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EmploymentPolicy and Procedure Manual

Drafter Beware – Employment Handbooks as Binding Contracts. Part 3 of 3: ’Warning! This Policy Manual Is Not a Contract’: Is a disclaimer enough?

By December 28, 2010No Comments

Employer’s frequently include disclaimer language in their employment manuals in an effort to thwart efforts to characterize their policies as contracts.  This is done by management in order to avoid extending additional rights and avenues of relief to disgruntled employees.

In O’Brien v. New England Telephone Co. the SJC found that a policy manual was an implied contract but that the employee failed to follow the grievance process and therefore was in breach.  Since O’Brien, Massachusetts’s courts have been split over whether a disclaimer is sufficient to avoid creating an implied contract.

The Appeals Court in Ferguson v. Host International emphasized the importance of disclaimers being conspicuously displayed if an employer is to be successful in avoiding contract status and bilateral rights that stem from such a finding.  In contrast, two Massachusetts courts have found handbooks to be enforceable agreements based on the O’Brien analysis.  The Courts relied heavily on the employee’s reasonable belief that the handbook created a binding contract.   In Ortega v. Wakefield Thermal Solutions, the court denied an employer’s motion to dismiss the action on summary judgment and found that a jury could find that the Plaintiff, after signing a policy manual acknowledgment form, reasonably relied on the handbooks’ progressive discipline policy.

The O’Brien and Ortegadecisions emphasize the fact-specific analysis courts must engage in to evaluate whether such policies are contacts; however, even the inclusion of a disclaimer is not a determinative factor.  The SJC confirmed this when it recently announced that a handbook’s sick leave incentive program is binding on the employer and that “[n]either the wording of disclaimers nor their absence is dispositive.” LeMaitre v. Mass. Turnpike Authority, 452 Mass. 753, 756 (2008) (finding sick leave incentive program enforceable as a “form of employee compensation contingent on continued employment…while the provisions [of the program] were in effect.”

In sum, when employers call “special attention” to a handbook or personnel manual, by requesting an employee sign an acknowledgment form repeatedly and/or the employee reasonably believes the handbook is binding based on the employer’s conduct, such conduct may create an enforceable contract.  The employer that opts to disregard its own handbook when terminating an employee, based on their mistaken assumption that the at-will employment relationship continues to exist without limitation, may do so at its own peril. 

Nonetheless, and because disclaimers are not universally accepted, the drafting and uniform enforcement of clear, even handed policies remains of utmost importance and in the best interests of both management and workers.