Your Employee Handbook May be a Contract – Unless It Says This

Employee handbooks serve as a critical tool for setting workplace expectations, but can they also create an enforceable contract? 

As with so many things in HR, the answer is – it depends.

4 Important Court Decisions About Employee Handbooks

Courts have weighed in on this issue, and the answer depends on how the handbook is written and presented. Let’s look at a few examples from court decisions.

1. Truck Driver Says Handbook Outlined Pay and Benefits

In Staschiak v. Certified Logistics Inc., a commercial truck driver sued his employer for breach of contract. Specifically, he alleged the company’s employee handbook stated:

• He would receive 30% of the gross income received for loads he drove – plus $15 per hour in detention and layover pay, and
• The employer would cover 70% of his health insurance costs.

The driver’s lawsuit alleged the company failed to follow through on the promises outlined in the handbook.

The employer argued the lawsuit should be dismissed, saying the handbook wasn’t a contract. 

But the court was not swayed. It sided with the driver, pointing out three problems with the employee handbook distributed by the employer:

1. It didn’t include language specifically saying it wasn’t a contract
2. It failed to state that it could be changed at the employer’s discretion, and
3. It did include clear language outlining pay and benefits.

As a result, the court said that a reasonable person in the driver’s position, after looking at the handbook, would be justified in believing it amounted to a contract. The case continued.

The takeaway: This ruling sends a clear signal to employers that a few sentences outlining that an employee handbook isn’t a contract, that the employer doesn’t intend to be bound by the handbook and the handbook is subject to change at the employer’s discretion can go a long way to limiting legal liability.

Staschiak v. Certified Logistics Inc., 2016-Ohio-897, 60 N.E.3d 824 (Ohio Ct. App. 3/7/16).

2. HR Professional Says Layoff Amounted to Breach of Contract

In Lytle v. Malady, an HR employee in Michigan who was let go in a reduction in force sued her employer for breach of contract and employment discrimination. 

Her employer maintained an employment handbook declaring that employees would not be discharged without good cause. 

The employer later added disclaimer language to the handbook, stating that it did not constitute a contract of employment and that the employment relationship was at will. 

The HR pro, who had been hired before the adoption of the handbook, claimed that her supervisor gave her a poor work evaluation after she refused to wear a dress to a company function. 

She was eventually laid off while her male supervisor and several other younger, less senior males were retained. Then she sued.  

The case reached the Supreme Court of Michigan, which noted that the handbook policy did not overcome the presumption of employment at will. 

Importantly, it contained a specific disclaimer that no just-cause employment contract existed. 

The employee’s discrimination claims also failed because she didn’t prove that discrimination was a motivating factor in her layoff.

The takeaway: A properly worded disclaimer in an employee handbook can help protect an employer from breach of contract claims. Ensure that handbooks explicitly state they do not create contractual obligations. Periodically review and update policies to reinforce at-will employment status.

Lytle v. Malady, 579 N.W.2d 906 (Mich. 1998).

3. Employees Seek Job Protections in Employee Handbook

In McCrone v. Acme Markets, six former employees sued for wrongful termination, claiming an implied employment contract existed based on management statements and the employee handbook. 

They argued that they were told they would keep their jobs if they performed well and that the handbook, which listed termination grounds, did not state they were at-will employees.

The employees were fired over allegations of misconduct related to a customer satisfaction survey. They claimed management pressured them to secure favorable results and later accused them of falsifying the survey. Two employees signed statements admitting the accusations, while four refused; all were terminated.

The lawsuit was dismissed by the district court, and the Third Circuit upheld the ruling. The court found that general assurances of continued employment and the handbook’s omissions did not create an implied contract.

The takeaway: An employee handbook’s failure to explicitly state at-will employment does not automatically create an implied contract. Even so, to minimize legal risks, HR should ensure handbooks contain clear, prominently placed at-will employment disclaimers stating that policies do not create contractual obligations. Plus, managers should avoid making verbal assurances that could be misinterpreted as employment guarantees. Regular handbook reviews and training for managers on appropriate communication about job security can help prevent similar legal challenges.

McCrone v. Acme Markets, 561 Fed. Appx. 169 (3d Cir. 2014).

4. Salesman Claims Handbook Creates an Implied Contract

In Martin v. Southern Container Corp., a fired salesman filed a breach of contract lawsuit alleging his former employer’s handbook created an implied contractual obligation.

Both the salesman and his father worked in sales at the company. 

When the salesman was hired, the company agreed that he could take over his father’s accounts when the father retired. But before the father retired, the company transferred many of his accounts to other employees. 

The salesman took over the remaining accounts after his father retired, but he was later fired. 

He then sued for breach of contract, citing the agreement referencing taking over his father’s accounts. He also claimed that the employee handbook created an implied contractual obligation to pay him for unused vacation time. 

The court held that the company did not have to maintain the father’s accounts as they were at the time of the agreement and that the handbook did not create an implied contract to pay unused vacation time because of its disclaimer language stating that it did not create a contract.

The takeaway: Clear disclaimer language in an employee handbook can help prevent claims of implied contractual obligations. In this case, the court upheld the employer’s position because the handbook explicitly stated that it did not create a contract.

Martin v. Southern Container Corp., 92 A.D.3d 647, 938 N.Y.S.2d 335 (N.Y. App. Div. 2012).

Next Steps for HR

To avoid legal risks, every employee handbook should include a clear disclaimer stating:

“This is not a contract.”

It sounds simple, but without this language, an employer is vulnerable to lawsuits alleging that its employee handbook is a legally binding contract. The language should be simple and direct – no vague promises about job security or benefits that could be misinterpreted.

Additionally, labor and employment attorney Jake Sitman warns that a generic, one-size-fits-all handbook can create problems. “If you’re not tailoring [a handbook] to your own workforce and your own specific needs and experience … and you’re making mistakes, ultimately they’re going to come back to haunt you,” he said on a Voices of HR episode.

In addition to reviewing employee handbooks regularly, HR should also train managers on what they should — and shouldn’t — say about employment terms and reinforce at-will employment on company policies.