Are Employee Handbooks Enforceable Contracts?
When will the law consider an employee handbook the company gave out on Day One a contract enforceable against the employer?
If an employee handbook, sometimes called an employment handbook, makes promises about employee health benefits, severance pay, or grounds for dismissal, can the employee hold the employer's feet to the fire on promises made there?
State Laws Vary
It depends. At least thirty states, including California, will enforce terms stated in an employment handbook or personnel manual, reports the ABA Family Legal Guide. In those states, a copy of the handbook must have been distributed to the employee. And the language must be specific. A promise like "all employees will be treated fairly" might not get enforced in court, since the terms are vague. But a promise like "employees will be fired only for just cause" contains a specific, enforceable promise.
If the employee handbook contains a clear disclaimer, courts will probably find no contract. So something like "this handbook does not create a contract, and can be changed or revoked at any time" will probably mean the handbook created no contract, reports the ABA Family Legal Guide.
Some states do view employee handbooks as contracts. The Arizona Supreme Court ruled in Demasse v. ITT Corp. (1999) that employers may not change employee handbooks or other personnel policies, under certain circumstances, unless the employees accepted the proposed changes and were compensated for the policy modification.
Wrongful Termination and Employee Handbooks
But why does the question whether the handbook constitutes a contract even matter?
Because of wrongful termination lawsuits. In a wrongful termination lawsuit, the employee claims they got fired for an illegal reason, in violation of public policy. Illegal reasons include race, age or gender discrimination; solicitation of illegal acts; retaliation; or other reasons provided in state law.
And where lower-level employees have no individual written employment agreements, or where terms of employment developed over a long period, there is really nowhere else for the court to look.
So make sure your employees get an employee handbook you have approved. And make sure get help from an experienced employer's attorney.
- Find Business and Commercial Lawyers Near You (FindLaw's Lawyer Directory)
- Employment Law and Human Resources (FindLaw)
- ABA Legal Guide: Law and the Workplace (FindLaw)
- Employment Contracts and Compensation Agreements (FindLaw)
- Filing a Charge of Employment Discrimination (FindLaw)
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