ComplianceDecember 31, 2020

Employee handbooks effectively communicate work rules but have drawbacks

An employee handbook compiling your work workplace rules is a great way to communicate work policies to employees, However, it's extremely important to follow certain guidelines when creating a handbook in order to avoid inadvertently creating an employment contract.

Employee handbooks are basically manuals containing an employer's work rules and policies which can be used to communicate these rules and policies to employees. Manuals can also contain other information that is useful to the employee, such as the business's history, its goals, and its commitment to customer service.

Should your business have an employee handbook? For a small business in particular, this question is hard to answer. Whether to have a handbook should depend largely on the size of your business. If you have only a handful of employees, the time it would take to assemble a handbook probably won't be worth it. However, you may still want to have some kind of written document to communicate your general work policies to employees — perhaps a one-page document would be sufficient.

Conversely, if you have ten or more employees, you might want to put a simple handbook together. Some employers feel that handbooks can pass on valuable information to your employees, such as:

  • what you expect of them and what they can expect of you
  • what your business's service policy to customers is
  • what place your business has in the community and the industry
  • what makes your business a good place to work

While handbooks can be a positive, helpful resource for your employees and for you, there is a real danger of creating an employment contract with your handbook that makes it difficult to terminate employees and can even make you liable to them if you need to change any of the rules, employee benefits, or working conditions mentioned in the handbook. Be sure your attorney reviews your handbook before you give it to employees.

If you're undecided about whether to invest the time in creating a handbook, consider some of the other uses for a handbook in addition to communicating important information to employees. Provided the appropriate content is there, the handbook can serve a number of purposes:

  • A motivator. A handbook can give employees a sense of being a part of something larger. If your handbook includes information about the business's history and goals, it can provide a positive motivation for keeping employees excited about their jobs and involved in the company's success.
  • A reference. With a handbook, everyone knows the rules of your workplace. When an employee breaks a rule, you can refer to the handbook. It helps make enforcement and discipline easier.
  • Your shield from charges of discrimination or unfair treatment. discrimination or unemployment claims are brought against your business, your handbook can provide persuasive evidence that you had clear, reasonable rules against certain conduct which were communicated to employees and fairly enforced.

Thomas Jones, an employee of the Complete Computing Solutions Company, is witnessed placing an office laptop computer into his car in the company's parking lot and is therefore terminated. Thomas proceeds to file a charge of discrimination against Complete Computing Solutions with the Equal Employment Opportunity Commission (EEOC). He claims that he was just borrowing the laptop and did not know that such action was grounds for discharge.

However, once Complete Computing Solutions receives notice of the charge, it sends the EEOC a copy of the employee handbook — highlighting the following rule under dischargeable offenses:

"removal of computers of any kind without express permission from a supervisor"

Consequently, the EEOC quickly concludes that the discharge was not discriminatory.

Topics to include in your employee handbook

Ideally, your handbook should be more than a compilation of rules and regulations that your employees must live by in the workplace. That's not to say that your policies aren't appropriate to put in a handbook — they most definitely are. But there are other things that you may want to put in your handbook as well.

The following is a list of the types of information that can be put in a handbook. Although most of these items are optional, and some may not apply to your particular business, federal or state law may require you to provide written notice of some of the policies:

  • welcome and introduction
  • purpose of handbook
  • company mission statement
  • statement emphasizing importance of good customer service
  • background information about company
  • business's position on unions, if the makeup of the workforce suggests union activity is possible
  • suggestion and complaint procedures
  • workplace rules and policies
  • introductory or probationary period
  • employee's role and responsibilities
  • hours of work
  • lunch periods and breaks
  • overtime policy
  • attendance and punctuality
  • time card information
  • personnel records
  • shift premium
  • payday
  • payroll deductions
  • garnishments
  • wage and performance reviews
  • promotions
  • layoff or recall
  • resignation or termination
  • bulletin boards
  • telephone usage
  • benefits (leave, disability and workers' compensation, health and other insurance, retirement plans)
  • unemployment insurance benefits
  • call-in or report-in pay
  • training
  • school or educational assistance programs
  • service awards
  • sale of company products
  • safety (rules, emergency procedures, medical services, protective equipment, reporting accidents)
  • standards of conduct
  • confidentiality policy
  • moonlighting policy
  • noncompete provision
  • corrective discipline procedure
  • summary and acknowledgment
  • disclaimers reviewed by your legal counsel

Designing and putting together your employee handbook

Apart from deciding what goes in the handbook, there are a few mechanical issues that you'll need to address:

  • Choosing a name for your handbook. You can just call it "Employee Handbook," but you may choose to be more creative.

Be certain that the name of your handbook does not create an employment contract. For example, don't call the handbook something like "Your Career at XYZ Corporation." You might be implying that all employees can look forward to a career with you or that you offer lifetime employment.

  • Selecting the size, shape and format of your handbook.The size of the booklet is also an important consideration. If it is too small, it will probably get lost. On the other hand, if it is a cumbersome size, it will probably be put somewhere out of the way and rarely consulted. Typical handbooks range from 3 1/2" x 6 1/2" to 5" x 7". Or, you can forgo paper altogether by providing your handbook in an electronic form, such as in a computer file that everyone can read, but that only you can edit.
  • Design considerations. The answers to the following questions will determine the look of your handbook:
  • Do you want drawings or photographs in your book (they can be difficult to include if you are photocopying or printing pages off a laser printer)?
  • Do you want the cover to be colorful?
  • Do you want to include the company logo or motto on the cover?
  • Do you want the printing limited to black and white, or do you want different colors of ink?
  • Do you want colored paper for the pages?

Finding the most effective writing style for your handbook. You want your handbook to be easy to read, but not too informal. Remember — this is a formal and important document for your employees and whoever else might read it. Here are some tips for making the handbook easy to read.

  • Keep each sentence to approximately 20 words or less.
  • Limit discussion of any subject to one page or less.
  • Use drawings, charts, and cartoons as much as possible.
  • Leave plenty of white space on each page.
  • Limit the handbook to roughly 35 pages (you don't want to convey a complicated message in the handbook).
  • Use a personal rather than an informal style. (Instead of saying "Employees will be paid on a bi-weekly basis," say "You will be paid every two weeks.")

While your attorney should review your handbook, you may also want to have someone review your writing. (See if you can get a local English professor or graduate student, journalist or editor to review your work at no or low cost.)

Handbooks can create unintentional employment contracts

In most states, an employer may generally discharge an employee for practically any reason, or for no reason at all. This employment relationship is known as employment at will. Besides allowing you to terminate employees "at will," the employment-at-will doctrine allows you to change benefits or employment practices whenever you deem appropriate.

Your freedom to end an employee's employment and to modify benefits and employment practices "at will" is limited, however, where a contract exists that imposes a limit. And, if you're not careful in how you word your employee handbook, the handbook may be found to be a binding contract.

Increasingly, employees are suing their employers under a breach of contract theory when the employers fail to follow procedures outlined in their employee handbooks. Many courts will find an implied employment contract in the handbook for employees who prove that they relied on the handbook and its promises. In other words, employees expect it to be followed — just as they would have if they had an express employment contract. These courts are unwilling to allow employers to set out policies and procedures and then disregard them when the time comes for action.

An employer who stated in a handbook that an employee will be terminated for "just cause" limited its own ability to terminate an employee unless it could prove that "just cause" existed. The court basically said that if it was reasonable for the employee to expect the employer to live up to the statements it made in the handbook, then the handbook became part of the employment contract.

In this next situation, it wasn't the reason for the termination that got the employer hung up, but the procedure for terminating an employee:

An employer gave out a handbook that details a specific process for terminating an employee. But when the employer terminated an employee, it did not use the procedure in the handbook. In that situation, the court found that the employee had been improperly discharged.

Avoiding breach-of-contract claims. You can minimize the likelihood of being faced with breach of contract claims based on your employee handbook (and increase your chances of prevailing against any such claims) by:

  • clearly stating in writing that the handbooks are guides, not employment contracts
  • making sure that the handbooks are carefully worded to avoid binding language
  • ensuring that handbooks do not contain provisions that promise, directly or indirectly, permanent, lifetime, or a fixed term of employment
  • retaining sufficient discretion as to the terms and conditions of employment, by explicitly reserving the right to change the rules, benefits, pay structure, etc., at any time
  • using a disclaimer

Disclaimers in handbooks

One way to keep your handbook from becoming an implied employment contract is to include a conspicuous piece of language that clearly says that your handbook is not an employment contract. That piece of language is commonly referred to as a disclaimer. Just having a disclaimer, however, will not ensure that your handbook won't be considered a contract — it must be very carefully worded.

The following is an example of an effective disclaimer:

This Employee Handbook does not represent contractual terms of employment. It is, rather, an explanation of employment policies subject to change by XYZ Corporation. No change in employment policy will be effective unless it is executed in writing by an authorized representative of XYZ Corporation.

Employment at XYZ Corporation is at-will. That is, either you or XYZ Corporation may terminate the employment relationship at any time, with or without cause. The at-will relationship remains in full force and effect notwithstanding any statements to the contrary made by company employees or set forth in any documents.

The following example addresses not only the issue of an employment contract, but also reserves the right to changes policies at any time:

This handbook does not constitute a contract for employment with XYZ Corporation, either express or implied, and XYZ Corporation reserves the right at any time to change, delete, or add to any of the provisions at its sole discretion. Furthermore, the provisions of this handbook are designed by XYZ Corporation to serve as guidelines rather than absolute rules, and exceptions may be made from time to time on the basis of particular circumstances.

To avoid having an ineffective disclaimer, you will want to follow these general guidelines:

  • Don't bury the disclaimer in a hard-to-find place.
  • Make sure the that disclaimer is worded clearly.
  • Make sure that the disclaimer is not in conflict with any other provision of the handbook.

An example of a conflict is stating in your disclaimer that employment is at-will and that you reserve the right to terminate an employee at any time while your termination policy says that employees will only be terminated for just cause.

  • Don't make promises in the handbook that you do not intend to keep. Examine policies and make sure none of them guarantees or otherwise promises any terms of employment. Be on the lookout for words like "permanent" or "lifetime" — they spell trouble.
  • Avoid saying "always" and "never." Avoid stating that no exceptions will be made to your procedures. If you don't follow them yourself, you could be sued.
  • Disclaimers do not always have the desired effect. Even in situations where employers have included a disclaimer specifically stating that the handbook was not a contract, courts have decided that an employment contract was created. So make every effort to follow the rules set out in your handbook, and be sure to have the handbook reviewed by legal counsel.
  • On the other hand, don't make your disclaimer so harsh that you alienate employees. You don't want employees to feel that they have no job security. Be tactful.
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