TOP TIP:Why Do You Need a Handbook Disclaimer and What Should Be In It Anyway?

A recent Alabama state court decision offers valuable lessons to all employers with employee handbooks (not just those in Alabama) on the importance of a properly drafted handbook disclaimer.

Now, in all states but Montana, employment is presumed to be at-will (and even in Montana, it exists for the first six months). This means that, absent a contract, either employees or employers may terminate the employment relationship at any time for any reason (except an illegal one), with or without cause or notice. Some employees, however, have successfully argued that certain handbook policies can create a contract that modifies the at-will nature of their employment. Another argument is that other policies – like a discharge procedure or progressive discipline policy – give rise to additional contractual obligations. In other words, the employer is obligated to follow all the steps of their policy before terminating an employee – as opposed to having the discretion to skip steps where it deems appropriate. Many employers rely on a disclaimer to prevent such claims – but a disclaimer must be carefully drafted, or it may not be as effective as the employer hopes.

And this was the situation in Davis v. Montevallo. The employee was required to sign a handbook acknowledgement that stated as follows:

I understand that nothing in this Handbook can be interpreted to be a contract for employment for any specified period of time or to place a limitation on my freedom or the City’s freedom to terminate the employment relationship at any time. I also understand that the City retains the freedom to change the Policies and Procedures with the approval of the Mayor and City Council.

The employee was terminated for violating certain handbook policies, and he sued, arguing that the City had breached its contract with him by failing to follow the detailed discharge procedures in the Handbook. The employer pointed to the disclaimer to rebut his contract claim. But the problem for the employer was that its disclaimer was limited to the issues of preventing a contract of employment for a specific period and preserving the ability to terminate the relationship at any time. It was silent on all other policies, including the actual procedure for termination.

The employer also argued that the disclaimer gave it the ability to change the policies at any time. But as the court noted, the employer is bound by the contractual guarantees under the policies until they are modified or excluded by another valid contract. The court asserted, “Consequently, the ability to later modify handbook provisions does not justify a disregard of currently valid provisions.”

But a clear and unambiguous disclaimer can prevent all of these issues. As a preliminary matter, and as courts in some states have held, the disclaimer should be the first thing in the handbook. But what should be in an effective handbook disclaimer? We suggest that it should include the following:

• A statement that employment is at-will, with a definition of what that means. (This, however, does not apply to unionized employees – and that should be recognized in the disclaimer if the employer is unionized).
• We suggest adding that no managers or representative of the company or organization, other than its top official, has the authority to make any promises or commitments contrary to the foregoing. Additionally, any employment agreement will only be valid and binding if set forth in writing and signed by the top official.
• A statement that none of the policies create a contract, whether express or implied, or constitute promises or covenants (for good measure).
• In addition to the general disclaimer and acknowledgment, it is important to include a specific disclaimer in any discipline/discharge policies, and to state clearly that the employer reserves the right to exercise discretion to skip procedural steps.
• A reservation of rights to change the policies in the handbook, in the employer’s sole discretion, at any time, with or without notice.
• Many policies may be subject to heightened scrutiny by the National Labor Relations Board – even for non-union employers – as potentially impacting employees’ protected rights under the National Labor Relations Act. Although the Board has viewed with some skepticism generalized statements disclaiming any intent to violate those rights, we still suggest that it may be useful to have such a general statement in the disclaimer, with more targeted statements in specific policies of interest.
• Multi-state employers may be subject to differing obligations under state law. While some policies may be drafted so as to comply with all applicable laws, there may be others that require some variation in treatment. It may be wise to include a statement that, to the extent a state or locality where the employer operates has workplace obligations unique to a particular location of the country, the employer will apply its policies and procedures in the manner required by such local laws. If the employer chooses to issue a state supplement, it should reference it here.
• Furthermore, employees should be encouraged to bring any questions to Human Resources, a manager, or some other appropriate official.

In addition to the disclaimer up front, employees should be required to sign an acknowledgement that basically reiterates the same information as the disclaimer, in addition to expressing their understanding of their responsibility to read the policies and seek any necessary clarification. This acknowledgement form, as well as any updated forms when the handbook is revised, should be retained in the employee’s personnel file.

Finally, because the policies in the handbook are not intended to be an enforceable contract, employers should not include provisions in the handbook that are intended to be enforceable, like arbitration agreements, non-disclosure agreements, and other restrictive covenants. Such provisions should be contained in separate, signed documents.