Employee Policies And Handbooks: California Supreme Court Says You Can Change Your Policies But Adds New Rules For Employers; 3 Management Strategies

An important new California Supreme Court ruling has affirmed your right to modify or rescind your personnel policies, but it also creates new employee protections—and employer compliance obligations. We’ll examine this decision and look at what you have to do before you eliminate or change a policy.

Employer Cancels Job Security Policy

Pacific Bell adopted a policy assuring job security for all managers who met its business expectations. The company said the policy would be in effect as long as there was no change that would “materially alter Pacific Bell’s business plan achievement.” Five years later, Pac Bell withdrew the policy, citing the need to be more flexible and competitive.

Workers Go To Court

A group of employees sued Pac Bell. They claimed the job security policy was a contract that couldn’t be unilaterally terminated by the company unless it demonstrated a material difference in the achievement of its business plan. Pac Bell argued it had the right to rescind the policy without proving that business conditions had changed.

400+ pages of state-specific, easy-read reference materials at your fingertips—fully updated! Check out the Guide to Employment Law for California Employers and get up to speed on everything you need to know.

Court Sets New Rules For Employers

The Supreme Court said that policies contained in an employee handbook can be considered an employment contract that a worker implicitly agrees to by accepting or continuing on the job. But you can still rescind or change a policy if you meet the following four conditions announced by the court:

 

1. The policy is for an indefinite duration: it doesn’t say it will remain in effect for a fixed time period or that it will be terminated only upon the occurrence of a particular event;

    

2. The policy has been in effect for a reasonable time;

    

3. Employees are given reasonable notice of the change; and

    

4. The change doesn’t interfere with employees’ vested benefits, such as vested pension rights.

The court concluded that Pac Bell had the right to eliminate its job security policy because it met all of these requirements. The policy had been in place for a reasonable time, workers had received more than two years’ notice that the program would end and no vested employee benefits were involved. Plus, the court said, the company’s statement that the policy would remain in effect barring a material change in the achievement of its business plan didn’t constitute a commitment to a specific duration.

Uncertainties Remain

Although this case involved an unusual job security policy, the court’s reasoning may be applied to other types of policies as well, such as severance, discipline or leave. And the ruling shows that your employment policies can be promises that you can be held to—but you also have the flexibility to change them, provided the court’s four conditions are satisfied. However, the court didn’t provide much guidance about some important details. For example, it didn’t address what is a reasonable amount of time for a policy to be in effect before it’s changed or how much notice to employees is sufficient. Each case will depend on the individual circumstances, including the type of policy involved and the extent that employees rely on it.

3 Management Strategies

Here are steps you can take now to help avoid disputes:

 

1. Review your policies. Raymond Wheeler, a partner in the Palo Alto office of the law firm of Morrison & Foerster, advises that you carefully review your policies and employee handbook to eliminate rigid commitments you might not be able to keep.

    

2. State that the handbook is not a contract. Although in some cases you may have to give notice, always include language saying that you have the right, without notice, to make changes, additions and deletions. Important policies such as at-will employment, trade secret, confidentiality and arbitration provisions should always be contained in separate stand-alone agreements signed by each employee.

    

3. Provide plenty of written notice. It’s not clear from the court’s opinion whether even a seemingly innocuous policy requires advance notice to employees before you change it. The conservative approach is to always give written notice as early as possible and be sure you’ve complied with the court’s other requirements.