Labor: Courts continue to find that employment manuals create contract rights

Several state supreme courts agree on the issue

Recent case law suggests once again that employers should not, and cannot, afford to take employment manuals or handbooks for granted. State after state has recognized that employers' policies may bind them in unexpected ways. In just the past 18 months, the high courts of Nevada, Utah, Mississippi, Minnesota, Alaska and Idaho have confirmed that employment manuals may be contractual.

Cabaness v. Thomas is illustrative of this continuing pitfall. In that case, a line foreman sued his supervisor and employer on an implied contract theory based upon his municipal employer power company's employee manual. In particular, the manual prohibited verbal or physical conduct that "harasses, disrupts, or interferes with another's work performance or creates an intimidating, offensive, or hostile work environment." It also declared that "behavior or conduct of a harassing or discriminating nature …which is pervasive, unwelcome, demeaning, ridiculing, derisive, coercive, or results in a hostile, abusive, or intimidating work environment constitutes harassment and shall not be tolerated."

In Cabaness, the Supreme Court of Utah recognized that it already had issued several opinions standing for the proposition that employment manuals may be contractual. It opined, too, that handbooks may create contractual rights unilaterally. The court also recognized that while the intent of a manual usually is a question for a jury to decide, in Cabaness, it could decide the issue on the basis of the language in the manual itself. In that regard, it rested its decision on the narrow language of the disclaimer in the handbook.

Employment law practitioners and human resource professionals should take heed of a number of other recent opinions. Whiting v. The University of Southern Mississippi, for example, involved tenure issues. In an opinion issued in 2011, the Supreme Court of Mississippi assumed that the University of Southern Mississippi's handbook was contractual in that context.

Similarly, in Stagg v. Vintage Place Inc., the Supreme Court of Minnesota ruled last year that violations of employment manuals are not relevant to merits determinations regarding the termination of unemployment benefits. The court's opinion, however, appears to take for granted that the progressive discipline procedure in Vintage's employee manual cited by the employee in that case is binding upon Vintage.

Intent is the question

Generally, the terms of the manual govern. Most courts that have weighed in on the subject construe the intent manifested in employment manuals when determining whether or not they confer contract rights upon employees. So while employers must continue to beware of the provisions in their manuals, the outlook is not entirely bleak; liability is avoidable via diligence and careful drafting.

For example, in Hoendemis v. Advanced Physical Therapy, the Supreme Court of Alaska found the progressive disciplinary provisions in Advanced Physical Therapy's employee handbook not to bind the employer. In another case decided in 2011, the Hoendemis court recognized that a manual may be contractual depending upon the facts; however, it found in that case that because the manual was not definitive, it was not enforceable. Similarly, in Bollinger v. Fall River Rural Electric Cooperative, Inc., the Supreme Court of Idaho found in March that the disclaimer in Fall River's handbook distributed to all employees (which Bollinger acknowledged receiving) precluded a finding that the manual created contract rights. To be enforceable, the court ruled that handbooks must "manifest an intent that they become part of the employment agreement."

Drafting is key

It may come as no surprise to seasoned employment lawyers and human resource professionals that the constitution of employment manuals is often the key to voiding contractual liability. However, what they may not realize is that claims resting upon the validity of provisions in employment manuals are almost universally recognized as viable (and sometimes taken for granted) and that courts throughout the country will scrutinize the specific provisions in handbooks and other relevant facts carefully before deciding whether or not to enforce them.

Contributing Author

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Richard Glovsky

Richard D. Glovsky is a partner and nationally recognized trial lawyer and employment law attorney with Edwards Wildman Palmer LLP. He can be reached at...

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