A Few Employee Handbook Essentials

Writing a complete employee handbook is far beyond the purposes of this newsletter. Instead, February’s installment is designed to address some of the most common issues that occur with do-it-yourself employee manuals.

Do You Need an Employee Handbook?
Employee handbooks are complicated to create and moderately expensive to buy if you want one that is competent. Consequently, a standard small business question is, “Do I need an employee handbook?” Although there is no legal requirement in Oklahoma to have a handbook, having one can provide you with substantial legal protections. Another reason is handbooks are practical. There are policies you are going to want to have in place. In some cases, those policies should or must be in writing. If you have a handbook, then you have an easy place to put all your written policies. Employee handbooks facilitate organization. In short, you should have policies, they should be written, and the Employee Handbook is your vehicle for communicating your written policies to your workforce.

Why You Shouldn’t Just “Borrow” an Employee Handbook
The content of an employee handbook depends largely on the size of your company and its philosophy on the management of employees. It is important not to adopt the handbook of another company because that handbook may not reflect your company’s goals, available resources, policies toward employees, or legal obligations. For example, if your company has twenty-five employees and you adopt the employee handbook of a larger company, you may end up with a Family and Medical Leave Act (FMLA) policy. Unfortunately, even though FMLA would not ordinarily apply to your business, by publishing such a policy, you will likely be saddled with the many burdens of administering a job-protected medical leave program in your small business.

Adopting another company’s handbook can work against you in other ways, too. For example, let’s say you adopt the handbook of a company operating in 30 states. In order to minimize the number of handbook editions for the different laws in each state, and to simplify administration, that company’s handbook is probably designed to comply with the laws in some highly regulated states. By adopting such a handbook, you could be needlessly taking on additional administrative work and giving up company rights.

Four Things Every Handbooks Should Have
Obviously, there are more than four things every employee handbook should have, but this non-exhaustive list includes things that very well written and seemingly complete handbooks often leave out. First, every handbook should have a statement that employment is at-will. Due to recent legal action involving the National Labor Relations Board, such statements must not say that the at-will relationship cannot be changed. Instead, there must be a mechanism for change. It is common simply to say the at-will nature of employment can only be changed by a written contract signed by the employee and by the president or CEO. The at-will statement should explain what “at-will” employment means. The definition of “at-will” differs slightly between some states, and quite a bit between others. The point is that multi-state employers may need more than one definition or a definition that satisfies the statutory scheme in each state in which it operates. Generally, when employment is “at will,” termination of employment can be for any legal reason or for no reason. However, you should never fire someone for “no reason.” Even if doing so is perfectly legal, you have to consider how your decision to fire for “no reason” would be tested in a courtroom. Even if you truthfully claim “no reason,” the jury will suspect there was a reason. Each jury member will ask, “Who fires someone for, literally, no reason?” Unless you held some sort of bizarre lottery to see which random employee would be fired for no reason, the reason for termination and how that particular employee was selected for termination will be subject to intense scrutiny.

Second, every company that has any exempt employees should include an exempt salary deduction safe harbor provision. The requirements are described in the Department of Labor, Wage and Hour Division’s Fact Sheet #17G.One problem with exempt employees is that they can become non-exempt if they are not managed properly. If an exempt employee becomes non-exempt, the company can become liable for years of minimum wage and overtime back pay. One way to destroy an employee’s exempt status is to make improper deductions from payroll in violation of the salary basis of pay. If your handbook includes the safe harbor provision, and if you abide by the safe harbor rules, your exempt employees’ status is likely safe even if you make an improper deduction from pay.

Third, every company that does anything with medical records should have a Genetic Information Non-discrimination Act safe harbor statement, available at EEOC’s GINA Q&A for small businesses. Whether it’s doctor’s notes for absences, health assessments for safety purposes, drug testing, Family and Medical Leave Act certification, or any other source of medical information, you need the documents requesting such information to state that your company does not want genetic information. The key to understanding why this is important is that genetic information comes in many forms, not just in “profiles” used by law enforcement agencies to catch bad guys. Because some diseases are passed down from one generation to the next in a family, even a family medical history contains genetic information. So, if a doctor asks for a family medical history, the doctor has requested genetic information, and you definitely do not want any of it. If you take negative employment action against an employee about whom you have genetic information, he or she will be well positioned to claim your company is engaging in genetic discrimination. Because you can’t “un-know” the genetic information you have, you may have to defend yourself in court.

Fourth, every handbook should specify that it is not a contract. Instead, the handbook outlines policies of the company and gives rise to no contractual obligations either to the company or to any of its employees. If your handbook is a contract, employees can sue you to keep up your end of the bargain. A good handbook always specifies that it is not a contract and writes policies in terms of what the company “may” do and what employees “must” do. Using words like “please” can turn your policy directives into options employees may choose to take.

Things No Handbook Should Have
First, because no handbook should be a contract, no handbook should have anything in it that could confuse anybody about whether it is a contract. In fact, a judge or jury could determine a document that claims not to be a contract is in fact a contract. The analysis can be complicated but the big picture is that you should avoid anything that “looks” like a contract. Accordingly, your employee handbook should not have content that is typical for a contract but not for a company policy, such as:

  • Non-compete Agreements
  • Non-disclosure Agreements
  • Non-solicitation Agreements
  • Agreement to Employment For a Particular Length of Time

The important point is that everything in the list includes the word “agreement.” In an employee handbook, agreement is not critical. The handbook exists to notify employees of company policies, not to exchange promises in the formation of a contract. However, your handbook can and perhaps should have policies against simultaneously working for competitors, against disclosing or failing to protect trade secrets, against disloyal acts such as encouraging employees to work elsewhere or encouraging clients to do business with competitors. The difference is that policies create employee ground rules for which violations may be punished, but contracts create mutual obligations giving rise to legal rights that may be enforced in courts.

What About Handbook Receipts?
A handbook receipt is a document signed by employees acknowledging they have received a copy of the handbook. The receipt is not a part of the handbook, even though it is frequently printed as if it was part of the handbook. Because the receipt is not part of the handbook, it can be a contract and it frequently does include contractual obligations. Specifically, receipts often impose on the employee a duty to read the handbook and to take his or her questions to a supervisor or to HR. Ordinarily, a contract requires an exchange of promises. In the language of contract law, such promises are called “consideration” because each promise is given in consideration for the return promise. If the employee is promising to do all that stuff, what is your company providing in return? The answer is typically “continued employment.” However, “continued employment” does not mean employment for any particular length of time. Instead, it just means you do not presently foresee any need to terminate the person’s employment.

Conclusion
Having an employee manual can save your company from failure under the stress of litigation. It can also save time and energy by providing employees with a resource that answers many of their questions. It can help you avoid lawsuits by providing supervisors with a reference so they are all managing out of the same play book. Although writing a legally competent employee handbook is a large project, the rewards can be significant.

Please do not hesitate to contact the Firm with any questions you may have about the effect of laws and regulations on your business or its operations.