HR Matters E-Tips
This Week's Tip: Don't Let HR Policies Become Contracts
Published by Personnel Policy Service, Inc.
"Your Policy and Compliance Experts Since 1972"
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This Week's Tip: Don't Let HR Policies Become Contracts

It's true - poorly drafted policies can be interpreted as legal contracts.
However, well-written policies can serve both as an effective
communication device and as a tool to help you stay out of court.

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This Week's Tip: Don't Let HR Policies Become Contracts

Employers often worry that their employee handbooks will be used
against them in litigation. In particular, you should be concerned that
employees will claim that your policies are contracts that must be
followed exactly.

However, the simple act of putting your policies in writing should not
create a binding contract, if the policies are written as guidelines that
explain "generally" or "typically" what your requirements are and how
employees "normally" will be treated. At the same time, these policies
present a great vehicle for communicating your organization's values and
practices to employees.

Still, it is possible to create a contract by using language that conveys
rigid rules that must be followed exactly as written in all circumstances.
Find out below what the courts have said about handbooks and contracts
and the five things your policies should *never* say.

* Court Decisions Finding Contractual Obligations *

Courts typically find that an employee handbook or policy becomes a
binding part of the employment relationship when:

1. The language of the policy is clear enough that an employee could
reasonably believe a contractual offer was being made;

2. The policy is disseminated to the employee;

3. The employee accepts the offer by starting or (in some jurisdictions)
continuing to work for the employer.

Courts have treated as contracts promises made by employers regarding
job security, use of specific disciplinary or termination procedures, or
benefits. For example, in Gaudio v. Griffin Health Svcs., 733 A.2d 197
(Conn. 1999), the court found that an employer was liable for breach of
contract when it terminated an employee without just cause. The
organization's employee handbook stated that it would treat employees
fairly and would terminate only for serious misconduct.

Similarly, in Yesuidan v. Howard Univ., 153 F.3d 731 (D.C. Cir. 1998),
the court determined that a handbook created an implied contract even
though it included a disclaimer stating that the handbook should not be
interpreted as a contract. The court based its decision on the fact that
the handbook said employees would only be terminated for cause and
required certain procedures to be followed.

And, in Hudson v. Village Inn Pancake House of Albuquerque, Inc., 35
P.3d 313 (N.M. App. 2001), the court determined that a 32-year
employee, terminated without prior notice or cause, could recover
damages for breach of an implied contract. The contract was created by
three factors. First, the provisions in the employee handbook said no
employee would be discharged without a chance to succeed. Second,
the employer had both a disciplinary policy and practice of warning
employees of performance problems and of discharging only for
justifiable cause. And finally, the employer trained its managers not to
terminate employees without notice.

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* Five Mistakes That Undermine Policies * As the above cases demonstrate, you should build flexibility into your wording and steer clear of any promises that could be interpreted as a contract. For example, your policies should not: 1. State that the organization will "only" or "always" do something or "must" act in a particular way; 2. Describe employees as "permanent;" 3. State that employees will be terminated only for "cause;" 4. Make promises of job security; or 5. Use all-inclusive lists, such as in disciplinary procedures or work rules. Instead, you should use terms such as "generally," "typically," "usually," and "may" so that managers have flexibility in interpreting and applying the policies. In addition, you should specifically retain management's right to update, change unilaterally, and implement all policies as it sees fit. Finally, you should include a strong "at-will" statement that clearly specifies that all employees (who do not have contracts or collective bargaining agreements specifying otherwise) may quit at any time and for any reason, or may be terminated at any time and for any reason. This statement also should be in your employment documents to ensure that both applicants and employees understand the nature of their employment relationship and cannot claim that they were not informed of the at-will status. A final safeguard, as always, is to have your attorney review your policies and employment documents to make sure they do not create any unintended contractual obligations. * Carefully Drafted Policies Enhance Good Employee Relations * Clearly written policies that are regularly reviewed can be both an effective employee relations tool and a good defense against lawsuits. In contrast, policies that are poorly drafted or applied can have exactly the opposite effect. They can lower morale and be used as evidence against you in court. The real question, therefore, becomes not whether to have written policies at all, but whether you are willing to invest the necessary amount of time and effort to make sure they are carefully drafted and properly applied. Subscribers to the Personnel Policy Manual and HR Policy Answers on CD can find more information policies and contracts in Employment at Will, Chapter 106, note 8, and Disciplinary Procedure, Chapter 808, note 14.
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Information provided in HR Matters E-Tips is researched and reviewed
by the HR experts at Personnel Policy Service as well as employment
law attorneys. However, it is not intended as legal advice. Readers are
encouraged to seek appropriate legal or other professional advice.

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