Companies of all industries, sizes, and ages would be wise to implement employee handbooks. In addition to setting employment expectations, these handbooks help enforce company policy and formalize processes. However, rolling-out or significantly modifying an employee handbook can raise legal questions. Specifically, does implementation of a new or revised employee handbook constitute a revised contract with preexisting employees?
According to the Supreme Court of Minnesota the answer is yes. The Court weighed in on this matter in Pine River State Bank v. Mettille and nicely summarized the law:
If the handbook language constitutes an offer, and the offer has been communicated by dissemination of the handbook to the employee,4 the next question is whether there has been an acceptance of the offer and consideration furnished for its enforceability. In the case of unilateral contracts for employment, where an at-will employee retains employment with knowledge of new or changed conditions, the new or changed conditions may become a contractual obligation. In this manner, an original employment contract may be modified or replaced by a subsequent unilateral contract. The employee’s retention of employment constitutes acceptance of the offer of a unilateral contract; by continuing to stay on the job, although free to leave, the employee supplies the necessary consideration for the offer. We have so held in Stream v. Continental Machines, Inc., 261 Minn. 289, 293, 111 N.W.2d 785, 788 (1961), and Hartung v. Billmeier, 243 Minn. 148, 66 N.W.2d 784 (1954) (employer’s promise of a bonus made after the employee started working held enforceable).
An employer’s offer of a unilateral contract may very well appear in a personnel handbook as the employer’s response to the practical problem of transactional costs. Given these costs, an employer, such as the bank here, may prefer not to write a separate contract with each individual employee. See Note, Protecting At Will Employees against Wrongful Discharge: The Duty to Terminate Only in Good Faith, 93 Harv.L.Rev. 1816, 1830 (1980). By preparing and distributing its handbook, the employer chooses, in essence, either to implement or modify its existing contracts with all employees covered by the handbook. Further, we do not think that applying the unilateral contract doctrine to personnel handbooks unduly circumscribes the employer’s discretion. Unilateral contract modification of the employment contract may be a repetitive process. Language in the handbook itself may reserve discretion to the employer in certain matters or reserve the right to amend or modify the handbook provisions.
We conclude, therefore, that personnel handbook provisions, if they meet the requirements for formation of a unilateral contract, may become enforceable as part of the original employment contract.
Pine River State Bank v. Mettille, 333 N.W.2d 622, 626–27 (Minn. 1983)
For additional information on employee handbooks see this resource page.