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EmploymentPolicy and Procedure Manual

Part 1 of 3 – Drafter Beware: Employment Handbooks as Binding Contracts

By December 24, 2010No Comments

In Massachusetts, employment is ‘at-will’ unless modified by contract or statute.  This now familiar principle permits employees to resign and employers to terminate the employment relationship at their respective whims – subject to some narrow, yet important, exceptions.   Exceptions to the ‘at-will’ doctrine include statutory protections such as laws addressing discrimination (MGL 151B) , wage violations (MGL c. 149 s. 148)  and whistleblower protections of various ilk (e.g. health care whistleblower act M.G.L. c. 149, s. 187)

In an effort to create clear rules for employees and to avoid potential pitfalls and liabilities of selective enforcement and favoritism, employers are generally advised to establish (and apply) uniform policy and procedure guidelines for the workplace. However, hastily throwing together an employee handbook can lead an employer to a false sense of security and employee maltreatment.  Sometimes what the employment handbook does not say, is as important as what it says.  Many employers blindly distribute employee handbooks or manuals in an effort to quickly establish workplace rules and a formal code of conduct, without properly considering the impact of such polices.  Employers, at their peril, believe their obligations are satisfied once a paper policy is distributed – when, in fact, significant effort must be advanced in training and the fair and even handed application of these workplace rules of conduct.     

A growing body of case law has emerged in Massachusetts addressing whether a handbook alters the at-will employment relationship.  Employers often expect their employees to be bound by the terms of their handbook, but simultaneously do not wish the handbook to create a legally binding contract.  Many employers and advocates do not realize that even when an otherwise well drafted manual or handbook contains a general disclaimer stating that it does not constitute a formal contract, the analysis (and liability) does not end there. 

A vast majority of the American workforce is non-unionized and these employees typically do not negotiate the specific terms of an employment policy.  Because the employer generally reserves the unilateral right to modify or amend the handbook, the handbook may well create an implied contract.  Contract claims give employees rights and remedies that would not otherwise exist in an at-will relationship.  

This issue often arises relative to progressive disciplinary provisions that set out a structure to warn employees of the consequences of continued misconduct or perceived performance failings.  These progressive discipline plans are supposed to warn and guide employees that are struggling so that they may improve their performance.  Typically, a policy would provide that an employee first gets a verbal warning, then a written warning, a final warning or suspension followed by termination.  Astute drafters of such policies indicate that the employer may skip disciplinary steps and for gross violations may effectuate immediate terminations.  Often employers hastily skip multiple progressive disciplinary steps for ordinary infractions and without any documentation reflecting a history of performance problems, they terminate an employee.  This scenario often gives rise to employee surprise and claims of reliance on progressive disciplinary procedures and the due process these rules purport to provide.  Without a contract or quasi-contractual theory to rely upon, employee advocates are left without a viable cause of action.  Employee-side advocates argue that skipping steps of this progressive process, perhaps for trivial rule violations, amounts to a breach of an implied contractual agreement created by the policy.  Furthermore, workers’ attorneys point to the ingrained legal principle of contract interpretation that agreements are construed against their drafter – management.  

In the next segment of this blog series, Part 2, we explore the competing case-law that has come down in Massachusetts as to whether policies are contracts, giving rise to claims for their breach, or simply guidelines that employers may selectively apply and enforce without fear of legal repercussions.