Tips for Drafting Employee Handbooks

On the other hand, small- to mid-size employers typically have fewer locations and a small human resources department that can more easily monitor policy administration. Under these circumstances, the employer likely would benefit from a less comprehensive handbook which would permit greater flexibility in addressing employment issues as they arise without being restricted by a written policy.

Whichever route you decide to take, you should keep the following tips and pitfalls in mind.

FMLA Policies Must Be Revised to Comply with the New Regulations

The original regulations promulgated under the Family and Medical Leave Act (“FMLA”) mandated the inclusion in employee handbooks of information concerning FMLA entitlements and employee obligations under the FMLA. 29 C.F.R. 825.301(a)(1) (1993). Thus, all covered employers (typically those with 50 or more employees) must have an FMLA policy in their employee handbooks.

In regard to the contents of the FMLA policy, employers should be aware that the recent amendments to the FMLA regulations (which took effect Jan. 16, 2009) contain additional and different requirements for FMLA policies from those required under the original regulations. For example, the policy should contain all of the information that is contained in the U.S. Department of Labor's general notice relating to “Employee Rights and Responsibilities.” The policy also should contain a description of the notice of leave and other attendance-related requirements with which employees seeking FMLA leave generally will be expected to comply (such as pre-shift call-in procedures). Employers also may choose to update the portions of the policy relating to the substitution of paid leave and the handling of bonuses, as both of these areas have been modified by the new regulations. Further, if not already done, the policy should be revised to include discussions of military caregiver leave and qualifying exigency leave. Thus, all covered employers should consult counsel and revise their FMLA policies to comply with the new regulations.

The Importance of Equal Employment Opportunity and Harassment Policies

The U.S. Supreme Court has held that an employer's implementation of an anti-discrimination/anti-retaliation policy can be raised as an affirmative defense to a claim for punitive damages. Kolstad v. American Dental Ass'n, 527 U.S. 526 (1999). The U.S. Supreme Court also has ruled that an employer's written anti-harassment policy with an effective complaint reporting procedure can support an affirmative defense to certain types of harassment claims. Burlington Indus., Inc. v. Ellerth, 524 U.S. 742 (1998). Thus, employers should include these types of policies in their employee handbooks.

Avoiding Breach of Contract Claims

It is not difficult to form a common-law contract. Typically, all that is needed is an offer, an acceptance, and consideration. In most jurisdictions, an employee's acceptance of employment or continued employment following receipt of an employee handbook can satisfy both the acceptance and the consideration elements of contract formation. This leaves only the offer prong to be satisfied, and employees and the plaintiffs' bar have long argued that policies in employee handbooks stating what an employer will (or will not) do in certain circumstances constitute contractual offers or promises, the breach of which can support a breach of contract claim.

For example, an employee may bring a breach of contract claim based on an employer's failure to follow the steps prescribed in its progressive discipline policy set forth in its handbook. Under these circumstances, the employee would argue that the employer promised to take certain progressive discipline before terminating his employment, the employee accepted the employer's contractual offer by agreeing to work for the employer subject to the progressive discipline policy, and the employee's acceptance of this offer of employment provides the consideration for the employment contract.

To avoid breach of contract claims premised on employee handbook policies, employers should include an express contract disclaimer in their handbooks. The disclaimer should make clear that the handbook does not give rise to contractual rights or obligations of any sort and that either the employee or the employer may terminate the employment relationship at any time, for any reason, with or without cause or notice (i.e., confirming that the employment relationship is “at will”). The disclaimer also should contain a reservation of right by the employer to modify the policies in the handbook unilaterally with or without notice. In the absence of such reservation of right, some courts have held that an employer may not unilaterally modify its policies for current employees without providing such employees some form of additional consideration beyond continued employment. Finally, most jurisdictions require that the disclaimer be “conspicuous,” which typically can be accomplished by including the disclaimer at the very beginning of the handbook in all caps and boldface font.

In addition to disclaiming that the employee handbook itself gives rise to contractual rights and obligations, the employer also should include language in its handbook stating that no manager, agent, or employee has the authority to enter into any contract with the employee or otherwise alter the “at-will” nature of the employee's employment with the exception of the Company's president (or some other high-level officer) who may do so only in a writing signed by the president and the employee. Such language is helpful in defending against breach of contract claims brought by employees based on oral statements made by management and other written policies that may be distributed by the employer outside the context of the employee handbook.

In addition to including the express contract disclaimers discussed above, employers should use permissive rather than mandatory language in their employee handbooks whenever possible. In other words, policies generally should state what the employer “may” do under certain circumstances rather than what the employer “shall” or “will” do. The courts have held that the use of such permissive language often falls short of the type of definite promise required to support contract formation. Moreover, employers should make clear in their discipline and discharge policies that any list of prohibited conduct that may give rise to discipline or discharge is non-exhaustive and that the employer reserves the right to discharge the employee summarily for any reason that it deems in its sole discretion to be adequate.

Avoiding Invasion of Privacy Claims

An employer's investigation of an employee's potential misconduct can give rise to various claims relating to invasion of privacy. Employer investigations can take many forms, from physically searching an employee's desk, locker, or automobile following a complaint of stolen property, to retrieving an alleged harasser's e-mails and voicemails while investigating a sexual harassment complaint, to drug and alcohol testing following a workplace accident. Privacy laws differ quite a bit from state to state. Accordingly, it is important to consult with local counsel regarding state law requirements, especially with respect to drug and alcohol testing, which is one of the more heavily regulated areas of employment law. With that disclaimer, there are certain measures that all employers can take to reduce their potential liability for invasion of privacy claims in virtually all jurisdictions.

Generally speaking, the gravamen of an invasion of privacy claim is an employer's infringement in some area as to which the employee had a reasonable expectation of privacy. Accordingly, policies that reduce an employee's expectation of privacy in potentially private areas are helpful in defending against invasion of privacy claims. This can be accomplished by including policies in an employee handbook that apprise employees of the employer's right and intention to search employees' personal property, monitor and access their voicemails, e-mails, and Internet usage, and conduct drug and alcohol testing on a probable cause basis (and randomly, if permitted by applicable state law). Once employees have been apprised of the employer's right and intention to engage in these activities, employees will be unable to claim credibly that they had an expectation of privacy in the area or information searched or monitored. It is also advisable to include in such written policies a non-exhaustive list of the legitimate business reasons for searching physical property (e.g., to locate contraband and retrieve stolen property) and monitoring electronic communications (e.g., to investigate harassment claims and guard against disclosure of trade secrets), and to limit such search and monitoring activities in practice to comport with the employer's stated business justifications.

ERISA-Governed Benefit Policies

Some employers include in their employee handbooks specific information regarding employee rights and employer obligations under ERISA-governed benefit plans such as health insurance and 401(k) plans. Ultimately, the plan documents and summary plan descriptions govern employee rights and employer obligations under ERISA-covered plans, not the language in the employee handbook. Due to the length and complexity of these benefit plans, it is often difficult to summarize these rights and obligations accurately and succinctly in an employee handbook. Even after an employer has successfully accomplished this task, the employee handbook must be revised every time the employer modifies its plans or chooses a new plan. In our experience, revisions to the employee handbook seldom keep pace with plan modifications, resulting in conflicting descriptions of plan benefits. For these reasons, the better practice is simply to list in the employee handbook the various benefits offered by the employer, state that the employee's right to participate in such plans is governed by the terms of the plan documents, and advise employees that they may obtain copies of such plan documents in the human resources department. With respect to new employees, the details of the current benefit plans
can be covered during the orientation process.

Acknowledgment Forms

In addition to disseminating the employee handbook to all employees, employers should require each employee to sign a form acknowledging receipt of the employee handbook and the responsibility to review the same. Signed acknowledgment forms should be maintained in employee personnel files. Once this has been done, employees cannot credibly disclaim having received notice of all policies in the employee handbook. It also is a good idea to reference important policies specifically (e.g., a harassment policy with a complaint reporting procedure) in the acknowledgment form so that an employee cannot later claim that he/she did not realize that the employee handbook contained the policy at issue.

Bill Wortel, a member of this newsletter's Board of Editors, is a partner in Bryan Cave LLP's Chicago office. He has represented management in a variety of litigation at the administrative level, in state and federal courts and in the U.S. Court of Appeals. Christy Phanthavong is counsel to the firm. She practices labor and employment litigation in state and federal courts and before administrative agencies.

While an employee handbook serves many functions, its primary purpose from a legal standpoint is to reduce potential liability with respect to claims brought by current and former employees. Unfortunately, many employers are unwilling to commit the time and bear the expense of implementing an employee handbook (or updating an existing handbook) until after they have been sued and the absence (or poor draftsmanship) of a particular written policy has crippled their defense to an employment claim. The purpose of this article is to provide tips and identify potential pitfalls associated with the drafting of an employee handbook.

Scope and Length of Handbooks

There are different schools of thought when it comes to deciding what policies to include in employee handbooks. Some employers prefer to have a comprehensive employee handbook containing written policies governing virtually all aspects of the employment relationship, while others take the “less is more” approach. There are pros and cons to each. A more comprehensive employee handbook helps to ensure consistency in the administration of employment policies throughout an organization, especially if the employer has multiple locations that may utilize different employment practices at the local level in the absence of a written policy. Thus, a more comprehensive employee handbook often makes sense for larger employers.

On the other hand, small- to mid-size employers typically have fewer locations and a small human resources department that can more easily monitor policy administration. Under these circumstances, the employer likely would benefit from a less comprehensive handbook which would permit greater flexibility in addressing employment issues as they arise without being restricted by a written policy.

Whichever route you decide to take, you should keep the following tips and pitfalls in mind.

FMLA Policies Must Be Revised to Comply with the New Regulations

The original regulations promulgated under the Family and Medical Leave Act (“FMLA”) mandated the inclusion in employee handbooks of information concerning FMLA entitlements and employee obligations under the FMLA. 29 C.F.R. 825.301(a)(1) (1993). Thus, all covered employers (typically those with 50 or more employees) must have an FMLA policy in their employee handbooks.

In regard to the contents of the FMLA policy, employers should be aware that the recent amendments to the FMLA regulations (which took effect Jan. 16, 2009) contain additional and different requirements for FMLA policies from those required under the original regulations. For example, the policy should contain all of the information that is contained in the U.S. Department of Labor's general notice relating to “Employee Rights and Responsibilities.” The policy also should contain a description of the notice of leave and other attendance-related requirements with which employees seeking FMLA leave generally will be expected to comply (such as pre-shift call-in procedures). Employers also may choose to update the portions of the policy relating to the substitution of paid leave and the handling of bonuses, as both of these areas have been modified by the new regulations. Further, if not already done, the policy should be revised to include discussions of military caregiver leave and qualifying exigency leave. Thus, all covered employers should consult counsel and revise their FMLA policies to comply with the new regulations.

The Importance of Equal Employment Opportunity and Harassment Policies

The U.S. Supreme Court has held that an employer's implementation of an anti-discrimination/anti-retaliation policy can be raised as an affirmative defense to a claim for punitive damages. Kolstad v. American Dental Ass'n , 527 U.S. 526 (1999). The U.S. Supreme Court also has ruled that an employer's written anti-harassment policy with an effective complaint reporting procedure can support an affirmative defense to certain types of harassment claims. Burlington Indus., Inc. v. Ellerth , 524 U.S. 742 (1998). Thus, employers should include these types of policies in their employee handbooks.

Avoiding Breach of Contract Claims

It is not difficult to form a common-law contract. Typically, all that is needed is an offer, an acceptance, and consideration. In most jurisdictions, an employee's acceptance of employment or continued employment following receipt of an employee handbook can satisfy both the acceptance and the consideration elements of contract formation. This leaves only the offer prong to be satisfied, and employees and the plaintiffs' bar have long argued that policies in employee handbooks stating what an employer will (or will not) do in certain circumstances constitute contractual offers or promises, the breach of which can support a breach of contract claim.

For example, an employee may bring a breach of contract claim based on an employer's failure to follow the steps prescribed in its progressive discipline policy set forth in its handbook. Under these circumstances, the employee would argue that the employer promised to take certain progressive discipline before terminating his employment, the employee accepted the employer's contractual offer by agreeing to work for the employer subject to the progressive discipline policy, and the employee's acceptance of this offer of employment provides the consideration for the employment contract.

To avoid breach of contract claims premised on employee handbook policies, employers should include an express contract disclaimer in their handbooks. The disclaimer should make clear that the handbook does not give rise to contractual rights or obligations of any sort and that either the employee or the employer may terminate the employment relationship at any time, for any reason, with or without cause or notice (i.e., confirming that the employment relationship is “at will”). The disclaimer also should contain a reservation of right by the employer to modify the policies in the handbook unilaterally with or without notice. In the absence of such reservation of right, some courts have held that an employer may not unilaterally modify its policies for current employees without providing such employees some form of additional consideration beyond continued employment. Finally, most jurisdictions require that the disclaimer be “conspicuous,” which typically can be accomplished by including the disclaimer at the very beginning of the handbook in all caps and boldface font.

In addition to disclaiming that the employee handbook itself gives rise to contractual rights and obligations, the employer also should include language in its handbook stating that no manager, agent, or employee has the authority to enter into any contract with the employee or otherwise alter the “at-will” nature of the employee's employment with the exception of the Company's president (or some other high-level officer) who may do so only in a writing signed by the president and the employee. Such language is helpful in defending against breach of contract claims brought by employees based on oral statements made by management and other written policies that may be distributed by the employer outside the context of the employee handbook.

In addition to including the express contract disclaimers discussed above, employers should use permissive rather than mandatory language in their employee handbooks whenever possible. In other words, policies generally should state what the employer “may” do under certain circumstances rather than what the employer “shall” or “will” do. The courts have held that the use of such permissive language often falls short of the type of definite promise required to support contract formation. Moreover, employers should make clear in their discipline and discharge policies that any list of prohibited conduct that may give rise to discipline or discharge is non-exhaustive and that the employer reserves the right to discharge the employee summarily for any reason that it deems in its sole discretion to be adequate.

Avoiding Invasion of Privacy Claims

An employer's investigation of an employee's potential misconduct can give rise to various claims relating to invasion of privacy. Employer investigations can take many forms, from physically searching an employee's desk, locker, or automobile following a complaint of stolen property, to retrieving an alleged harasser's e-mails and voicemails while investigating a sexual harassment complaint, to drug and alcohol testing following a workplace accident. Privacy laws differ quite a bit from state to state. Accordingly, it is important to consult with local counsel regarding state law requirements, especially with respect to drug and alcohol testing, which is one of the more heavily regulated areas of employment law. With that disclaimer, there are certain measures that all employers can take to reduce their potential liability for invasion of privacy claims in virtually all jurisdictions.

Generally speaking, the gravamen of an invasion of privacy claim is an employer's infringement in some area as to which the employee had a reasonable expectation of privacy. Accordingly, policies that reduce an employee's expectation of privacy in potentially private areas are helpful in defending against invasion of privacy claims. This can be accomplished by including policies in an employee handbook that apprise employees of the employer's right and intention to search employees' personal property, monitor and access their voicemails, e-mails, and Internet usage, and conduct drug and alcohol testing on a probable cause basis (and randomly, if permitted by applicable state law). Once employees have been apprised of the employer's right and intention to engage in these activities, employees will be unable to claim credibly that they had an expectation of privacy in the area or information searched or monitored. It is also advisable to include in such written policies a non-exhaustive list of the legitimate business reasons for searching physical property (e.g., to locate contraband and retrieve stolen property) and monitoring electronic communications (e.g., to investigate harassment claims and guard against disclosure of trade secrets), and to limit such search and monitoring activities in practice to comport with the employer's stated business justifications.

ERISA-Governed Benefit Policies

Some employers include in their employee handbooks specific information regarding employee rights and employer obligations under ERISA-governed benefit plans such as health insurance and 401(k) plans. Ultimately, the plan documents and summary plan descriptions govern employee rights and employer obligations under ERISA-covered plans, not the language in the employee handbook. Due to the length and complexity of these benefit plans, it is often difficult to summarize these rights and obligations accurately and succinctly in an employee handbook. Even after an employer has successfully accomplished this task, the employee handbook must be revised every time the employer modifies its plans or chooses a new plan. In our experience, revisions to the employee handbook seldom keep pace with plan modifications, resulting in conflicting descriptions of plan benefits. For these reasons, the better practice is simply to list in the employee handbook the various benefits offered by the employer, state that the employee's right to participate in such plans is governed by the terms of the plan documents, and advise employees that they may obtain copies of such plan documents in the human resources department. With respect to new employees, the details of the current benefit plans
can be covered during the orientation process.

Acknowledgment Forms

In addition to disseminating the employee handbook to all employees, employers should require each employee to sign a form acknowledging receipt of the employee handbook and the responsibility to review the same. Signed acknowledgment forms should be maintained in employee personnel files. Once this has been done, employees cannot credibly disclaim having received notice of all policies in the employee handbook. It also is a good idea to reference important policies specifically (e.g., a harassment policy with a complaint reporting procedure) in the acknowledgment form so that an employee cannot later claim that he/she did not realize that the employee handbook contained the policy at issue.

Bill Wortel, a member of this newsletter's Board of Editors, is a partner in Bryan Cave LLP's Chicago office. He has represented management in a variety of litigation at the administrative level, in state and federal courts and in the U.S. Court of Appeals. Christy Phanthavong is counsel to the firm. She practices labor and employment litigation in state and federal courts and before administrative agencies.