The employee handbook has become an essential part of the workplace.  It is an efficient and effective way for the employer to set out the rules and expectations that employees are expected to follow. It is also a helpful resource for employees to reference if they are uncertain of workplace rules. Additionally, it is much more difficult for the employee to assert that the rules of their employment were not clearly communicated. As with any agreement between employer and employee, there are areas of misunderstanding and confusion that must be addressed prior to implementing an employee handbook.

Key Concepts

This area of law has been evolving over the last couple of decades as a result of the growing usage of employee handbooks in the workplace. Two commonly disputed areas are if the terms of an employee handbook create a contract between the employer and the employee, and how the terms of that agreement affect the status of the employment relationship.

Terms of employee handbooks have the potential to be construed as employment contract terms if they are not properly drafted and executed. Generally, a contract requires an exchange of promises to be properly formed; however, the Minnesota Supreme Court has determined that a unilateral contract can formed via an employee handbook, even if there is no explicit promise on behalf of the employee. This is significant because an employer may forfeit some of their rights to manage the employee in the manner that they originally agreed upon. In addition, there might be the creation of legal liability if the commitments made in the employee handbook are not adhered to by the employer.

If it is determined that a unilateral contract has been formed by the employee handbook, and that handbook provides for discipline procedures, it can change the status of the employment relationship. For instance, if the employee handbook provides for a progressive discipline procedure prior to terminating the contract, then the status of the employee is no longer at-will. At-will is the most prominent form of employment status in Minnesota and nationwide. It allows for the employee or employer to terminate the employment relationship at any time for any lawful reason.

For example, assume that an employer implements an employee handbook that provides that an employee will not be terminated unless there has first been a verbal warning and then a formal written warning. If the employer decides to terminate the employee before going through this progressive discipline procedure, even if the termination is for a lawful reason, the employer can be held liable for a breach of contract.  The employee will now have a claim for damages flowing from the breach of contract and the employer will be compelled to make the employee whole for the breach.

Common Pitfalls & Drafting Tips

To avoid any of the above problems, there are some common pitfalls that should be avoided when drafting and implementing an employee handbook.

At the outset of the employee handbook it is important to clearly state in a disclaimer that the handbook is not to be considered part of the employee’s employment contract, and the employment status of the employee is still at-will. Further, the employee handbook should be very explicit about the rights of the employer to take necessary actions regarding an employee’s employment status. For instance, if the employer would like to provide some guidance regarding how behavior that does not conform to the employee handbook will be handled, then it is an important that whatever guidance is provided is not specific enough to be construed as a commitment.  To determine whether or not a policy has become a commitment also requires some analysis.

A standard that can help determine whether the terms of an employee handbook are enforceable against the employer is threefold.

  1.  Has a specific promise been made? Rather than a vague statement, has there been a promise made that is sufficiently objective and specific so that an employee would reasonably believe that the employer would abide by the representation set forth?
  2. Objectively, does the promise create reasonable employee expectations that the employer will comply with the policy?
  3. Has there been a substantial benefit to the employer through the implementation of the handbook? The benefit does not have to be considerable; it can be as abstract as the employer creating “an environment conducive to collective productivity.”

Prior to the formation of any employment policy by the employer, these three tests should be applied to the specific policy in order to determine whether or not there has been the creation of enforceable terms against the employer.

Some final considerations when drafting an employee handbook include making sure that the policies are specifically tailored to a specific business because the nature of the business may require additional or different policies. Also, the employer should always clearly state in a disclaimer that they reserve the right to alter, amend, or change any handbook policy at any time and for any reason. Lastly, the employee handbook cannot violate any state or federal laws, and the employer should be cautious about the promises made in offer letters and other written representation because they can also arise to unilateral contracts. Employee handbooks have become an essential component of any workplace, and it is important that prior to implementing any handbook, the employer should consider and avoid the mistakes and common pitfalls that can create legal liability.

For additional information on employee handbooks see this resource page.