Wrongful Discharge Suits Made Easier

Appeals Court Decides that Virtually any Employee Handbook can be Constructed as a Binding Contract in a Wrongful Discharge Suit, Highlighting the Importance of Careful Legal Planning of Company Policies

By Jack Merrill

If you thought the disclaimer in your employee handbook would protect you against a wrongful discharge suit by a disgruntled former employee, think again. A 2001 appeals court decision suggests that the terms of almost any manual can bind an employer, making careful legal planning more important than ever.

Though many employment lawyers have long been advising employers to follow their manuals closely in all but extreme circumstances, the appeals court’s refusal to enforce an apparently typical manual disclaimer was nonetheless surprising. The court effectively held that factual circumstances can override disclaimer language of almost any type. This may mean that employers who ignore handbook rules will find themselves in a place none want to ever be: in front of a jury, trying to explain that a decision to terminate its employee was somehow ‘justified.’

The appeals court ruling should send employers scrambling to review their manuals. There are two things each must be sure of. First, that handbook terms, taken as a whole, do not suggest that a binding contract of employment exists. Second, that the manual does not grant employees procedural rights that the company cannot live with.

The employer subjected to the appeals court’s recent decision committed errors in both these areas. Like almost every company with an employee handbook, it included language disclaiming contractual rights and obligations. The disclaimer, however, appeared only once, and only in an introductory section to the handbook. Its placement was not prominent enough to properly inform employees that policies could be ignored in the company’s discretion.

This fact was critical in light of handbook language suggesting that workers could reasonably expect to receive warnings and fair treatment before they were fired. For example, the manual provided for a “probationary period” that could lead workers to believe that their 91st day of employment was somehow more secure than work during days 1 through 89. The manual also contained sections entitled “guarantee of fair treatment” and “progressive discipline.” These provisions led workers to believe they would not be summarily fired.

“The rights granted are simply that the employee, except in cases of egregious misconduct, will have at least two warnings prior to termination and an opportunity to challenge the warnings by telling his side of the story to his supervisor and then to higher authorities,” the court wrote.

Unfortunately for the employer, its decision to ignore these procedures was met with an aggressive lawsuit. The company now faces a costly trial that could result in big damages. Had it carefully drafted its handbook, these pitfalls would have been avoided.

Other employers should learn from those mistakes. All employee handbooks should be reviewed by counsel before they are implemented, and employers should plan to closely follow rules contained in them.