Personnel Manuals And Handbooks: Surprising Danger Lurks In Common Disclaimers; A 4-Point Update Checklist

Your employee handbooks and manuals probably state that the policies are not intended to create a contract and are subject to change. This is a common provision employers use to maintain the flexibility to modify their personnel practices and procedures. But now, in a recent case many employers will find startling, one company learned this kind of statement can invalidate critical policies contained in the handbook. And the U.S. Supreme Court has refused to overturn the ruling, underscoring its importance. We will explain this case and another related one and show why you should review your policies now-before you lose the ability to enforce them.

Arbitration Not Allowed

When Theresa Heurtebise was hired by Reliable Business Computers in Michigan, the company gave her an employee handbook that included the usual language that the company reserved the right to modify its policies. The handbook also contained a provision requiring all employment-related disputes to be arbitrated.

Heurtebise filed a sex discrimination lawsuit against Reliable after she was fired. Reliable tried to get the case thrown out of court, arguing that the handbook required her to have an arbitrator decide her claims instead.

But the court ruled that because the company reserved the right to modify its handbook, the policies did not create a binding contract between Reliable and Heurtebise. And, therefore, the handbook’s arbitration provision was unenforceable.

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Another Ruling Bars Enforcement

In a second new case involving arbitration, an employee was fired after working 19 years for Cyprus Bagdad Copper Corp. The year before, Cyprus had given the worker, Melton Nelson, an employee handbook stating that all employment disputes would be resolved through arbitration. Nelson signed the typical form acknowledging that he had received, read, and understood the handbook.

When Nelson sued in court charging that his termination violated the Americans with Disabilities Act, Cyprus argued that the case should be sent to arbitration.

Acknowledgment Of Receipt Not Enough

The Ninth Circuit Court of Appeal, which covers California, said the acknowledgment Nelson signed wasn’t a valid waiver of his right to a jury trial because it didn’t notify him that the handbook contained an arbitration clause. Plus, it only stated he had read and understood the handbook; it didn’t say he agreed to be bound by the handbook’s policies, including the arbitration provision. What’s more, the acknowledgment suggested the handbook was only a guideline to company policies rather than a binding agreement.

Handbook Tune-up Checklist

Fortunately, tuning up your handbook and updating your procedures may help you avoid the same quandary faced by Reliable and Cyprus. Here is a 4-point checklist:

1. State that your handbook is not a contract. To retain the flexibility to modify your policies, it’s critical to state clearly in the handbook that it represents your current policies and procedures, but that, except for your at-will policy, it is not a contract between you and your employees. Also mention that, other than your at-will policy, you have the right to make changes, additions and deletions in your policies at any time and without notice. Don’t bury the disclaimer in the fine print. Instead, make sure it’s displayed in a prominent place in the handbook.
2. Create stand-alone agreements. If you use language similar to that suggested in item 1, several types of policies should be made into separate agreements signed by your new employees. Otherwise, as in the Reliable and Cyprus cases, a court might refuse to enforce them. These include:
   • arbitration agreements
   • at-will provisions
   • trade-secret and confidentiality agreements
   • anti-employee raiding pacts
3. Use caution with existing employees. After reviewing your policies, you may find you need to have current employees sign agreements covering the issues listed in item 2. But this can leave you open to claims that existing workers aren’t bound by the agreements because they had no choice but to sign for fear of losing their jobs. To protect yourself, offer employees something of value in exchange for their consent. For example, coordinate your request with an improvement in employee benefits.
4. Strengthen wording of handbook acknowledgment receipts. As the Cyprus case points out, the statement employees sign should not merely acknowledge that they have received and read or will read the handbook. It should also say the worker agrees to abide by the manual’s policies and any new or revised policies. Note that preprinted, off-the-shelf handbook receipt forms may be inadequate, so you should review such forms carefully before using them.