Can Employees Rely on Employee Handbooks as Binding Agreements? What You Should Know

Employee Handbook Defined

An employee handbook is a written convenient reference source regarding the employment policies of a company. It is literally a "handbook"—a book containing helpful, informative information for employees. Unlike a book of Star Trek Trivia, an employee handbook is not a novel that is meant to be read from page one to the end in one sitting. It is meant to be used as a reference manual.
What is it used for?
Generally, employee handbooks serve several purposes. First, they inform employees of their rights while employed with the company at issue. Second, they inform employees that the company reserves its rights to make decisions both in regard to how the company is run and in regard to how and when employees are paid. Third, handbooks provide employers with a means to do the first two.
Companies use employee handbooks because they are effective. Having something in writing that employees can reference when they have questions regarding their rights and/or the company’s policies helps clarify what the company’s expectations are. It also helps employees understand what rights the law provides and what rights the company may have under the law. There are now over 200 federal laws, regulations and orders, enforced by 63 federal agencies, that provide individual rights to employees and/or impose responsibilities on employers. This significantly complicates the situation for employers and employees and demonstrates the importance of creating a single location for everyone to find answers to questions related to the terms and conditions of employment.
Example:
Most companies already have employee handbooks. However, they may not know what is typically included in an employee handbook and what additional provisions should be considered . In addition, many employers simply "cut and paste" statutes into their handbooks without realizing that the relevant statute provides specific language that must be typed in handbooks word-for-word. Some examples of provisions frequently included in employee handbooks are: notice of employers’ compliance with state law poster requirements, a disclaimer to support the "at-will" employment relationship, a "jury duty" policy, an "overtime" policy, a statement requiring devices of nondiscrimination, an "employment classification" policy, an "FMLA" policy, an "attendance" policy, a "smoking" policy, a "personal calls and communications" policy, an "intellectual property" policy, a "confidentiality" agreement, a "drug-free workplace" policy, a list of all benefits offered by the employer, and an "internet usage" policy. These are just some of the most frequent provisions in employee handbooks. In addition to these employee handbook provisions, there are several other policies that many companies have in their employee handbooks. These other policies include non-compete provisions, arbitration clauses, notice of what to do if an employee thinks that their rights have been violated, prohibitions against workplace violence, and, of course, sexual harassment and other anti-discrimination policies. While employers may not realize it, having these policies in place now will create a defense for them in the future. If an employee is terminated because of violations of any of these policies, the employer will have proof to show what the employee did wrong, if they choose to raise a claim. There is no "one-size fits all" employee handbook, and employers must be careful not to have a haphazardly written employee handbook. Successfully managing employment and workplace issues requires a comprehensive employee handbook that is drafted by skilled counsel.

Legal Significance of Employee Handbooks

Determining whether an employee handbook is binding is particularly important regarding employee conduct required to be discharged. If it has been determined that an employee handbook creates a legally binding contract then, a court will be forced to enforce the terms of the employee handbook in regards to any breach of contract claim. It is established law that where an employee handbook "prescribes procedures for termination other than ‘for just cause,’ consistent with an implied promise of continued employment until such cause appears," the employer may be liable for wrongful discharge and related torts resulting from a termination that does not follow such procedures. Hall v. Commercial Telephone Company of Florida., 182 So.2d 168 (Fla. 1965). In addition to wrongful discharge, some courts extend tort liability of employers and employees to other torts associated with handbook violations, including battery, infliction of emotional distress, fraud, intentional interference with economic advantage, negligent infliction of emotional distress, and loss of consortium. For example, where an employee discharged in violation of the handbook recoils at the sight of her supervisor, it is a jury question whether the battery and emotional distress caused by that discharge is an actionable battery and a tort claim. See e.g., Yates v. Gen. Motors Corp. 112 F.3d 1420 (11th Cir. 1997)(a terminated employee’s termination from employment without authority will support a cause of action against both the employer and its agent, the employee who participated in the wrongful discharge).

Circumstances Impacting Legal Enforceability of Employee Handbooks

One can imagine a scenario where an employee wants to challenge the enforceability of a handbook. What would likely be the basis for that challenge? And what factors would a judge and/or jury look at in deciding the issue? The answer to those questions depends upon the jurisdiction. Some states have specific state laws detailing what must occur before a handbook or policy can be deemed enforceable. Other states do not. Even in states that do not have specific laws, (for example) the courts might look at factors such as whether the language is clear, whether there was a disclaimer, etc. Indeed, in some jurisdictions, a disclaimer, in and of itself, can completely abrogate any claim that an employee handbook has become a contract. Overall, whether an employee handbook is legally binding is critical. And how the law applies to your particular jurisdiction can as well.

Employer and Employee Obligations

It is important that both the employer and employee read and understand the handbook and especially that employees understand the policies and procedures for reporting suspected violations. It is also your or your employer’s responsibility to update the handbook, acknowledge receipt, and understand mandatory and recommended updates.

Key Precedent for Enforceability of Employee Handbooks

The question of whether an employee handbook can be legally binding has been examined in a number of cases in the U.S. Federal Courts and various State Courts. The short answer is that there are many factors to consider.
Whistleblower Protection
One of the clearest times when an employee handbook was found to be binding was in the case McKee v. AT&T Corp., decided in December of 2005 by the Supreme Court of Nevada. In this case, the plaintiff was a sales manager who at first had a warning issued against him after he sold 27 copies of the business’s telephone book. He failed to do extensive research about what materials would work best for a complex of high rise apartments and it cost the company money and effort when a competitor won the job. His management said he could be fired for cause, but they gave him a written warning.
However, later the same month, the plaintiff made a call about the company’s sales practices that he was concerned were not legal. The company performed an investigation, but the plaintiff felt that the company was acting in bad faith because they retaliated against him by giving him an Additional Review Cycle (ARC) another chance to make sales.
The plaintiff sued his employer because he felt that the way he was treated violated the anti-retaliation provisions of the Nevada Revised Statutes, and in turn, the court found that the company had violated its own procedures as laid out in the employee handbook.
In this case , some key steps that made the handbook binding were:
Improper Deception
Perhaps one of the most common situations where a handbook has been found to be not binding was in the case of Sain v. City of Bend, Oregon in which the plaintiff was hired as a firefighter. His employee handbook said that if he missed work he would have to use accrued sick leave time, but that use of sick leave time was at the discretion of the Fire Marshal.
The plaintiff had long hair and a beard. He felt that the careful grooming requirements didn’t apply to him as a firefighter, so when he was called for a disciplinary meeting he "braided his hair and wore a French braid." The issues around his hair and facial hair were ones that had been set out in the employee handbook, so it was determined that it was up to the Fire Marshal to follow those rules. When the plaintiff took issue with the decisions, there was a list of grievances, but the use of sick leave time was not mentioned. He later became a whistleblower.
This case was decided by the Ninth Circuit Court of Appeals in Oregon. It was determined that the employer’s grooming policies in place at the time of the decision were invalid. The employer felt that their grooming policies applied, but since those policies were not mentioned in a clear enough manner in the employee handbook, the Court found for the employee.
Cases such as these illustrate that an employee handbook can be a valuable document for both employees and employers alike. However, both parties should take care that the handbook policies are written clearly and are followed consistently to avoid legal liability.

Best Practices for Employers

There has been no shortage of news stories about the dangers of including major, legally significant statements in an employee handbook. News headlines aside, employers can help to limit the risk by following a few simple rules.
First, avoid putting into the handbook any provisions that are legislatively required (other than, obviously, the mandated ones), or which interpret or summarize such duly adopted laws or regulations. As noted above, such may be binding on the employer – whether it wanted to be or not!
Second, avoid legalese. If your handbook is riddled with provisions that sound as if they were lifted directly from some obscure legal treatise, chances are good that a court will view it with acute skepticism. Better to have a short, pithy statement of what the employer believes to be the law than a lengthy policy statement that reads like a treatise on workplace law.
Third, give your handbook at least a cursory review every year or two. Things change. Laws change; sometimes for the better. Employees’ understanding and the consensus among managers may change. The document that once seemed innocuous, and was written with that in mind, can come back to haunt you years later. Even if the law has not explicitly changed, longstanding best practices (e.g., guiding principles for interpreting a non-compete or solving an employee’s complaint) may have. Don’t let an outdated handbook sabotage your business objectives.
Fourth, train your managers in how the handbook is to be used throughout the course of the employment relationship. Your employees are likely to have questions about what is or is not in their handbook – especially if they are used to working for an employer who did not have one. Set the tone up front, and then follow through on promises. Finally, don’t bury the handbook after you distribute it. Collect signed receipts (dated, if possible) from each new employee, and give a copy to each current employee. When it comes time to enforce its terms or set the example for conduct, you will not want any excuses.

Conclusion and Takeaways

In conclusion, it is evident that the purpose of an employee handbook is dual: it helps provide your new employee with all of the information needed to orient themselves to your company, its culture and what your company expects of them, and it also can assist in limiting a company’s liability if litigation ensues. If a company takes the time to craft very carefully and with counsel a well-written employee handbook, the establishment of a comprehensive understanding between employer and employee will result in a dramatically reduced chance of costly litigation.
A review of the case laws discussed above will show that attempting to argue that certain policies within an employee handbook are legally binding is a dangerous proposition for any employee and even more dangerous advice for any lawyer to give . Therefore, employees should avoid trying to use employee handbooks in courts of law and, in particular, should refrain from asserting or suggesting that companies have a legally binding obligation to its employees by virtue of the policies outlined in its employee handbook.
Likewise, employers and their respective human resource departments should be mindful of the ramifications of employee handbooks, both positive and negative, and should hire experienced legal counsel to draft the policies contained in the handbook to avoid complicated and costly litigation in the future. Employee handbooks should be drafted to ensure that they are not only containing the appropriate policies required by law, but also that they are properly stated so that the statements contained therein are only aspirational, and not legally binding on the company. By establishing clear, unambiguous language indicating that the company has no intention of making the policies outlined in an employee handbook a legal obligation, litigation can be avoided.