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Avoid the lawsuit lurking in your employee handbook

An employee handbook can be more than a document outlining office procedures and standards. In some cases, the handbook can be seen as an implied contract between the employer and employee. And that implied contract could muddy the waters when it comes to firing an employee.

An implied employment contract

Most offices operate under employment at will—or think they do. That means an employer can fire an employee at any time, for any reason and without just cause. It also means the employee can quit under the same terms.

Although seemingly straightforward, the law isn’t a magic firing wand that protects employers from discrimination claims. The law was introduced in the 19th century and has since been watered down with exceptions, like making it illegal to fire somebody based on race, sex or age.

The problem with an employee handbook is it can inadvertently create additional exceptions. For instance, a handbook listing eight offenses an employee can be fired for may imply that employees can only be fired for violating one of the eight offenses.

Words and actions can also create a contract

A manager who tells staff they won’t be fired until given progressive discipline may also jeopardize the company’s right to fire somebody on the spot, even for valid reasons. The employer can still fire the employee, but not until they’ve gone through a progressive discipline process.

To avoid this outcome, state that progressive discipline is used, but not in every case.

Actions taken by a manager or executive can also create an implied contract. For instance, in one office the employer made a practice of paying severance to employees despite the fact that there was no policy to that effect. Now if the employer decides to discontinue the practice, he has set a precedent employees can point to.

And so can a probationary period

Most new employees go through a probationary period during which time they can be fired for any reason. The problem is some see completion of the probationary period as the beginning of assured employment and the end of the employer’s right to fire-at-will.

Many courts have agreed, concluding that an employee who passes their probation should be guaranteed lifetime employment.

If your office has a probationary period, it’s important to modify the language to state that successful completion “does not alter the nature of the employment relationship, which is at-will at all times.”

Further problems can arise if the probationary period is extended, although the danger here is related more to morale issues than to the office’s legal status. Chances are an employee who fails during the trial period is unlikely to improve and extending their probation creates false hope that could damage office morale.

Don’t forget the disclaimer

Protect your company by putting a general disclaimer in the handbook stating that “employment is at will and employees can be terminated at any time.” Be clear that nothing in the handbook is intended to create a binding promise or contract.

Many courts have agreed that a disclaimer is sufficient to undermine any contractual intent, yet many offices still don’t include it. Be careful. Without that statement, an employee can argue that any policy in the handbook is a contractual commitment.


Editor’s picks:

What every employee handbook absolutely, positively, must cover


Writing the Employee Handbook

Model Policy: Nondiscrimination and diversity


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