Employee Handbooks – Danger & Opportunity by Ed Morrow, CLU, ChFC, CEP,CFP®, RFC®

Employee handbooks are a handy way to communicate to workers exactly how things should be done and what each worker can expect from the employer. They can be an excellent communication tools with all employees, and especially valuable as an introduction for the newest associates. Most employee handbooks spell out the terms for work and the various benefits.

However, they can also be turned into a legal weapon for disgruntled employees, who have successfully argued that the rules in the handbook are, in effect, an employment contract. Make sure the language in your employee handbooks (and those of your clients) is flexible and general enough to protect you from plaintiffs' lawyers.

Howard University learned this the hard way. When an admissions assistant was laid off after 620 positions had already been eliminated, she successfully sued, citing language in the employee handbook promising that a very specific workforce-reduction procedure would be followed. The court found that the University was required to follow its own promised procedure, but Howard had not done so. The court ruled that the employee handbook constituted a contract that had been violated in her case. She won her case, even though the handbook contained a disclaimer stating that its contents were not intended as a contract.

Since Dantley v. Howard University was decided in 2002 several similar rulings have construed handbooks to be actual contracts, despite written disclaimers. It is a trend that has impelled smart business owners to review the language in the handbooks they provide to employees. There are cases that come up all the time, in every state, and putting a disclaimer in an employee handbook is fine, as long as you realize that's not all you have to do. The disclaimer is not enough.

Handbook Review. What else can you do to ensure that your employee handbook remains just a handbook? The expert advice seems contradictory — don't use specific language, but don't be too vague. Here are some pointers:

Do tell your employees what you expect of them. Generally address basic work-related behavior, such as cooperation, professionalism, honesty — and specific company requirements, such as a method for documenting hours worked, or dress code issues or safety equipment. As to what the employee can expect of management, keep it flexible. Sections touching on potentially controversial areas like discipline and firing should be written very broadly. For example, instead of spelling out specific sanctions for unacceptable behavior, you might consider language such as: "Discipline is imposed based upon the severity of the infraction, and at the business discretion of the company, consistent with applicable laws and regulations".

Don't describe procedures in detail. They can trip you up in court. One of the worst things an employer can do is to use very specific wording to outline exactly what the company will do in a certain event, such as what will escalate a disciplinary procedure into a layoff or termination. Leave as much flexibility as possible and do not set out any predictions as to how or when management is going to handle a situation. The language should make it clear that the company reserves the right to deal with situations as they arise and has the discretion to choose the appropriate remedy for each situation.

Avoid promises. Don't make the suggestion that you are making promises to employees, or implying that they are entitled to a stated length of employment or a certain exit procedure. Overall, the rules should lay out employee transgressions that will lead to disciplinary action. They should not specify how many chances or the amount of time you will give an errant employee before he is fired. Do not promise reviews, raises or bonuses with any particular frequency or so as to establish an "expectation" that can become a basis for a claim.

Include disclaimers in your employee handbook. Use them sparingly, and do not rely on the disclaimer to avoid any liability. Following every policy or procedure with a disclaimer may not work to your advantage in court, because it gives the overall handbook an insincere quality. Disclaimers often undermine one of the most important elements of the handbook, which is to communicate a common set of principles and expectations that management wants everyone to share.

Don't give up on the idea of an employee handbook. It can actually help you in court and improve your business. It can also remind everyone of the true employer/employee relationship. Many small business owners treat employees like family, which might work well on a day-to-day basis, but won't keep you out of court. Small businesses have a lot of unwritten contracts — there is often a lot of camaraderie and congeniality between the owner and employee. You have to step back from that attitude and realize that you must put things in writing. Take some time to examine your processes and look at it from a more analytical perspective, instead of relying so much on good will.

Do have an employment law attorney review your handbook. There is no substitute for carefully reviewing each policy to make sure it's worded well. A seasoned employment lawyer will have learned to spot policies that can give the appearance of conferring rights to an employee. If your firm is too small to justify the expense of an attorney, checking with trade organizations or human resources associations for assistance in making your firm's employee handbook bullet-proof.

Don't Think that Financial Advisors Are Immune. We know of at least five financial planners, all experienced, respected and successful financial planners, who have been embroiled in employment lawsuits. Some won, and some lost. But each of the advisors paid a serious price for the distraction from their practice and the affect on the morale of other employees.