What Happens If My Company Doesn’t Have an Employee Handbook?

The law does not require employers to develop an employee handbook. (One exception: California law requires all employers to adopt a written policy prohibiting sexual harassment.) But your policies will not be as clearly communicated if you don’t develop an employee handbook. And if your company doesn’t have a handbook, managers and employees will need to rely on the company’s “institutional memory” to ensure that policies are consistently applied.

Work policies and expectations also take on more importance and are more likely to be followed when you codify them in an official handbook. Verbal communication of company policies provides no proof that you made your employees aware of the rules in the first place. This leaves you open to enforcement and even legal problems later.

Companies typically publish HR manuals or employee handbooks when they grow to 50 to 100 employees. That figure is shrinking, though, as new tools make publishing a manual easier than ever before. In a small workforce, it is relatively easy to apply personnel policies consistently, because the number of managers making decisions about them is limited. In a larger workforce, there is a greater need to have the company’s personnel policies in written form.

Handbooks as Unintentional Contracts

In most states, an employer may generally discharge an employee for practically any reason, or for no reason at all. This employment relationship is known as employment at will. Besides allowing you to terminate employees “at will,” the employment-at-will doctrine allows you to change benefits or employment practices whenever you deem it appropriate.

Your freedom to end an employee’s employment and to modify benefits and employment practices “at will” is limited, however, when a contract exists that imposes a limit. And if you’re not careful in how you word your employee handbook, the handbook may be found to be a binding contract.

Increasingly, employees are suing their employers under a breach of contract theory when the employers fail to follow the procedures outlined in their employee handbooks. Many courts will find an implied employment contract in the handbook for employees who prove that they relied on the handbook and its promises. In other words, employees expect it to be followed—just as they would if they had an express employment contract. These courts are unwilling to allow employers to set out policies and procedures and then disregard them when the time comes for action.

Example: An employer who states in a handbook that an employee will be terminated only for “just cause” limited its own ability to terminate an employee unless it could prove that “just cause” existed. The court basically said that it was reasonable for the employee to expect the employer to live up to the statements it made in the handbook, and therefore, the handbook became part of the employment contract.

In this next situation, it wasn’t the reason for the termination that got the employer hung up, but the procedure for terminating an employee.

Example. An employer gave out a handbook that detailed a specific process for terminating an employee. But when the employer terminated an employee, it did not use the procedure in the handbook. In that situation, the court found that the employee had been improperly discharged.

• Avoiding Breach of Contract Claims. You can minimize the likelihood of being faced with breach of contract claims based on your employee handbook (and increase your chances of prevailing against any such claims) by:
• Clearly stating in writing that the handbooks are guides, not employment contracts
• Making sure that the handbooks are carefully worded to avoid binding language
• Ensuring that handbooks do not contain provisions that promise—directly or indirectly—permanent, lifetime, or a fixed term of employment
• Retaining sufficient discretion as to the terms and conditions of employment by explicitly reserving the right to change the rules, benefits, pay structure, and other elements at any time
• Using a disclaimer

Disclaimers in Handbooks

One way to keep your handbook from becoming an implied employment contract is to include a conspicuous piece of language that clearly says that your handbook is not an employment contract. That piece of language is commonly referred to as a disclaimer. Just having a disclaimer, however, will not ensure that your handbook won’t be considered a contract—it must be very carefully worded.

Here is an example of an effective disclaimer:

This Employee Handbook does not represent contractual terms of employment. It is, rather, an explanation of employment policies, which are subject to change by ABC Company. No change in employment policy will be effective unless an authorized representative of ABC Company executes it in writing. Employment at ABC Company is at will. That is, either you or ABC Company may terminate the employment relationship at any time, with or without cause. The at-will relationship remains in full force and effect notwithstanding any statements to the contrary made by company employees or set forth in any documents.

Here’s another example. Notice that it not only addresses the issue of an employment contract, but also reserves the right to changes policies at any time.

This handbook does not constitute a contract for employment with ABC Company, either express or implied, and ABC Company reserves the right at any time to change, delete, or add to any of the provisions at its sole discretion. Furthermore, the provisions of this handbook are designed by ABC Company to serve as guidelines rather than absolute rules, and exceptions may be made from time to time on the basis of particular circumstances.

Disclaimers do not always have the desired effect. Even in situations where employers have included a disclaimer specifically stating that the handbook was not a contract, courts have decided that an employment contract was created. So make every effort to follow the rules set out in your handbook, and be sure to have the handbook reviewed by legal counsel.

Avoiding Disclaimer Problems. Here are a few tips to avoid having a disclaimer that doesn’t do its job:

• Do not bury the disclaimer in a hard-to-find place.
• Make sure that the disclaimer is worded clearly.
• Make sure that the disclaimer is not in conflict with any other provision of the handbook.

Example: Don’t state in your disclaimer that employment is at will and that you reserve the right to terminate an employee at any time when your termination policy says that employees will be terminated only for just cause.

• Do not make promises in the handbook that you do not intend to keep. Examine your policies and make sure that none of them guarantees or otherwise promises any terms of employment. Be on the lookout for words like “permanent” or “lifetime”—they spell trouble.
• Avoid saying “always” and “never.” Avoid stating that no exceptions will be made to your procedures. If you don’t follow them yourself, you could be sued.
• Do not make your disclaimer so harsh that you alienate employees. You don’t want employees to feel that they have no job security. Be tactful.

What Should Go in the Handbook

Ideally, your handbook should be more than a compilation of rules and regulations that your employees must live by in the workplace. That’s not to say that your policies aren’t appropriate to put in a handbook—they most definitely are. But there are other things that you may want to put in your handbook as well. Here’s a list of the types of information that can be put in a handbook. Although most of these items are optional, and many of them may not apply to your particular business, federal or state law may require you to provide written notice of some of these policies:

• Welcome and introduction
• Purpose of the handbook
• Company mission statement
• Statement emphasizing the importance of good customer service
• Background information about the company
• The business’s position on unions, if the makeup of the workforce suggests that union activity is possible
• Suggestion and complaint procedures
• Work rules and policies
• Introductory or probationary period
• Employee’s role and responsibilities
• Hours of work
• Lunch periods and breaks
• Overtime policy
• Attendance and punctuality
• Time cards
• Personnel records
• Shift premium
• Payday
• Payroll deductions
• Garnishments
• Wage and performance reviews
• Promotions
• Layoffs and recalls
• Resignation or termination
• Bulletin boards
• Telephone usage
• Benefits
  • Holidays
  • Vacations
  • Hospital and medical insurance
  • Life insurance
  • Disability benefits
  • Pension and profit-sharing plans
  • Call-in or report-in pay
  • Training
  • School or educational assistance program
  • Service awards
• Workers’ compensation
• Unemployment insurance
• Sale of company products
• Sick leave
• Disability leave
• Personal leave
• Funeral leave
• Jury duty leave
• Military leave
• Safety
  • Emergency procedures
  • Medical services
  • Personal protective equipment
  • Safety rules
  • How to report accidents
  • Standards of conduct
  • Corrective discipline procedure
  • Summary and acknowledgment disclaimers reviewed by your lawyer