FAQs ABOUT EMPLOYEE HANDBOOKS: A VERY VALUABLE TOOL BUT A MINEFIELD IF NOT CAREFULLY DRAFTED

by Employment Law Attorney Leslie Lockard
The Law Office of Leslie Lockard, P.C.
Norwood Corporate Center
1500 Providence Highway, Suite 33
Norwood, MA 02062
(781) 551-0800
Llockard@leslielockard.com
www.leslielockard.com

BENEFITS OF EMPLOYEE HANDBOOKS

It is very common for employers to have employee handbooks because handbooks provide many benefits. First, employee handbooks are an efficient way to let employees know the rules which govern the workplace, what the employer expects of them, and the benefits to which they are entitled. Having a handbook saves the enormous amount of time that would be involved in going over the handbook’s contents with each employee personally. Second, a handbook can provide good evidence in litigation that an employer had clear rules, of which the employee was informed. For example, an employee may be terminated for violation of a workplace rule. If the employee seeks unemployment benefits, or brings a claim that the firing was due to discriminatory motives, it can be extremely helpful evidence to show that the employer had a clear written rule which the employee violated. Third, having a handbook provides an efficient way to train supervisors about the rules they should be applying, and promotes consistent application of the rules by different supervisors. If one supervisor treats a similar situation differently from another, a less favorably treated employee who falls within a group protected by discrimination statutes may assume that he/she was victimized by discrimination, and may bring a lawsuit. Fourth, handbooks are an efficient way to inform employees that they should not expect privacy in certain aspects of their employment. This provides helpful protection to employers from breach of privacy claims. Fifth, an employee handbook is a good way for employers to take credit for the many employee benefits it provides. Employees often seem to assume that such benefits as health insurance are an entitlement, or are perhaps required by law. I advise my clients to mention in their handbook that various benefit programs, such as health insurance and paid vacation are not required by law. It is helpful for employees to realize how much more the employer is providing for them than their paycheck.

One of the most important benefits of an employee handbook is that it can protect employers from many different types of potentially expensive employee lawsuits. However, there has been some recent Massachusetts appellate case law, in which poorly drafted handbooks were found to create enforceable employee contract rights. Instead of minimizing risks, these poorly drafted handbooks actually increased the risk of employee lawsuits. It is therefore critical that employers make sure that their handbooks are correctly drafted, to minimize the risk of inviting employee lawsuits. Since employment law is continually subject to change, it is also advisable to have a handbook re-reviewed by an employment law attorney every few years.

HISTORY OF MASSACHUSETTS CASE LAW CONCERNING EMPLOYEE HANDBOOKS

Unless an employee has a written employment contract, or is covered by a union collective bargaining agreement, his employment is generally considered “at-will”. Massachusetts courts have historically, and still today, generously interpret the “employment-at-will” rule in favor of employers. The employment-at-will rule provides that both the employer and the employee are free to end the employment relationship at any time, with or without good reason, with or without notice. At the turn of the last century, there were very few exceptions to the employment-at-will rule. During the depression, the National Relations Act carved out an exception for unionized workplaces. In the 1960’s, discrimination laws were passed which prevent employers from discharging employees on the basis of a protected category, such as sex, race, national origin, religion, age and sexual orientation. There have been some subsequent additional narrow exceptions carved out by courts. One example is the rule that employers cannot discharge an employee for a reason which offends public policy. This has generally been given a narrow interpretation by courts, to preclude termination for something the law requires (such as serving on a jury) or that the law forbids (such as committing perjury for the employer).

By the 1980’s, courts of some other states had begun deciding that employee handbooks in some circumstances created enforceable employee contract rights. That is, they found that an employee had a legally enforceable right to have employers follow the policies and procedures that were set forth in their employee handbooks. In 1988, the Massachusetts Supreme Judicial Court, our highest appellate court, considered a similar issue in a case called Jackson v. Action for Boston Community Development. It appeared from this decision that Massachusetts was not going to be one of the states which would interpret employee handbooks to provide enforceable contract rights. In this case, an employee had been fired for sexual harassment. He claimed that his employee handbook constituted an implied employment contract, giving him enforceable contract rights that an ordinary employee-at-will would not have, since an employee-at-will can generally be fired for any reason, even an unreasonable reason, as long as it does not fall within one of the narrow exceptions described above. The court in the Jackson found that no implied contract existed based on the following factors:

1. The employer had not negotiated with the employee about the terms of the employee handbook, as would usually take place before a contract is entered. (That is, most parties who enter into a contract will negotiate concerning the contract’s terms, and the court found that this did not happen with the employee handbook.)

2. The employer stated in the handbook that it retained the right to decide on its own to change the policies and procedures set forth in the handbook at any time. This again is not similar to the usual contract, which generally would not allow one party to unilaterally change the contract’s terms.

3. The handbook language stated that it was provided merely as a “guidance” to the employer’s policies, as opposed to stating that the handbook provided invariable rules.

4. The handbook contained no indication that the employee was going to be employed for any particular term of employment. Thus, there was nothing to suggest that the employee was anything other than an employee-at-will, who can be terminated at any time, for almost any reason.

5. No special attention was called to the handbook: the employee did not sign the handbook, and did not manifest his assent to it or acknowledge that he understood its terms, as often occurs with the traditional form of contract.

A SUDDEN CHANGE IN THE LAW CONCERNING EMPLOYEE HANDBOOKS

Out of the blue in 1996 came a surprising new decision on the topic of employee handbooks from the same court that had decided the Jackson case. This case was called O’Brien v. New England Telephone & Telegraph Company. In this case, the employee had been fired after making numerous nuisance hang-up calls to her supervisor. The employee handbook stated that employees had the right to expect to be treated fairly, and that progressive discipline would be used before termination. The court had obviously changed its thinking on whether employee handbooks can in some circumstances give rise to enforceable employee contract rights. Among other things, the court said the following:

1. An employee handbook can constitute an implied contract if an employee would reasonably conclude that the employer presented the handbook as a statement of the terms and conditions under which employment was to occur. This would be so even if the employer did not intend to make a contractual offer, and there was no negotiation concerning the terms of the handbook. (Thus, even if an employer had no intent to enter into a contract with the employee (intent to be contractually bound is usually required for a contract to be formed), the court said that an employee handbook may still constitute a contract if an employee would reasonably believe it did.)

2. By adhering to the procedures set forth in its handbook, the employer may create a reasonable expectation that the terms of the handbook are contractually enforceable. (This language was certainly of concern to employers because most employers obviously do adhere to the procedures they set forth in their handbooks. If this is all it takes to create a “reasonable expectation” in the employee, and a reasonable employee expectation is all it takes to create a contract, an employee handbook would be much more likely to create enforceable contract rights than had been the case when the Jackson case was the governing standard.)

3. The Jackson factors are not indispensable prerequisites for finding contractual rights. Thus, even if a handbook states that it provides only guidance to the employer’s policies, it may still be contractually enforceable if other language in the handbook, or practices followed by the employer, indicate that the employee could reasonably believe that the handbook provides more than just guidance.

4. Employee handbooks encourage employee satisfaction and loyalty. It may be unfair to permit employers to reap the benefits of a handbook while avoiding promises made in the handbook that employees reasonably believe are binding.

Our lower Massachusetts appellate court, the Massachusetts Court of Appeals, made a similar decision in 2001 in the case of Ferguson v. Host International, Inc. In this case, a doughnut shop employee was fired for being rude to a customer. Before firing him, the employer had only heard the customer’s side of the story, and had not given the employee an opportunity to defend himself. The employer’s handbook contained some ill-advised provisions. The employer obviously had not had its employment law attorney review its handbook after the O’Brien decision had been issued. These ill-advised provisions led to its handbook being deemed contractually enforceable. Among the ill-advised provisions were the following:

1. It referred to new employees having a “probationary” period. Having a “probationary” period is ill-advised because it suggests that employees who complete the probationary period have more protection against termination than an ordinary employee-at-will.

2. The handbook included a poorly worded progressive discipline procedure by which employees would get at least two warnings before termination, except in certain cases, such as theft, damage of company property and “misconduct”. (I will describe later in this memorandum how progressive discipline policies should be worded to avoid the problem this employer encountered in this case.)

3. The handbook stated that if the employee felt a warning was unwarranted, he could exercise his “guarantee of fair treatment”, a three-step grievance procedure. This language was ill-advised because it suggests that an employee could not be discharged for any reason, like the usual employee-at-will, but rather was “guaranteed” that he would be terminated only for reasons which are “fair”.

In finding for the employee, the court stated:

1. The handbook was ambiguous as to what the word “misconduct’ meant, as used in the grievance procedure in the handbook, and therefore the handbook was ambiguous as to whether the grievance policy entitled the employee to two warnings before he was fired.

2. It could be found that the employee could reasonably have believed that the company would adhere to the portions of the handbook establishing the progressive discipline and guarantee of free treatment policies, rather than applying them only when it chose to do so.

3. If employers do not want a handbook to be deemed a binding contract, they should state in a very prominent position that there is no promise of any kind in the handbook, that regardless of what the handbook says the employer promises nothing.

HOW CAN EMPLOYERS MINIMIZE THE LIKELIHOOD THAT AN EMPLOYEE HANDBOOK WOULD BE DEEMED AN ENFORCEABLE CONTRACT?

Among the things employers should do to protect themselves from having their handbook unintentionally invite employee litigation are the following:

EMPLOYEE HANDBOOK DISCLAIMERS

1. Put a disclaimer in bold type on a separate page at the beginning of the handbook which states very clearly that the handbook is not intended to create a contract, that the employee is an employee-at-will, that the handbook is not intended to create any guarantee of employment for any particular length of time, and that the employer always has the right to change any of the policies and procedures at any time, and to decide how they will be applied in any particular circumstances. It is also wise to repeat prominently at other places in the handbook the statements that are included in the disclaimer. For example, it is advisable to repeat disclaimer language on the handbook receipt form, if you have employees sign a form reflecting that they have received the handbook. It may also be advisable to repeat it in the section in which employee termination is discussed, and in the section in which employee discipline and workplace rules are discussed.

TERMINOLOGY TO AVOID IN EMPLOYEE HANDBOOKS

2. Avoid using the term “probation” period, since from its meaning in union workplaces, the word “probation” implies that an employee who has completed probation has protection against termination except for “just cause”. If you want to have a probation period, it would be preferable to refer to it as an “orientation” period or some other similar term which does not carry the same implications as the term “probation”.

3. Do not refer to employees as “permanent” employees. Some employers use that term to refer to their regular full time employees, to differentiate them from part-time or temporary help. That term could be understood to suggest that employees have a “permanent” job with the company. It is preferable to refer to such employees as “regular” employees, or use another similar term.

4. Avoid using such terms in the handbook as “rights to fair treatment”, “guarantee”, “just cause”, “grounds for termination”, “due process” or “employee’s rights”. All of these could be interpreted as suggesting that an employee could reasonably expect that he/she will not be terminated except for “just cause”, or after “fair treatment” or “due process”. This tends to suggest that the employee is not an employee-at-will, who can be terminated at any time, for any reason.

MAXIMIZE FLEXIBILITY IN EMPLOYEE HANDBOOKS

5. Do not include language in the handbook requiring employees to give notice of their resignation. This would tend against a finding that the employee was an employee-at-will, who can resign at any time, with no notice. It probably would not be ill-advised to request that employees give notice of resignation.

6. Retain maximum flexibility in the wording of the company’s policies and procedures, and avoid making direct promises. For example, it may be advisable to include no step-by-step grievance procedure in your handbook. However, if you do wish to have such a procedure, the policy should be very clearly worded to reflect that oral and written warning procedures are possibilities that can be applied in any situation, and that the employer always has the right to decide which, if any, of those procedures will be applied in any particular circumstances. Similarly, if your handbook includes a list of offenses which can lead to termination, such as stealing or dishonesty, it is very important to make it clear that the list is not exclusive, that other offenses not listed can also lead to termination. It would also be advisable to repeat that all employment is at-will, and explain that this means that employees can be terminated at any time for any reason. It is also advisable to use words that give you some leeway. For example, rather than saying that “employees will receive a written performance review every year”, say that employees will “generally” receive a written performance review every year. This provides the employer with some protection if reviews are not actually done every year.

DON’T PUT IN YOUR EMPLOYEE HANDBOOK POLICIES THAT WON’T IN PRACTICE BE FOLLOWED

7. Do not include in the handbook direct statements that the employer will do things that you are not sure will actually be done. There is a tendency sometimes to put in a handbook things that the employer hopes or wishes will occur. However, it is important to think realistically about whether these things will actually occur, given how busy employees often are providing whatever products or services your company provides. Avoid promising, at least without using some type of hedging language, what you are not certain will be carried out.

SHOULD YOU REQUIRE SIGNATURE OF AN EMPLOYEE HANDBOOK?

8. Employment attorneys disagree about whether to have employees sign an acknowledgment form stating that they have received the handbook and understood its policies. I counsel against that. Our higher courts have interpreted this as suggestive of the formation of a contract. I feel that it is safer to have employees sign a form stating simply that they received the handbook and that they understand that it is not a contract. Or you could have a supervisor sign a form reflecting that he/she gave the handbook to the employee, and stating the date on which this occurred.

IT IS CRITICALLY IMPORTANT TO HAVE YOUR EMPLOYEE HANDBOOK REVIEWED BY AN EMPLOYMENT ATTORNEY BEFORE IT IS ISSUED, AND THEN AGAIN EVERY COUPLE OF YEARS

It is critical to have your handbook reviewed by an employment law attorney before issuance, and re-reviewed every couple of years, since employment law constantly changes. I have many times reviewed employee handbooks and have found policies and procedures in them which violate the law. Many of these violations are subtle, or even counterintuitive, and the employer does not realize that it is violating the law.

WHAT SHOULD EMPLOYERS AVOID IN EMPLOYEE HANDBOOKS?

Examples of some violations of the law to avoid are as follows:

1. Do not have a policy requiring employees to keep their rate of compensation confidential. Even in non-unionized workplaces, employees have a legal right to discuss with others the terms and conditions of their employment, including the amount that they are compensated.

2. Do not state that setoffs will be deducted from an employee’s final wages if they have not returned company property, such as a laptop. Although this would seem to be very reasonable to most employers, setoffs from final wages, except in very unusual circumstances, are illegal.

3. Do not include a policy reflecting that hourly employees, who are entitled to overtime pay, may receive comp time in lieu of overtime. Although many employers and employees would like comp time in lieu of overtime pay, such a system is illegal.

4. Be very careful not to state anything which suggests that improper deductions will be taken from the salaries of exempt, salaried employees. For example, serious problems could arise if a handbook contains a policy stating that deductions will be made from salaries of exempt employees if they come in late on snow days. Such a policy could result in a finding that these employees are actually being treated as hourly employees, and therefore are entitled to years of back overtime pay. For the same reason, be careful not to describe the salaries of exempt, salaried employees in hourly terms, such as “$40 per hour”. This again could result in a finding that salaried employees are actually being treated as hourly employees.

5. Avoid statements in your vacation policy which would conflict with the Attorney General’s Guidance on vacation policies. For example, an employee is entitled to be paid, at the time of termination, for all vacation time that has accrued as of the time of termination. Do not include any statements which would violate this rule, such as a policy that employees will receive accrued vacation pay only if they give at least two weeks’ notice of their resignation. Also, the Attorney General’s Guidance requires that employer vacation policies be clear as to exactly when each day of vacation accrues. For example, a statement that an employee is entitled to two weeks of vacation per year would be insufficiently clear. Acceptable phrasing would be that an employee is entitled to two weeks of vacation per year, one week of which accrues on January 2nd, and the second week of which accrues on July 1st. It must always be clear from an employer’s policy exactly how much accrued vacation time an employee has at whatever time his/her employment terminates.

6. It may be ill-advised to have a flat rule reflecting that employees who are out of work a certain period of time, such as a year, are automatically terminated. Such a rule may be deemed to violate disability discrimination statutes.

1. The regulations relating to the federal Family and Medical Leave Act (which applies to most employers of 50 or more employees) require that information concerning employee rights and responsibilities under the FMLA be included in an employee handbook.

2. A change in federal overtime pay regulations which took effect in August, 2004 makes it very advisable for an employer to have a written policy which prohibits the taking of certain types of deductions from the salaries of workers classified as exempt from overtime pay requirements. Certain types of deductions, such as deducting for an exempt employee taking half a day off for personal reasons, are considered by the Department of Labor as evidence that the employee is not actually an exempt employee, but rather an hourly employee who is entitled to overtime. Such a determination could result in that employee and other similarly situated employees being deemed entitled to back overtime pay. The new regulations, however, provide a safe harbor if an employer has a clearly communicated policy prohibiting the types of deductions which jeopardize exempt status. The policy should include an employee complaint procedure, and state that an affected employee will be promptly reimbursed if such an incorrect deduction is brought to the employer’s attention. The Department of Labor has issued a sample policy for employers to use, which is available on its website. Promulgating such a policy would be a wise measure to protect the employer from back overtime pay liability.

3. Although it is not specifically required that an anti-sexual harassment policy be included in a handbook, employers are required to issue a written sexual harassment policy, and distribute it to employees once a year. If a sexual harassment claim is brought against an employer, it is very helpful to be able to show that it took strong steps to try to prevent sexual harassment from occurring, and provided assurance that employees could and should report instances of sexual harassment without fear of retaliation. It is therefore very advisable to place a sexual harassment policy in an employee handbook. (The Massachusetts Commission Against Discrimination has issued a sexual harassment policy as a sample for employers to use.) The employer’s policy should also prohibit harassment on the basis of other protected categories, such as sexual orientation, race, religion and so on.

4. If you are subject to the Drug-Free Workplace Act (which applies to certain federal contractors and federal fund recipients), you are required to distribute anti-drug use policies to your employees. For example, employers are required to prohibit the unlawful manufacture, distribution, dispensation, possession or use of controlled substances, and specify actions to be taken against violators. It would be advisable to place such a policy in the employer’s handbook.

5. It may be wise to include a policy preventing hourly workers from working overtime without specific authorization from their supervisors. If an employer knows or should know that an employee is working overtime, the employer is responsible to provide overtime pay for all hours worked in excess of 40 per week. Sometimes an employee works extra time without the employer expressly knowing it, and then, once the employment relation sours, brings a claim for back overtime pay. Having a strongly worded policy that prohibits any unauthorized overtime may protect the employer from such a scenario.

6. It may be advisable to have an internet/email/voicemail use policy. It is often advisable to have a policy expressly stating that company electronic transmissions, voicemail and computer stored communications are company property and may be monitored by the company at any time. The policy should emphasize that employees should have no expectation of privacy as to these communications. Having such a policy may protect the employer from a breach of privacy claim if it reviews employee email or voicemail. The policy should also specify whether personal use is entirely prohibited, or whether some types of personal use are allowed. It may also be advisable to prohibit obscene/harassing communications and violations of copyright.

7. If you believe that you would ever want to search an employee’s desk, office, briefcase or other effects, it would be advisable to have a policy stating that these items may be subject to search. This again may help protect the employer from a breach of privacy claim. If employees are given notice ahead of time that they should not keep private materials in potentially searchable places, a breach of privacy claim would be less likely to occur.

8. It may be advisable to have a policy prohibiting possession or use of drugs and alcohol in the workplace, as well as the conducting of company business while under the influence of drugs and alcohol. Having such a policy may help prevent employees from using drugs or alcohol in the workplace. Moreover, such a policy may help the employer defend against a claim brought by an employee who claims to be a protected disabled person on the basis of substance addiction. Employees sometimes claim that they should not have been fired for reporting to work under the influence of alcohol because, as a disabled person, they have a right to be accommodated by being given an opportunity for treatment. Employers in such situations have been successful, however, in arguing that the employee was terminated not because he was disabled, but because he violated a clear workforce rule prohibiting employees from reporting to work under the influence.

9. It may be advisable to include a policy prohibiting workplace violence and possession of weapons. Doing so may help prevent a violent situation from occurring in the workplace, and may also help protect the employer from a claim that it did not do enough to prevent such a situation from occurring.

10. It may be advisable to include policies prohibiting employees from soliciting other employees for various causes, and from distributing printed solicitation materials to other employees. The benefits of such policies are that they prevent disturbance of employees and workplace litter. Such a policy also may have an additional benefit of limiting the extent to which union organizers can solicit your employees and distribute union written materials. However, one probably can’t promulgate such a policy for the first time once a union organization drive begins, or it will appear to be done for the purpose of obstructing employee rights to work together to improve their workplace conditions. Moreover, because of its potential effect on employee unionization rights, such policies need to be carefully worded. As the law stands now, employers can generally prohibit employees from solicitation/distribution during working time, and can prevent distribution of written materials in working areas at any time. However, since the National Labor Relations Board are political appointees, the law in this regard may change. Therefore, advice from an employment law attorney as to appropriate wording of such a policy is a must. Also, if you have such a policy, it must be applied uniformly to all employees. It would probably be deemed illegal to allow employees to solicit for the American Cancer Society, but not for a union.

11. It may be advisable to have a policy prohibiting employees from posting any notices on company bulletin boards. This would prevent employees from posting notices that may be offensive to other employees. It may also provide some protection to the employer if employees begin organizing for a union, or otherwise seek to organize employees to work together to improve the terms and conditions of their employment. If employees are allowed to post notices soliciting contributions to the American Cancer Society, for example, the employer would probably need to allow employees to post union-related notices as well.

12. The Massachusetts Health Care Reform law of 2006 requires employers who provide group health insurance to their full-time employees to offer the same coverage to all full-time employees who live in Massachusetts. It also prohibits such employers from making a lower premium contributions for lower wage employees than for higher wage employees for the same insurance product, unless the employees are covered by a collective-bargaining agreement. It may be advisable to include these requirements in the health insurance section of the employee handbook.

1. Employers may wish to include policies relating to the various types of leaves of absence that are available, so that supervisors know the often complicated rules relating to the different kinds of leave, and employees know what to expect. Among the types of leaves that employers may wish to cover would be Family and Medical leave, state Small Necessities leave (both of these types of leave are applicable to most employers of 50 or more employees), Massachusetts Maternity Leave Act leave, bereavement leave, jury duty and military leave.

2. Many employers also define the various categories of employees (such as regular, part time, temporary, salaried and hourly, and describe the various types of benefits which are available to various categories of employees. It is advisable to include wording which retains discretion to the employer to change employee benefit programs at any time without notice. It is also probably advisable not to describe in great detail any of the benefit programs which are covered by ERISA. It is also usually advisable to state that in the case of conflict between what is described in the handbook and what is described in the ERISA plan which governs the benefit program, the ERISA plan would govern.

3. It is advisable to stress the importance of dependable attendance and punctuality. It is also often advisable to include rules for reporting employee absences. It is often best to require employees to report an absence to a supervisor, particularly if the employer is subject to the FMLA. An employee does not need to mention the FMLA to be entitled to FMLA leave. If the employee states that he/she is taking time off for an FMLA covered purpose, the employer is required to take the appropriate follow-up steps to provide FMLA leave. Supervisors can be trained to recognize which reasons for absence would be covered by the FMLA.

4. Many employers also include a policy reflecting that a failure to report to work without providing notice (absent circumstances when it was impossible to give notice) will be deemed a voluntarily quit.

5. Other policies that some employers include in employee handbooks are lists of offenses that may lead to discipline or discharge. To emphasize the company’s disapproval of workplace harassment, it is advisable to include harassment on the basis of protected categories on this list. It is also wise to include fraud in the employment application/résumé process, whenever discovered, and any conduct involving dishonesty.

6. Employers may also wish to include policies on dress code/grooming, on non-fraternization, and on how employment of relatives will be handled.

It is always critical for an employer to invest in having an EMPLOYMENT LAW ATTORNEY review a handbook before issuance, and to re-review it every few years. I do not believe that other HR professionals who are not employment attorneys are competent to perform such a review. Even if you base your handbook on someone else’s handbook, or on some type of template, employment law is constantly changing and templates do not reliably take into account the law of every state. Even subtle ill-advised wording can create huge problems for an employer. I have never reviewed an employee handbook, even one drafted by a knowledgeable, experienced Human Resources person, in which I did not find many changes in wording to be needed. Make sure that your handbook, which is going to set forth the rules by which your company operates, does not unintentionally encourage expensive employee lawsuits!

THIS MEMORANDUM IS FOR GENERAL INFORMATION ONLY, AND IS NOT INTENDED TO PROVIDE LEGAL ADVICE AS TO ANY PARTICULAR SITUATION. EMPLOYMENT LAWS ARE CONSTANTLY SUBJECT TO CHANGE. QUESTIONS ABOUT PARTICULAR SITUATIONS SHOULD BE DIRECTED TO A KNOWLEDGEABLE EMPLOYMENT ATTORNEY.

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