Your employee handbook: is it an enforceable contract?

Author:Hoft, John
 
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ABSTRACT

The employment "at will" doctrine means that an employee who does not have an employment contract for a specific duration can be discharged for any reason or no reason at all. "At will" is justified as a two way street. It permits either the employee or the employer to sever the employment relationship without incurring liability. Many employers use employee handbooks to communicate policy. In circumstances where the handbook specifies discipline and discharge processes the handbook may be deemed an enforceable contract and modify the "at will" doctrine. The language in the handbook is key. If the terms of the handbook are unequivocal and manifest to a reasonable person that the employer intends to be bound then the handbook may be an enforceable contract. In order to avoid this interpretation, many employers include a handbook disclaimer that disavows contractual intent. A clear and forthright disclaimer will prevent a handbook from being ruled an enforceable contract. Disclaimers, however, must meet certain criteria in order to be effective. The purpose of this paper is to identify the circumstances under which a handbook may be held to constitute an enforceable contract and to discuss the requirements necessary to effectively disclaim contractual intent.

INTRODUCTION.

On November 1, 1989, Wayne D. Norton, an "at will" employee, was discharged by his employer. Before his termination, Norton had been general manager of the Minneapolis office of Caremark, Inc., a pharmaceutical services company. In Minnesota, employment for an indefinite term is considered "at will" and terminable by either party for no reason without legal liability. Mr. Norton's vice-president said Norton was fired for poor performance. Norton sued his employer over the discharge and won. A jury awarded him $305,000 in back pay. How could this happen in a state that recognizes that an employer is free fire an employee at will and for no reason without legal consequences? The answer lies in the treatment afforded the company handbook. In Mr. Norton's case, Caremark promulgated a document entitled Disciplinary Action Guidelines and distributed and explained the policy to him. The Guidelines set forth a process for discharging an employee. Norton's supervisor failed to follow the Guidelines or the discharge process. The court held that the Guidelines were an enforceable contract between the company and Norton and that the company had breached its promise. As a result, Caremark was liable for damages (Norton v. Caremark, Inc., 1994). The issue to be discussed in this article is when the provisions of an employee handbook that is disseminated to employees may modify the "at will" employment doctrine and create duties upon an employer that are not present in an ordinary "at will" employment relationship.

THE "AT WILL" EMPLOYMENT DOCTRINE.

Under the employment at will doctrine an employer may fire an employee for good reason, bad reason, or no reason at all unless prohibited by law or public policy (Monaco v. American General Assurance Company, 2004). Employment for an indefinite term with no specific duration is considered to be "at will" and terminable at the discretion of the employee or the employer without legal consequences (Wojcik v. Commonwealth Mortgage Corporation, 1990). The "at will" employment doctrine is settled law in most states and in the District of Columbia (Autor, 2006). The "at will" employment doctrine is often justified as being a two way street. The rationale is that it permits either the employee or the employer to terminate the employment relationship for any reason without liability to the other (Mizell v. Sara Lee Corporation, 2005). The result of this doctrine is to allow an employer to terminate an employee without fear of a successful wrongful discharge lawsuit (Eckhardt v. Yerkes Regional Primate Center, 2002).

THE EMPLOYEE HANDBOOK.

Over the past two decades many courts have modified the traditional "at will" employment rule when an employer's handbook or policy manual contains language that provides that discharge will occur for cause or only after certain conditions have been met (Meier v. Family Dollar Services, Inc., 2006). The terms of the handbook, however, must set forth discharge procedures in positive and mandatory language in order to be ruled contractual (Nickum v. Village of Saybrook, 1997). Use of the terms "must" and "will" may likely result in the handbook promises being enforced (Campbell v. Northwester Memorial Home Health Care/Services, Inc., 1998). Handbook terms that are couched in an informational tone that are...

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