Question: How Can You Avoid Unintended Employment Contracts?

Employers have learned many lessons from court decisions. In recent years, for example, the message has been clear that employers should be cautious about what they say in their employment manuals.

Employment Manuals and Implied-in-Fact Contracts Promises made in an employment manual may create an implied-in-fact employment contract. If an employment handbook states that employees will be fired only for specific causes, the employer may be held to that "promise." This is true even if, by state law, employment is "at will"-that is, the employer is allowed to hire and fire employees at will, with or without cause. The at-will doctrine will not apply if the terms of employment are subject to an implied contract between the employer and the employee. If a court holds that an implied employment contract exists-on the basis of promises made in an employment manual-the employment is no longer at will. The employer will be bound by the contract and liable for damages for breaching the contract. Taking Precautions Employers who wish to avoid potential liability for breaching unintended employment contracts should therefore make it clear to employees that the policies expressed in an employment manual are not to be interpreted as contractual promises.

An effective way to do this is to inform employees, when initially giving them the handbook or discussing its contents with them, that the handbook is not intended as a contract and to include a disclaimer to that effect in the employment manual. The disclaimer might read as follows: "This policy manual describes the basic personnel policies and practices of our Company. You should understand that the manual does not modify our Company's ‘at-will' employment doctrine or provide employees with any kind of contractual rights." The employer should make the disclaimer clear and prominent so that the applicant cannot later claim that it was the employer's fault that the employee did not see the disclaimer. A disclaimer will be clear and prominent if it is set off from the surrounding text by the use of larger type, a different color, all capital letters, or some other device that calls the reader's attention to it. The employer should also avoid including in the handbook any definite promises such as that employees will be fired only for cause or that after they have worked for a specific length of time, they will not be fired except for certain reasons. The handbook itself should contain a clear and prominent disclaimer of contractual liability for its contents.

CHECKLIST FOR THE EMPLOYER

1 Inform new employees that statements in an employment handbook are not intended as contractual terms.

2 Include clear and prominent disclaimers to this effect in employment applications and in the employment handbook.

3 Ask employees to sign a statement that they have read the disclaimer and understand that the employment handbook is not a contract and does not create any legally binding obligations.

4 Avoid including in the handbook any definite promises relating to job security, and include a clear and prominent disclaimer of contractual liability for any statements made within the handbook.