanent employee.
  4. Being too specific in descriptions and lists, especially those involving discipline.
  5. Not being consistent with other company documents.
  6. Not adding a disclaimer, or not enough in the right places.
  7. Sabotaging disclaimers by what you do or say, especially reassuring employees that their jobs are secure and they’ll be fired only for a really good reason.
  8. Not adapting the handbook for each state’s laws.
  9. Failing to update the manual frequently for changing laws.
  10. Being unrealistic about what your employees or supervisors will buy into as your policy.