Employee Handbook can Minimize Employee Liability on Job-Related Claims

Employment-related claims are the fastest growing area of litigation in California. Defending claims such as sexual harassment, disability and pregnancy discrimination, wrongful termination in violation of public policy and breach of implied contract have become more commonplace for companies, regardless of their size.

Although a well-crafted employee handbook that is closely adhered to by supervisors and managers cannot prevent an employee or former employee from bringing an employment-related lawsuit against an employer, it can go a long way toward avoiding or minimizing employer liability.

Employee handbooks and written employment policies are not required under California law. However, in addition to potentially minimizing liability, employee handbooks — if drafted and implemented effectively — can serve as a helpful management tool.

An effective employee manual reserves rights on behalf of the employer that it might not otherwise have in dealing with employees, such as workplace inspections, drug testing and making changes to benefits.

It also provides notice to employees of the company’s expectations, along with the consequences if its standards are not met, and promotes uniformity and consistency with respect to the implementation of the employer’s policies, reducing the possibility of inconsistent treatment of similarly situated employees. In addition, the manual can be used to provide a ready reference guide for employees regarding company rules, procedures, and policies.

Moreover, one of the most important functions of an employee handbook is to confirm the "at-will" nature of the employment relationship, meaning both the employer or employee can terminate the relationship at any time without notice or reason. To prevent claims of an implied contract for termination for good cause only based on alleged assurances by supervisors and managers or other circumstances, employers should require employees to sign an acknowledgment regarding their receipt of the handbook and their understanding of the at-will nature of employment.

The development of an effective employee handbook becomes more important as the company grows in size. Very small companies may do well with a few simple policy memos or a listing of the most important policies. Medium and large companies may benefit from having a more detailed employee handbook. Consideration may also be given to having more than one handbook, in the event there are two distinct divisions in the company, such as manufacturing and administrative. While every policy must conform to applicable laws, the tone of the handbook depends on the employer’s corporate goals and cultural values.

Among the key policies that should be included in a company’s employee handbook in order to avoid exposure in litigation are anti-discrimination policies, including an EEO statement and anti-harassment policy clearly setting forth the company’s procedure for reporting and dealing claims. The policy also should clearly prohibit retaliation for claims.

The handbook should also include an at-will statement and signed acknowledgment, as stated above, and policies regarding discipline and separation, wages and hours (including employee classifications and overtime policies), employee performance, standards of conduct, evaluations and attendance.

Many companies also decide to implement arbitration agreements with all employees as well. Arbitration agreements are an extremely useful tool in defending and even discouraging employment-related claims. Note, however, that there are specific requirements under California law that are applicable to the specific terms contained in arbitration agreements. If a company intends to require arbitration of employment claims, it should not rely on a provision in an employee handbook. Rather, a separate arbitration agreement should be drafted.

Additional policy information that should be considered includes a welcome and introduction, workplace definitions, moonlighting, dress code, employer inspections, confidentiality, weapons and acts of violence, alcohol and drugs, benefits, vacation, sick, PTO, dress code and solicitation. Be careful with vacation policies — "use it or lose it" policies are not legal in California.

Other typical employee handbook provisions include an explanation of the company’s leave policies, including medical, pregnancy, FMLA (50 or more employees), jury and witness duty, military, bereavement and Family Temporary Disability Insurance (FTDI).

Some of the common mistakes to avoid in developing an employee manual include writing statements or policies that dilute the at-will relationship; a lack of clarity on the company’s probationary period; progressive discipline policies which are inconsistent with the at-will nature of the relationship; inconsistencies between policies, disciplinary writings, performance evaluations and reality; inconsistent application of policies; use-it-or-lose-it vacation policies; vague or outdated policies; using handbooks from other states or those adopted from other companies; and inappropriate or inapplicable policies.

Recommendations for an effective handbook include periodic reviews to ensure that it addresses key policies and offers clear statements of the at-will nature of the relationship; making sure employees obtain and review their employee handbook; obtaining signed at-will acknowledgments from every employee (and arbitration agreements, if applicable); training managers to understand and follow company policy and not to make inconsistent statements; training employees regarding key policies; and reviewing and updating handbooks annually.

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