Copyright Credit Union National Association, Inc. Sep/Oct 2001| [Headnote] |
| When writing an employee manual, choose your words carefully to avoid any appearance of a contract |
an employee handbook can be a good way to keep employees informed and ensure consistency in your credit union's employment practices. At the same time, it can have legally binding effects on the credit union, turning it into an instrument employees may use against you.
It becomes a bit of a catch-22: State and federal laws require you to have certain employment policies in writing and distribute them to employees. A handbook consolidates those policies instead of having a litter of separate pieces of paper. (See "Workplace Policies Your CU Should Put in Writing," p. 34.)
Yet in the case of wage claims or discharge disputes, the courts will scrutinize those same written policies and use them as controlling factors in their decisions. In doing so, they may well find that your employee handbook creates a legally binding contract.
Many states have what is called "employment at-will." For many years, this meant a private business could freely discharge an employee and, so long as the firing didn't violate a specific law, the employee couldn't challenge the discharge. The employee could claim unemployment compensation but couldn't sue the employer and get the job back or receive any damages.
Courts throughout the U.S. have changed that as a result of lawsuits involving employee handbooks. Fired employees claimed the handbook formed a binding legal contract between the company and the work force (the same as a union contract would). They argued that under a contract-handbook, employees couldn't be fired without "just cause" and that there was a right to bring a contract suit against their companies.
The courts agreed. If the handbook had that kind of language and provisions, it became a legally binding contract of employment. Courts continue to devote increasing attention to employee manual provisions.
Now, employee handbooks (or other employment documents such as job applications, hiring letters, and so forth) may create a contract and any discharged or disgruntled employee can take the business into court and sue for breach of contract.
Employees who win can force the business to rehire them with back pay and damages. Even the business that wins will spend thousands of dollars in legal costs to successfully defend the case.
Weigh the pros and cons
There's no definitive answer to the question of whether a contract-handbook is a bad idea. Your credit union must consider the pros, cons, and your work force to reach its own decision. But it's important to know that a decision to have a contract-handbook will result in much greater legal obligations and legal costs for your credit union.
A contract obligates your credit union to prove its point in any dispute. Employers can fire employees at-will without needing any justification. Under a contract, however, the employer has to have a valid just cause for its employment actions and be able to prove that just cause in court.
It's not only discharged employees who can challenge under an employment contract. If the handbook states that decisions are based on "merit" or "performance," employees possibly can challenge promotions, transfers, pay increases, bonuses, and evaluations. The credit union must be able to prove that all of these job actions validly were based on just cause.
Create a nonbinding handbook
While it's important for employees to know what their benefits are and to have information on important company policies, many organizations accomplish this without "contract" handbooks.
But you can create a handbook that's not a contract. For starters, in the handbook introduction, include a disclaimer stating that employment is at-will. (Also include such a disclaimer in the signature clause of your employment application form.)
To develop an employee handbook that doesn't contain problematical statements and doesn't create a contract, avoid:
1. Any promise or suggestion of employment security. The word permanent, for example, implies an expectation of a continuing job. Instead, use words such as full-time employee or part-time employee, summer intern, holiday help, or short-term employee.
2. The following statements:
* Our objective is to provide continuous employment without layoff
* We wish to welcome you to a successful career with our organization.
* So long as our company prospers, you are assured of steady employment.
* Upon passing probation, you become a permanent, regular employee.
* So long as you follow the rules in the handbook, your job here is secure.
These statements often are found in the introduction section of handbooks and seem to guarantee long-term employment. Also remove them from employment application forms.
3. A probation or trial period. Eliminate all references to "probation" or "trial periods." An employer at-will can terminate employees at any time no matter how long employees have been employed. Length of service gives no guarantee of a permanent, continuing job. However, the existence of a probationary or trial period implies the employee gets some sort of rights to the job by "passing" probation, otherwise the probation or trial period serves no function.
Courts assume any section in the handbook is there for a purpose. They will interpret this section to give it the same meaning that probationary clauses have in most labor contracts. The courts will rule that employees who pass probation have rights to their jobs under a contract-handbook of employment.
If there is a waiting period before certain benefits take effect, put that information in the benefits section of the handbook and call it a "benefit eligibility period." This will pass muster and not be confused with probation.
4. A promise of "merit-based" employment decisions. The courts have ruled that policies implying job decisions will be based on merit, especially when accompanied by a performance evaluation policy, create a contract. These merit policies overcome employment at-will and allow people to challenge employment decisions and force the employer to prove the validity of the evaluation.
An employer at-will is free to base decisions on merit and performance (but also is free not to) and doesn't have to legally justify or defend most of its decisions.
5. The words "cause" or ' just cause. Discharge for just cause is exactly what a contract of employment brings into existence. This doesn't mean that you won't use just cause and fairness concepts in actual practice. You will, and you're strongly encouraged to do so. However, writing it into the handbook creates a contract that can allow people to haul you into court.
6. Discipline/discharge clauses. Disciplinary stages (such as reprimand or suspension) or point systems create a contract guarantee of just cause/progressive discipline. Grievance or appeal clauses create the same just cause guarantee that a union contract gives.
A set of disciplinary rules creates a just cause situation. It implies these are the serious infractions for which employees can be fired. The courts give life to this impression and have ruled that employers then can be held to this "promise" and be forced to show just cause.
Peppering the handbook with repeated threats to fire at the end of a number of policies creates the same impression. The courts will interpret this to mean that only those rules having the discharge language are grounds for discharge. Employees then can violate the other rules and not be fired.
You don't need to stick in discharge language. It's implicit that employees should follow policies and there will be consequences for violations.
If you want to give a specific discharge warning, do it in a disciplinary letter once the employee violates a rule. The absence of a discharge threat in the handbook won't limit your ability to fire at-will. Adding discharge language, however, doesn't strengthen your policy: It only adds new levels of legal interpretation and challenge.
7. Layoff seniority clauses. Don't state or imply that length of service gives employees the right or expectation of a permanent, continuing job over less senior workers. A handbook section mentioning seniority as a factor to be considered in making decisions about who gets laid off can bind the employer. Under such a provision, the company would have to lay off all less-senior people first unless it could prove (using concrete, legally validated evidence) in court that a more-- senior person was so bad there was just cause for earlier layoff.
You should reserve the management right to determine, according to the situation at the time, what criteria to use in making layoff decisions. So long as you don't bind yourself into a contract, you then can make that decision on any criteria, which is legal with far less chance of being challenged in court.
8. A signed acknowledgment of agreement by the employee. A major point in several court decisions was that the employee signed a handbook receipt stating the employee had read and agreed to abide by the terms and conditions of the employee handbook.
The court held that the employee's signed promise was valid consideration for a contract. The court held that if the employee was bound to obey the terms and conditions of the handbook, the company, too, was bound by those same terms and conditions. Courts don't like one-way streets.
Instead of an agree-to-abide-by acknowledgment, have the employee's signature under the employment-at-will clause. This shows receipt of the handbook and acknowledgment of the at-will status.
A number of these "don't put in the handbook" items are, in fact, good business practices. Evaluation, merit rewards, and fair and progressive discipline all are things employers should do. The difference is that at-will employers are free to do so, but by putting the policies in writing you risk creating a contractual obligation, which allows employees to legally challenge your decisions.
| [Sidebar] |
| Check out these and other related links available from Credit Union Exec Online (execonline.cuna.org): A decade of ADA compliance; Returning to work after FMLA; and Employee pay, time off: What's fair? |
| [Sidebar] |
| Workplace Policies Your CU Should Put in Writing |
| [Sidebar] |
| policies that should be in writing are those that can have legal effects and can become the topic of claims with state and federal agencies. In a dispute, your written policies often will be the deciding factor, and any vagueness due to lack of formal policy will be held against you. |
| The major policy areas your credit union should put in writing are: |
| * Sick leave and family medical leave. If you have 50 employees, company policy has to mesh with the federal Family and Medical Leave Act and be carefully constructed. |
| * Vacation and holidays. These have wage and hour law implications. How vacation days and holidays accrue, when they "vest," whether they can be carried over, to name a few, all are important issues. |
| * Employee purchases and credit card use. There must be written rules and |
| [Sidebar] |
| signatures to authorize any pay deductions. (Be careful to avoid creating a "consumer credit" issue.) |
| * Alcohol and drugs. Does your credit union care if employees drink before work or at lunch? If there are concerns about drinking, state the rule. Provide a written notice if you plan to do drug testing. Testing required by federal rules has to have a detailed policy. |
| * Dress code. If the dress code is just "general professional clothing," you don't need a written policy. You can deal with dress issues on an individual basis if they get out of hand. In many states, beard or hair restrictions must be clearly stated and given before the person starts work. More specific clothing requirements also should be in writing. |
| * Conflict of interest rules. You should spell out restrictions on other jobs, contracts with others, and |
| [Sidebar] |
| acceptance of gifts. |
| * Lockers, desks, computers, and privacy. You must provide employees written notice that the employer reserves the right to enter and inspect these areas without notice. Notice that e-mail, voicemail, and phone extensions aren't considered private. Monitoring or inspecting of electronic systems must match state and federal laws. |
| * Benefits. Employers must give insurance benefits information to each covered person-employees and covered dependents. |
| * Harassment policy. The courts have ruled that antiharassment and antiviolence policies are important elements in defending cases. Some government contracts require companies to have a written antiharassment policy. . |
| -Bob Gregg |
| [Author Affiliation] |
| Bob Gregg is a partner in the law firm of Boardman, Suhr, Curry & Field, LLP, Madison, Wis. He can be reached at 608-257-9521 or by e-mail at rgregg@boardmanlawfirm.com. |
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