Beware the Employee Handbook

Courts have ruled that an employee handbook can be interpreted as a contract

Employee handbooks are a handy way to communicate to workers exactly how things should be done and what they can expect from the company. However, they can also be turned into a legal weapon for employees, who have successfully argued that the rules in the handbook are, in effect, an employment contract. The lesson: Make sure the language in your employee handbooks is flexible and general enough to protect you from plaintiffs’ lawyers.

Howard University learned this the hard way. When an admissions assistant was laid off after 620 positions were eliminated, she successfully sued, citing language in the employee handbook promising that a specific workforce-reduction procedure would be followed. The court found that the university was required to follow its own promised procedure, and that the employee handbook constituted a contract that had been violated in her case. She won even though the handbook contained a disclaimer stating that its contents were not intended as a contract.

Since Dantley v. Howard University was decided in 2002 several similar rulings have construed handbooks to be actual contracts, despite disclaimers. It is a trend that has impelled smart business owners to review the language in the handbooks they provide to employees. “There are cases that come up all the time, in every state,” says Manesh K. Rath, a veteran management-side employment law attorney and a partner with Keller and Heckman LLP, a nationwide practice based in Washington, D.C. “Putting a disclaimer in an employee handbook is fine, as long as you realize that’s not all you have to do.”

What else can you do to ensure that your employee handbook remains just a handbook? The expert advice seems contradictory—don’t use specific language, but don’t be too vague. Here are some pointers:

• Do tell your employees what you expect of them. “Generally address basic work-related behavior—cooperation, professionalism, honesty—and specific company requirements, such as a method for documenting hours worked, or dress code issues or safety equipment,” says Maria Greco Danaher, an employment and labor law attorney at Dickie, McCamey & Chilcote in Pittsburgh. As to what the employee can expect of management, keep it flexible. Sections touching on potentially controversial areas like discipline and firing should be written broadly. For example, instead of spelling out specific sanctions for unacceptable behavior, Danaher suggests language such as: “Discipline is imposed based upon the severity of the infraction, and at the business discretion of the company, consistent with applicable laws and regulations.”
• Don’t describe procedures in detail; they can trip you up in court. One of the worst things an employer can do, says Rath, is to use very specific wording to outline exactly what the company will do in a certain event, such as what will escalate a disciplinary procedure to a layoff. “One wants to leave as much flexibility as possible and not set out any predictions as to how management is going to handle a situation,” he cautions. The language should make it clear that the company reserves the right to deal with situations as they arise and has the discretion to choose the appropriate remedy for each situation. Also, he advises, avoid the suggestion that you are making promises to employees, or implying that they are entitled to a stated length of employment or a certain exit procedure. Overall, the rules should lay out employee transgressions that will lead to disciplinary action. They should not specify how many chances or the amount of time you will give an errant employee before he is fired.
• Do include disclaimers in your employee handbook, but use them sparingly. Following every policy or procedure with a disclaimer may not work to your advantage in court. “It gives the overall handbook an insincere quality,” warns Rath. “And it undermines one of the most important elements of the handbook, which is to communicate a common set of principles and expectations that management wants everyone to share.”
• Don’t give up on the idea of an employee handbook. It can actually help you in court and improve your business. It can also remind everyone of the true employer/employee relationship. Many small business owners treat employees like family, which might work well on a day-to-day basis, but won’t keep you out of court. “Small businesses have a lot of unwritten contracts—there’s a lot of camaraderie and congeniality between the owner and employee,” says Becky Strickland, senior human resources manager for Express Groups in Pueblo, Col. “You have to step back from that attitude and realize that you have to put things in writing. Take some time to examine your processes and look at it from a more analytical perspective, instead of relying so much on good will.”
• Do have an employment law attorney look over your current employee handbook, line by line. “There is no substitute for carefully reviewing each [employee handbook] policy to make sure it’s worded well,” Rath points out. “A seasoned employment lawyer will have learned to spot [company] policies that can give the appearance of conferring rights to an employee.” If your firm is too small to justify the expense of an attorney, Rath suggests checking with trade organizations or human resources associations for assistance in making your firm’s employee handbook bullet-proof.

Stephanie Hainsfurther is a business journalist and co-author of Covering the Business Beat (Purdue University Press, 2004).