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Is Our Employee Handbook Legally Binding?

An employee handbook is an essential document, not only for conveying your company culture and setting your new hires up for success, but also for legal purposes. The policies outlined in the employee handbook can protect employers from unnecessary misunderstandings. On the other hand, an employee handbook can sometimes cause legal issues for both employees and employers. What it comes down to is whether the company handbook can be considered a binding contract that is enforceable against the employer.

Here’s what you need to know:

Possible Risks

It’s possible that an employee handbook can create an employee agreement – whether or not that was the intention of the employers. If the language in the handbook can be interpreted as promises or guarantees made to employees, you could be legally bound to those promises. For instance, an employer could find themselves the target of a wrongful termination suit if an employee was let go in a manner inconsistent with policies outlined in the handbook.

Watch your Terminology

Subtle changes to wording in a handbook can make all the difference in determining whether the policies are legally binding. For instance terms such as “will,” “shall,” or “must” are quite definitive and leave little room for interpretation. On the other hand terms such as “may,” or “might,” or “could” or “should” are more suggestive. Take the following statement for example:

“Supervisors will provide new hires with weekly coaching sessions during the three-month probation period.”

The above statement implies that the weekly coaching sessions are guaranteed.

“Supervisors may provide new hires with weekly coaching sessions during the three-month probation period.”

Switching the term “will” with “may” allows the employer in this case to communicate the company’s “best practice” without implying that employers are contractually obligated to provide the weekly coaching sessions.

Disclaimers

Many employers chose to include disclaimers in the employee handbook, which overtly state that the handbook is not to be interpreted as a legally binding employment agreement. This is an excellent strategy for steering clear of any unintentional misunderstandings. Here is an excerpt from a sample disclaimer:

I understand that I am responsible for reading the handbook, familiarizing myself with its contents, and adhering to all of the policies and procedures of XYZ Company, whether set forth in this handbook or elsewhere.

The policies, procedures and standard practices described in this manual are not conditions of employment.  This manual does not create an express or implied contract between XYZ and any of its employees. XYZ reserves the right to terminate any employee, at any time, with or without notice or procedure, for any reason deemed by the Company to be in the best interests of the Company.

I understand that the information in this handbook represents guidelines only. XYZ reserves the right to modify this handbook, amend or terminate any policies, procedures, or employee benefit programs whether or not described in this handbook at any time, or to require and/or increase contributions toward these benefits programs.

Refer to Federal Legislation

In the United States, the National Labor Relations Act (NLRA) is the legislation that protects the rights of employees and employers. In Canada this is referred to as the Canada Labour Code. It is important to ensure your employee handbook does not contain policies that violate labor laws. For instance no policy in the employee handbook should restrict employees’ ability to self-organize or act collectively. As such, a confidentiality policy that restricts employees from discussing pay with each other can unintentionally violate the NLRA.

Also remember that, in addition to federal codes, there are laws that vary by state.

Bottom Line: Consult your Lawyer

It is always recommended to have a legal professional review your company’s employee handbook before it is published and distributed to employees. If your company does not have internal legal expertise, consult with a reputable employment attorney with some expertise in your industry.

Employee handbooks are one of the best internal communication tools an employer has at their disposal – but if handled incorrectly, it can open your company up to liability. Bottom line: know the laws and consult an expert to ensure that your employee handbook achieves its intended purpose – nothing more, and nothing less.