July 1995

Workplace Labor Update - Is It Time to Revise Your Employee Handbook? – July 1995

12 min

Most employers now have some form of employee handbook or personnel policies manual. Many such handbooks have not been updated for several years, however. When is it time to revise your employee handbook?

Consider the changes in the law which have taken place in the last decade alone. If your handbook was last updated in 1990, you have failed to incorporate such huge developments in federal law as the Americans With Disabilities Act, the Family and Medical
Leave Act, the Civil Rights Act Amendments of 1991, and the Polygraph Protection Act. Any handbook more than a few years old has also failed to address literally hundreds of state and federal court cases dealing with handbook-related issues. State and federal government agencies have also issued numerous regulations and interpretive decisions in recent years which affect handbook policies. Finally, new technologies have arisen during the last decade which should be addressed by workplace policy manuals.

As should be obvious by now, any employer who has distributed an employee handbook should be constantly monitoring the manual, with the assistance of counsel, to determine whether revisions are needed. Venable itself has recently undertaken such a revision of
its Model Employee Handbook, three years since our previous edition, and we have made a number of significant changes.

In the course of undertaking a revision of any employee handbook, however, or in drafting a first-time manual, there are a number of questions which should be asked. These questions include: Should you have a written employee handbook at all? What should be the main goals of the handbook? If you have a handbook, what disclaimers should it contain? What are some "handbook horrors" to watch out for? What are some likely areas where an older handbook probably needs revising? and What steps need to be taken for
changes in a handbook to become effective? Each of these questions is addressed below.

Should You Have An Employee Handbook?

Handbooks serve many valuable purposes, but they also carry with them certain risks and obligations. With the dramatic increase in employment litigation during the last two decades, some employers have found themselves in court because of ill-advised employee
handbook provisions. Other employers have found that their handbooks were indispensable in keeping them out of court. Even though most employers now have employee handbooks, they are not necessarily right for every employer. In particular, no employer should undertake to put a handbook in place without being prepared to make a substantial time and monetary commitment to the drafting and updating process.

Handbooks can be valuable communications and employee relations tools. They can be extremely helpful in maintaining consistency among supervisors, properly orienting employees and avoiding misunderstandings over workplace policies. Many employers also have
found that direct communications with employees, such as in written statements of policies, can help to reduce the need for employees to seek out union representation in the workplace. Clear work rules can help to support disciplinary action and avoid charges of unlawful discrimination. All of these reasons may be good grounds for adopting an employee handbook.

The problems with handbooks have arisen from court decisions in recent years which have found employee manuals in some circumstances to be binding employment contracts. Most often, the difficulties in these cases were created by the employers themselves, who made promises in their employee handbooks which were not kept. Courts throughout the country (including Maryland, D.C., Virginia, and Pennsylvania) have held that handbook statements, improperly drafted, can create exceptions to the traditional "at will" doctrine of employment.

This combination of binding contracts and unkept promises has led to substantial money verdicts against some companies. Thus, binding commitments to fire only for "good cause" have been enforced, to the employer's detriment by many courts. As the
Maryland Court of Special Appeals stated in Staggs v. Blue Cross of Maryland, 61 Md. App. 381, 486 A.2d 798 (1985): "While an employer need not establish personnel policies or practices, where an employer...has established a company policy to discharge for just cause only, pursuant to certain procedures, ... the relationship was no longer terminable at the will of [the employer]." Similarly, detailed (and unfollowed) disciplinary warning procedures, unclear probationary periods, unkept evaluation schedules, and inconsistent benefit descriptions, all have created liabilities for employers.

At the same time, the situation has sometimes been worse for employers who have chosen to rely on unwritten employment policies and who have tried to avoid having written handbooks. Such employers have had problems in proving what their employment policies
actually are. Disputes between employees and supervisors may be more common. Charges of favoritism, often leading to unlawful discrimination, are more difficult to disprove without written policies to use as evidence. Some of these employers, too, have lost their
right to hire and fire "at will."

Meanwhile, courts have increasingly come to recognize that properly drafted employee handbooks, containing appropriate disclaimers or "clarifications" of the employer's intent, can actually help to preserve management's discretion in discipline and discharge cases. For example, in Perkins v. District Govt. Employees Fed. Credit Union, 653 A.2d 842 (D.C. 1995), the D.C. Court of Appeals held that, through appropriate handbook language, management had reserved its right to invoke any or none of specified procedures for termination. Indeed, all of the courts in the Mid-Atlantic region (and most courts elsewhere) have upheld such disclaimers in proper circumstances.

Therefore, the best course for employers appears to be to make use of the many positive aspects of employee hand- books while drafting such manuals carefully to avoid exposing the employer to increased employment liability. We recommend strong disclaimers, but also careful draftsmanship to avoid overpromising and to preserve management's discretion to operate its business in ever-changing environments.

What Should Be The Main Goals Of The Handbook?

As should be clear from the previous discussion, handbooks can serve several different purposes, but the various goals of employers with regard to these policy manuals sometimes conflict with each other. The handbook is usually intended to be a positive employee
communications tool. The desire to avoid litigation, on the other hand, can lead some employers to fill their handbooks with disclaimers and "legalese," which may upset or confuse employees. At the same time, too much emphasis on "job security" and warm human relations may lead employers to over-promise, or to establish policies which will later be regretted in an employment lawsuit.

Handbooks should be clearly written and organized so that they can be understood by employees. The handbook should be written in a positive and friendly manner and should attempt to foster a feeling of well-being - up to a point. A certain amount of legal
language is indispensable in the present litigious environment. Disclaimers and reservations of management's rights should not be watered down or hidden to such an extent that they lose their effectiveness.

It is possible to balance the competing needs for good communications and litigation avoidance in most employee handbooks. Where these two goals run into direct conflict, however, most employers will be better served by making sure that their legal needs are
protected first and foremost. No one in upper management will be too pleased when a large court judgment results from a "friendly" but unprotective employee handbook.

What Disclaimers Should The Handbook Contain?

Most employers have by now become aware of the general need to have "disclaimers" in employee handbooks, as discussed above. Many handbooks still fail to set forth enough clarifications or explanations of the employer's intent, however, and may be inadequate to protect the employer under recent court decisions.

Most employer handbooks should contain a series of statements which include at least the following:

  • The handbook does not create not a contract, express or implied.
  • The handbook is not all inclusive, and is only a set of guidelines.
  • The handbook does not alter the "at-will" relationship between employer and employee (Unless the employer wants to change this traditional relationship).
  • The handbook does not guarantee employment for any definite period of time.
  • The handbook applies to the following categories of employees: [fill in].
  • The handbook supersedes any previous handbook or unwritten policies.
  • The handbook can only be changed in writing, by the president of the organization.
  • The handbook can be changed by the organization unilaterally, at any time.

Most courts have recognized and honored these disclaimers, but only if they are prominently displayed. Some courts have declared that the disclaimers must appear at the front of the handbook or should be boldfaced to be given effect. For example, in Nicosia v. Wakefern Food Corp., 136 N.J. 401, 643 A.2d 554 (1994), the Supreme Court of New Jersey held that an employee manual disclaimer was ineffective because it failed to use "straightforward terms" and lacked prominent placement. Similarly, in Haselrig v. Public Storage, Inc., 86 Md. App. 116, 585 A.2d 294 (1991), the Maryland Court of Special Appeals noted that disclaimers must be "clear and unequivocal." Some employers also put similar disclaimers on acknowledgment forms signed by new hires.

What are Some "Handbook Horrors" to Watch Out For?

No matter how many times an employer disclaims all contractual intent in its employee handbook, there can be no absolute guarantee against employee lawsuits or judicial scrutiny of handbook language. For this reason, employers are well advised to draft their handbooks carefully to avoid making any commitments to which they would not wish to be bound at a later time.

Thus, even with appropriate disclaimers in place, an employer normally should not promise to terminate employees only for "good cause" or similar grounds. Certainly an employer should avoid firing any employees for arbitrary or discriminatory reasons. However, the danger of making "good cause" promises in employee handbooks is that they often create disputes of fact (such as whether a particular offense constitutes good cause for discharge), which can only be determined by a jury, after an expensive trial.

For the same reasons, it is usually inadvisable to spell out a rigid, detailed set of disciplinary procedures, even though employers are generally well advised to provide progressive warnings to employees prior to discharge. A number of employers have lost employment suits because of a supervisor's failure to adhere to the employer's own stated disciplinary procedures.

Another issue created by some handbooks concerns the subject of performance appraisals, where a promise is made that such reviews will occur on an annual or similar regular basis. Problems in court have arisen for some employers when management has failed to conduct the appraisals at the appointed time. This problem can be readily addressed, however. The handbook should state that appraisals will "normally" or "generally" be held at the chosen time, but that they may be conducted more frequently or less frequently, depending upon the business needs of the employer.

These examples highlight the need to retain flexibility in handbook language, as much as possible.

What Are Some Likely Areas Where An Older Handbook Probably Needs Revising?

As noted at the outset of this article, several federal employment laws have been passed during the last few years, which may require changes in older employee handbooks. For example, regulations issued under the Family and Medical Leave Act require employers to set forth their FMLA policy in any applicable handbook. Regulations issued under the Americans With Disabilities Act do not require specific handbook language, but may call for careful scrutiny of earlier handbook versions to be sure that no statements are made which violate federal (or state) laws against disability discrimination, and that attendance policies properly accommodate the disabled. Similar attention should be paid to recent developments connected with harassment policies relating to sex and other protected categories, lie detector tests (now generally prohibited), and statements about unions (generally permitted, with certain restrictions).

Another area where handbooks should be reviewed and updated involves the Fair Labor Standards Act, even though that law has not recently changed. A series of recent court decisions, including the U.S. Supreme Court case of Auer v. Robbins, 117 S.Ct. 905 (1997),
have imposed liability on employers for having policies which permit improperly deducting wages from "salaried" employees (thereby losing the salaried exemption from overtime requirements). The issue can arise not only in connection with deductions for absences of less than one day, but also for unpaid disciplinary suspensions except for major safety infractions.

Still other grounds for updating handbooks may arise from issues where there have been no new laws, but where new technologies or changing social practices need to be addressed. Venable's 1997 Model Employee Handbook, for example, has added new policies on e-mail and computer monitoring, trade secrets, workplace smoking, conflicts of interest, personal appearance, and employee dating. New employee benefit programs also should be referenced in the employee handbook, while stating that more detailed provisions in the benefit plans themselves always control.

What Steps Need To Be Taken For Changes In A Handbook To Become Effective?

Many employers who make revisions in their employee handbooks give little thought to the problem of how to put these changes into effect. Unfortunately, this is another area where the courts are increasingly adding to the complexity of employment decisions.

A split appears to be developing among the courts as to whether handbook changes automatically become binding upon existing employees, or whether the employer must give the employees some form of new benefit (other than continued employment), in order for the handbook changes to go into effect.

The problem seems to be less severe when the older handbook has the types of disclaimers mentioned above, including reserving the employer's right to change the handbook at any time. However, where an employer has arguably created a binding employment
contract with poorly drafted handbook language, some courts have been reluctant to permit the employer to lightly supersede the old handbook with a newer, less "employee friendly" version. The case of Elliott v. Board of Trustees of Montgomery County Community College, 104 Md. App. 93, 655 A.2d 46, cert. denied, 339 Md. 354, 663 A.2d 72 (1995) illustrates the problem. In that case, the Maryland Court of Special Appeals ruled that a revised handbook's affirmative statement that revisions merely changed the form and
not the substance of a handbook, rendered the handbook's new disclaimers ineffective.

Some area courts have held that employers must, in effect, be prepared to prove that the elements of a "contract modification" have been satisfied in connection with a new handbook or revision. These elements include notice to and acknowledgment by the employee of the change and agreement by the employee to continue working under the new policy. Compare Progress Printing Co. v. Nichols, 244 Va. 337, 421 S.E.2d 428 (1992) with Thompson v. Kings Entertainment Co., 674 F. Supp. 1194 (E.D. Va. 1987).

Employee Handbooks: Handle With Care

As the foregoing discussion should make clear, employee handbooks can have explosive effects in the workplace. If handled with the proper care, they can and should be valuable employee communications tools which can help to avoid or reduce litigation costs. If
mishandled, however, handbooks can backfire on employers. Venable's Model Employee Handbook has been drafted with the goal of reducing the legal expense of attorney review of policy manuals by setting forth in a single location suggested policies and precautions
for employers. No single employee handbook fits every company, however, and regular monitoring and updates are strongly recommended, with a detailed legal review.

Venable's Model Employee Handbook is now in its Fifth Edition and is a comprehensive guide to drafting a personnel policy manual.