Is your employee handbook a time bomb? - Legal Trends

If you think you're safe just because your employee handbook includes a legal disclaimer, think again.

Some of the most common and frequent mistakes employers make in preparing employee handbooks are related to legal issues.

Most employers are now subject to more than 100 federal and/or state laws that affect the content of and word choice used in the handbook. Mistakes can have catastrophic consequences because handbooks are disseminated to virtually all employees.

Disclaimers

The most commonly recognized risk in having an employee handbook is that it may be interpreted by a court to be a contract of employment. Generally, courts take two approaches in interpreting handbooks.

In some states, a handbook will not be considered a contract unless the employer affirmatively indicates an intent to be bound by it. In other states, the handbook will be considered a contract unless the employer affirmatively states its intent not to be bound by it.

Regardless of the state(s) in which an employer operates, it is generally recommended that the handbook include a clear and conspicuous disclaimer. The specific words that must be used in the disclaimer also may vary from state to state. In every state, however, the disclaimer must be clear and conspicuous. Burying it in the back of the handbook in small print will not suffice.

Although an appropriate disclaimer should greatly minimize an employer's exposure to wrongful discharge claims alleging breach of contract, this does not mean that an employer's failure to comply with its handbook is without legal risk. In many EEO claims, the employee's only "evidence" of discriminatory intent is the employer's failure to follow its own policies and procedures. Most commonly, this argument relates to the employer's progressive discipline system.

Also, a number of courts have held that, even if the handbook includes a disclaimer, employees may be able to rely, in certain circumstances, on definitive policy statements set forth in the handbook. In some jurisdictions, courts apply a detrimental reliance theory. In other jurisdictions, the theory is an implied duty of good faith and fair dealing. Whatever the theory, the result is the same: Deviations from the handbook may serve as the fodder for litigation.

While it is critical for employees to understand that the handbook is not a contract, supervisors need to be taught the importance of treating the handbook as though it were a contract.

Union-free statement

Most employers are loath to include union-free statements in their employee handbooks. There are two principal reasons for this reluctance. First, some employers assume that the policy will bring about the unionization it is designed to avoid. Second, some fear for the legality of the policy.

The first fear is entirely unfounded. Discussing unionization with employees is no more likely to bring about unionization than is sex education in high school to create impulses in teenagers that they don't have already. All employees occasionally think about the potential benefits of unionization.

The second concern, though more understandable, is still misplaced. If the statement is properly drafted, an employer can convey its preference to remain union-free without infringing on the rights of employees as defined in Section 7 of the National Labor Relations Act (NLRA).

But the waters here are deceptively dangerous. Even if the union-free policy is lawful on its face and employees are required to sign an acknowledgment that they will abide by the terms and conditions of the handbook, then the National Labor Relations Board probably will hold that the employer is in violation of the NLRA. The theory here is that the employer requires its employees to agree to remain union-free.

Therefore, employees should not be required to acknowledge in writing that they will abide by the terms and conditions of the handbook. Instead, the certification they sign should be limited to acknowledging receipt of the handbook with a pledge to return it, making no copies, upon termination of employment.

Employees should not be required to agree to abide by the handbook, even if the handbook does not include a union-free statement. If the employer requires that employees be bound by the handbook, the acknowledgment may be used as evidence by a court to support a finding that the handbook should be treated as a contract.

EEO policy

The legal issues related to EEO policies are extensive. This article discusses four of the most essential elements to consider when revising employee handbooks.

1. General nondiscrimination pledge. Employers operating in more than one state need to ensure that this pledge covers the various protected groups in all of those states. For example, marital status, while not protected by federal law (yet), is protected in some states, but not others. The inadvertent failure of an employer to list a protected characteristic in its EEO policy could be construed by a state commission as evidence that the employer is hostile to, or at a minimum, oblivious to, its obligations in the area.

At the same time, employers must be careful not to assume obligations beyond those the law requires. For example, physical or mental disabilities may be relevant to the extent that they interfere with an employee's ability to perform the essential functions of his or her job, with or without reasonable accommodations. The EEO policy's general nondiscrimination pledge, therefore, must be drafted so it permits an employer to consider covered characteristics to the extent permitted by law.

2. Sexual harassment. The EEO policy must include a specific provision on sexual harassment. A general nondiscrimination pledge will not suffice. Among other things, this specific provision must define and express the employer's strong disapproval for both quid pro quo and hostile work-environment harassment.

3. Reasonable accommodations. It is generally recommended that the policy include a specific provision on reasonable accommodations. Regulations promulgated by the EEOC under the Americans with Disabilities Act (ADA) make clear that an employer need make accommodations only for disabilities it knows about. If an employer indicates willingness to make such accommodations through its EEO policy, and an employee does not disclose a job-related disability needing accommodation until after the termination of his or her employment, then the policy statement should be usable in defending against any ADA claim the employee may bring.

4. Complaint procedure. The employer must establish a credible complaint procedure by which employees can inform management of their concerns about or complaints of unlawful discrimination, including harassment. The procedure must allow employees to bypass the supervisor, because it is often the supervisor who is engaging in the objectionable conduct.

It is also critical that those to whom complaints can be reported reflect the diversity of the workplace. An all-white-male complaint committee will not be user-friendly and will deprive employers of the opportunity to correct actual and perceived injustices without the wasted time and emotional costs of controversy or lawsuits.

Introductory period

In the union context, the first 90 days of employment is a probationary period, during which time an employee can be discharged with or without cause. After successful completion of the probationary period, an employee's discharge is subject to a just-cause standard.

Many employers have transplanted the notion of a probationary period into the nonunion context. This is dangerous because the term carries with it a negative implication that when a person completes the probationary period, his or her employment is something other than at-will.

Consequently, it is recommended that the first 90 days' employment (or some comparable amount of time) be referred to as an introductory as opposed to a probationary period. The handbook also should state expressly that an employee's successful completion of the introductory period does not guarantee his or her employment for any period of time thereafter.

Supervisors also should receive training about the importance of the introductory period. It is a window of opportunity for supervisors to remove from the workplace those individuals who should not have been hired.

Although employees have the same EEO rights during the introductory period as they do after to its completion, employees tend to perceive their employers as having greater rights during the first 90 days of their employment. Consequently, employees are less likely to sue their employer if their employment is terminated during the first 90 days.

Fringe benefits

As with EEO policies, there are many legal issues related to benefits. The four most essential for handbooks are

1. The handbook should speak in terms of coverage and not in terms of particular benefits. If particular benefits are discussed, there is case law that would support an obligation on the part of the employer to provide those benefits, even where the carrier has denied coverage.

2. The handbook should say explicitly that all statements of coverage are subject to the terms, conditions, restrictions and other eligibility requirements set forth in the plan document, which is the final word in terms of eligibility and coverage. In the absence of such language, an employee may be able to proceed on a claim for benefits relying exclusively on the handbook.

3. The employer should reserve its right to modify, amend or terminate any benefit plan at any time and for any reason. In the absence of such a reservation of rights, several courts have held that ERISA may require advance notice before any change can be made and/or prohibit certain changes from being made at all.

4. Many employers have a general policy of continuing to provide employees with certain insured benefits during an extended leave of absence. Often, this is done without reviewing the relevant plan document. Many plans provide that an employee remains eligible for coverage only while actively employed. Consequently, coverage may cease while the employee is on an extended leave of absence. In these circumstances, if the employer continues coverage despite the language of the plan document, the employer may be self-insuring the employee.

Under the Family and Medical Leave Act, group health insurance must be continued under certain circumstances. Many employers will need to renegotiate their insurance contracts to ensure that they are in accord with the new law.

Paid time off

Under the Fair Labor Standards Act (FLSA), for an employee to be exempt, it is necessary (but not sufficient) for the employee to receive a salary. For an employee to be considered salaried, FLSA regulations provide that no deductions for absences of less than a full day may be made from the employee's pay. Consequently, an employer's paid-time-off policies (such as sick leave, vacation pay) should differentiate between exempt and nonexempt employees and should not allow deductions for absences of less than a full day for exempt employees. Otherwise, the employer may forfeit the exempt status of all such employees.

This is true even if no deductions actually are made from an exempt employee's pay for absences of less than a full day. A number of appellate courts have held that, if an employee's pay is subject to deductions for less than a full day, the exemption is lost.

Because employee handbooks usually are disseminated to all exempt employees, a technical violation of this nature could cost employers literally millions of dollars--up to double payment (liquidated damages) for all overtime hours worked for up to three years. And this is but one of many areas in which the FLSA can wreak havoc for the unsuspecting employer.

At-will employment

Contrary to popular reports, the at-will principle is alive and well in most jurisdictions. Of course, a poorly drafted employee handbook can change all that.

Even if the handbook includes a disclaimer, in the absence of at-will language, in certain states, an employer may waive its rights in this area. Consequently, every employee handbook should make clear that the company's employees are at-will. As with the disclaimer, it is critical that the at-will language be clear and conspicuous.

It is also important that the employer do more than say that employment is at-will. The term should be defined. If not, depending on the state, there may be an issue of fact for the jury as to whether the employee knew or should have known what it means to be at-will.

It is generally recommended that the language appear twice in the handbook. First, it should appear in the front of the handbook on the same page as the disclaimer. Second, it also should be included in the discipline policy, so that employees cannot credibly claim that the employer is locked into a just-cause standard and/or to applying progressive discipline.

Peer review

Most employers offer an "open door policy." But employees are still suspicious of processes controlled by management, no matter how fair management may be. Employers must offer something more, such as peer review.

This means the determination of whether an employee's discharge will stand is decided in-house by a panel, consisting in whole or in part, of the employee's peers.

Some supervisors fear the partial abdication of power that peer review involves, but the procedure gives up less than most employers assume. According to one national study in which employees were given the option to appeal discharges either to senior management or to use peer review, discharges were reversed in the peer review process less than 10 percent of the time. In contrast, appeals were reversed by senior management more than 25 percent of the time.

Of course, for peer review to be effective, employers cannot retain a right to reverse peer review decisions with which they do not agree. This not only will undermine the integrity of the process, but also may result in the peer review process being unlawful under the Electromation decision. (See HRMagazine, April 1993, p. 101)

It is also critical there be a specified number of days by which an employee may elect to use peer review. If such a limitation exists, an employee's failure to request peer review by the deadline provides the employer with a strong defense in any wrongful discharge claim relying on the handbook. When an employee claims rights arising from the handbook, he or she must comply with that handbook as well.

Conclusion

Legal and human resource issues have become intertwined; nowhere is this more true than in connection with employee handbooks. It is critical that the employee handbook be prepared with expertise from both disciplines. Equally critical is that the handbook's dissemination be coupled with supervisory training so that its full value is realized in terms of both achieving business objectives and avoiding litigation.

Author's Note: This article should not be construed as legal advice or as pertaining to specific factual situations.

Jonathan A. Segal, Esq., is a partner with the Philadelphia-based law firm of Wolf, Block, Schorr and Solis-Cohen. Segal's practice concentrates on the training of managers and the development and implementation of policies and programs designed to avoid litigation, unionization and other employee relations problems.

COPYRIGHT 1993 Society for Human Resource Management
COPYRIGHT 2004 Gale Group