SC Lawyer, Nov. 2004, #3. South Carolina's Handbook Law.

• Author: By William Floyd III and James C. Leventis Jr.

South Carolina Lawyer

2004.

SC Lawyer, Nov. 2004, #3.

South Carolina's Handbook Law

South Carolina LawyerNovember 2004South Carolina's Handbook LawGet in line for new versions and disclaimers!By William Floyd III and James C. Leventis Jr.At its best, an employee handbook is a vital communication and organizational tool. It provides legally required notices to employees, communicates workplace performance and behavior standards and advises employees of their rights and responsibilities. At its worst, an employee handbook may unintentionally create a contract of employment and unwanted liability and legal fees. That latter possibility has occurred with increasing frequency due to a series of decisions by South Carolina courts. South Carolina's legislature recently responded by passing a new statute addressing how employers can reduce the risk of an employee handbook becoming an implied employment contract. Effective July 1, 2004, the new law has prompted employers to revise their handbooks and other documents and left disgruntled employees considering other options.

This article briefly discusses the at-will doctrine in South Carolina, introduces the new handbook law and reviews some issues employers face in implementing the new law.

Background

The employment at-will doctrine in South Carolina

South Carolina common law has long recognized that an employee or employer can end the employment relationship at any time with or without notice or cause. See Ludwick v. This Minute of Carolina, Inc., 287 S.C. 219, 337 S.E.2d 213 (1985); Hudson v. Zenith Engraving Co., 273 S.C. 766, 259 S.E.2d 812 (1979). Commonly known as the "employment-at-will" doctrine, it has slowly eroded through such decisions as Small v. Springs Industries, Inc., 292 S.C. 481, 357 S.E.2d 452 (1987).

In Springs, plaintiff Kathy Small alleged a cause of action for breach of contract on the basis that the company's employee handbook altered the otherwise at-will employment relationship and created an implied-in-fact contract of employment. TheSouth Carolina Supreme Court agreed. The Court noted, however, that if an employer wanted to issue handbooks or bulletins as purely advisory statements with no intention of altering the at-will relationship, it could insert a "conspicuous disclaimer or provision into the written document."

The next step: Conner v.

City of Forest Acres

A number of post-Springs decisions have dealt with the employee handbook issue, but recent decisions help explain the impetus for the new handbook law. (For further background, please see "Employee Handbooks: Are they worth the risk?" in the January 2003 edition of the South Carolina Lawyer).

The most famous of the recent cases is Conner v. City of Forest Acres, 348 S.C. 454, 560 S.E.2d 606 (2002); compare Horton v. Darby Electric Co., Inc., Op. No. 25839 (S.C. Sup. Ct. filed July 6, 2004) (South Carolina Supreme Court affirmed summary judgment in favor of employer with a progressive discipline policy that included disclaimers, the text of which the court complimented). Plaintiff Evelyn Conner worked as a police dispatcher for the City of Forest Acres. She reportedly had a poor employment record with the city and received numerous reprimands for her poor work performance. During her employment, the city published two handbooks, one in 1987 and another in 1993. After receiving each handbook, Conner signed an acknowledgment stating that she read and understood the handbook. In addition to the acknowledgment form, the 1993 handbook contained two disclaimers

and a progressive disciplinary procedure. The disclaimer was printed on the first and last pages, and the acknowledgment form stated that she understood that her employment was at-will.

The city terminated Conner's employment following an unsatisfactory performance evaluation in October 1993. Conner filed a grievance with the city. The grievance committee recommended 2-1 to reinstate her, but the city council rejected the recommendation and voted to uphold her termination. Conner subsequently filed a lawsuit against the city that included an allegation for breach of contract based on the personnel manual.

The South Carolina Supreme Court ruled that "promissory" or "mandatory" language in a handbook with a conspicuous disclaimer made the handbook inherently ambiguous, creating a question for a jury as to whether the handbook amounted to an employment contract. The Court also noted that the grievance committee and city council disagreed on whether Conner's termination was justified and, therefore, the case should not be adjudicated on summary judgment grounds. The question of fact as to whether the handbook altered the at-will relationship remained even though the handbook contained a conspicuous disclaimer as required in Springs.

As a result of Conner and similar South Carolina court decisions, some employers began to seriously question the use of employee handbooks. What in Springs appeared to be a simple matter of inserting a disclaimer, became a much more complex, uncertain and costly issue. According to South Carolina's courts, a jury should resolve many breach of employee handbook cases, even when the handbook had a disclaimer and even when an employee had signed an acknowledgement that they had read and understood the disclaimer. As a result, employers began either to stop using handbooks or to generalize their handbooks and remove any "mandatory" language, at the expense of reducing the handbooks' effectiveness as a communication tool in the workplace.

Legislative solution

Initial version

and subsequent detours

In an effort to address the employee handbook dilemma, the South Carolina Legislature began debating legislation designed to codify the employment-at-will doctrine and stem the tide of "handbook as contract" case law. On February 4, 2003, the House approved House Bill 3448 (H.3448) and sent it to the Senate for further debate. As introduced, H.3448 consisted of six concise paragraphs. The bill codified the employment-at-will doctrine, clarified when a handbook or other document was a contract and expressly preserved some wrongful discharge exceptions to the at-will doctrine. Much of the debate in the Senate, however, revolved around the wrongful discharge aspect of the bill, even though it was ancillary to the bill's primary focus on employee handbooks. The Senate considered various amendments, and at one point the bill ballooned to several pages.

Final version

Ultimately, the Legislature rejected complicated options in favor of a more curt approach. Both houses ratified the final version of H.3448 on March 10, 2004, and Gov. Sanford signed the bill into law on March 15, 2004. 2004 S.C. Acts 185. The final version of H.3448, now codified at S.C. Code § 41-1-110, contains basically three sentences:

It is the public policy of this State that a handbook, personnel manual, policy, procedure, or other document issued by an employer or its agent after June 30, 2004, shall not create an express or implied contract of employment if it is conspicuously disclaimed. For purposes of this section, a disclaimer in a handbook or personnel manual must be in underlined capital letters on the first page of the document and signed by the employee. For all other documents referenced in this section, the disclaimer must be in underlined capital letters on the first page of the document. Whether or not a disclaimer is conspicuous is a question of law.

Id.

Accordingly, employers who issue or reissue handbooks after June 30, 2004, will be able to once again reduce the risk of their handbooks becoming the basis for a breach of contract claim. The new law is completely voluntary, although given the courts' unpredictable treatment of handbooks, most employers would be well served by accepting the statutory protections in exchange for modifying their handbooks and similar documents.

Types of documents impacted

Section 41-1-110 specifically references handbooks, personnel manuals, policies, procedures "or other documents" issued by an employer or its agent after June 30, 2004, as covered documents under the statute. The catch-all term "other documents" is left vague and undefined in the statute. Therefore, it remains an open question whether documents such as offer letters or correspondence between an employer and a prospective employee fall under the "other documents" category of covered documents under the statute. Employers should also be aware that supervisors and managers are agents of the employer, so documents issued by these persons may require a conspicuous disclaimer.

content of disclaimer

Section 41-1-110 does not supply the text for an adequate disclaimer. Therefore, employer-specific issues will likely affect the content of the disclaimer. These issues include workforce size and labor relations history.

As a general outline, employers should consider including the following information in their disclaimer:

a reference to the new law; an explanation that the handbook does not constitute an employment contract; an explanation that the new handbook supersedes old versions; an explanation that the company reserves the right to amend, alter or make exceptions to the handbook; and a statement that employment at the company is at-will.

Although arising before the new statute, the South Carolina Supreme Court's recent decision in Horton may be a helpful starting point as it seems to reflect the Court's latest opinion about the content of disclaimers. Nevertheless, employers should keep in mind that Horton's language is similar to that in Conner, which was not successful, so it is not foolproof.

format of disclaimer

To be valid under the new statute, a disclaimer must meet specific "conspicuous" requirements:

it must appear on the first page of the document; it must be underlined and in CAPITAL letters; and for handbooks or personnel manuals, the employee mustsign the disclaimer.

location of disclaimer

The statute requires that the disclaimer "must be in underlined capital letters on the first page of the document and signed by the employee." Lawyers have differing opinions on what is meant by the "first page." Some employers have placed the disclaimer on the cover page of the handbook. Other employers have decided to place the disclaimer on a stand-alone disclaimer page, entitled "IMPORTANT NOTICE" and numbered page "1," immediately behind the cover page and immediately in front of the table of contents of revised handbooks.

Employee notification

For the revised handbook to be effective, employees must receive actual notice of the new provisions. Employers should consider holding an employee meeting to summarize and discuss the changes. Alternatively, a memorandum explaining the changes could be distributed to employees before the revised handbook is issued.

signature requirement

The new law requires that an employee must sign the disclaimer in the case of a handbook or personnel manual. For all other covered documents, there is no signature requirement. Signing the disclaimer may be a condition of employment, but employers should carefully consider the related labor and employment implications. Having the employee sign two identical versions of the disclaimer, one for the handbook and another for a personnel file, can help track who has or has not signed.

Some employers post their employee handbook or personnel manual on a company Intranet site. This poses an array of unique issues, including how to provide actual notice and whether an electronic signature would be valid. The validity of electronic signatures is not discussed in the new law, nor is the term "signature" defined. However, it is likely that an electronic signature would satisfy the signature requirement. The South Carolina Electronic Commerce Act, S.C. Code Ann. §§ 26-5-10 to -50 (2003), first enacted in 1998, provides the legal framework for the recognition of electronic records and electronic signatures in private transactions of the type similar to the new handbook law. Under the Electronic Commerce Act, "an electronic signature satisfies any rule of law requiring a signature or providing consequence if a document is not signed." The act further states that "the mere requirement that information be 'in writing', 'written', 'printed', [or] 'signed'" is not by itself sufficient to establish that an electronic signature is not valid. Nevertheless, in an abundance of caution, employers may also want to have employees sign a printed disclaimer to ensure that they have tangible proof of compliance with the handbook law.

conclusion

The new handbook law is an important new safeguard that all employers should consider using. For those employers that satisfy the statutory prerequisites, the new law should promote employee-employer communications while reducing the risk of unwanted contracts of employment.

William H. Floyd III and James C. Leventis Jr. practice employment and labor law in Nexsen Pruet's Columbia office.

Copyright (c) 2004 by the South Carolina Bar. All rights reserved. No part of this publication may be reproduced without written permission.