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Employee handbooks can imply unintended contracts

by | Apr 22, 2020 | Employment Law

Businesses today use their employee handbook for almost everything. They inspire new hires with the corporate culture, inform them of breakroom refrigerator policy, and relay more traditional information on insurance plans and the like.

Of course, employers are wise to keep in mind that an employee handbook is also partly a legal document. The dreaded “implied contract” is just one way an employee handbook can be a source of not only business solutions but legal problems as well as.

When handbooks get into the wrong hands

Perhaps surprisingly, employees usually appreciate a good handbook. They often feel more respected when they have access to the information and resources needed to understand the company’s policies. Handbooks often describe approaches to performance goals and conduct expectations for the employee and the company alike.

But over the past few decades, for example, Wisconsin courts have ruled on several cases where fired employees claimed the handbook committed companies to reasons or procedures for terminating employees. Although not written, spoken or perhaps even noticed as an explicit contract, they are just as enforceable as any written, signed, witnessed and notarized contracts, the employee claimed.

The courts agree that handbooks can be contracts. If a company fails to fulfill the expectations its handbook implies, it can lose a wrongful termination lawsuit.

Setting expectations for future employment

During those same decades, courts have also made it clear that they will not approve just any creative reading of a handbook. In Illinois and Wisconsin, the default policy is that employment is “at will,” meaning employees can quit when and why they want, and employers can fire when and why they want.

An employee handbook is more likely to become a contract that opts out of “at-will” employment if it starts setting any expectations about the future of the person’s employment status. It might describe how the company will:

  • Expect certain behavior in exchange for staying employed
  • Fire someone after a sequence of warnings
  • Lay off workers based on something, such as seniority
  • Fire for a good enough reason.

Accidentally giving away your right to fire someone is a risk, but a manageable one for someone with an expert eye.

Avoiding lawsuits, whether won or lost

State court systems have long histories of making and testing employment law. They hammered out the current legal situation in a series of lawsuits and appeals. But few businesses really want to contribute to this tradition, since the goal of business is not to fight and win legal battles.

The best approach is an employee handbook that is clear and clean, legally and otherwise, by seeking the help of a qualified attorney when creating your company’s handbook.