The Employee Handbook: the Good, the Bad, and the Absolutely Critical

Probably the last thing you need right now is a lawsuit. And if you’re really careful, avoiding a lawsuit shouldn’t be a problem. Unless you don’t have an employee handbook. Then you might be exposing your company to unnecessary risk.

When benefits are not provided and policies are not administered in a consistent manner, employers are vulnerable to claims of discrimination. They may be subject to claims relating to the violation of privacy rights when company practices take the employer beyond the point of the employee’s reasonable expectation. Other employers have answered breach of contract claims simply because they failed to provide some term or condition of employment an employee believed was promised. The reasons for these disputes stem from unclear employment relationships or policies that are not properly communicated, all of which can be easily avoided with an employee handbook.

The benefits of an employee handbook are:

  • Acts as a communication tool in which the employer may state employment expectations and consequences for not meeting those expectations. Although the employee handbook is not an employment contract and should not be viewed in that way, it is a compilation of general company policies, practices and benefits. Since employees want to know what is expected of them and what to expect if rules are not followed, it is important that these policies are communicated in writing to each employee involved.
  • Helps to enforce company policies and gives the employer a basis for employee performance and conduct counseling. Employers who have written employment policies are able to point to specific policies or practices as published in the company handbook when counseling or disciplining employees. When these policies are not in writing, it is easier for the employee to plead ignorance, which may extend the counseling period.
  • Defines the employment relationship and establishes the employment-at-will relationship. In most states, employees who are not employed by an employment agreement for a specified period of time may be terminated at will, for any reason or for no reason at all. This employment-at-will doctrine may generally only be enforced when it is communicated to the employees. One way to do this is to include employment-at-will language throughout your employee handbook, in your signed acknowledgment page and in other employment documents such as employment agreements, application forms and offer letters. While it may be desirable to establish an employment-at-will relationship with the employees, this will in no way protect the company from disputes resulting from discrimination, harassment or retaliation.
  • Allows the employer to etch out certain rights it would not otherwise have in dealing with employees and to make certain disclaimers regarding the terms and conditions of employment. Policies concerning workplace inspections, drug testing and background investigations can help to reduce an employee’s expectation for privacy in the workplace. Without policies such as these, employers may not be able to conduct such searches and investigations. In addition, disclaimers regarding possible changes in benefits forewarn the employee that benefits may change, allowing the employer to more easily make such changes than if it did not have the policy at all.
  • Proves that the employer’s policies are consistent with current employment laws and as evidence of the company’s legitimate employment practices. For example, policies regarding equal employment opportunity, harassment, overtime and leave procedures can help to show that the employer knew and abided by current employment laws.
  • Serves as a reference guide for both the employee and the employer, thereby eliminating common misunderstandings and unreasonable employment expectations.

Yet beware the inherent risks of the handbook! Several common errors made by employers include:

  • Routinely deviating from stated policies. Employers who do not adhere to their stated policies may be better off without written policies at all. Employers must stick with the stated policies or be liable for breach of contract or claims of discrimination. There may be times when an employer must deviate from a stated policy for a special circumstance. However, this should not be the intention when the policies are drafted.
  • Inconsistent application of policies. Not only must company policies be consistently applied, they must be consistently applied among like groups of employees. It is permissible to have two applications of the same policy for different groups of employees but not to apply a policy differently to employees from the same group.
  • Adoption of illegal policies. When personnel policies are not consistent with the legal requirements for that employer, it does two things:
    1. it mistakenly leads the employer to commit an illegal practice and
    2. it is proof of the employer’s illegal action.
  • Employers do not deliberately prepare illegal policies. In addition, employers may not have an employee waive his or her legal rights by agreeing to work under an employer’s illegal policy. A necessary step in the employee handbook preparation process is a thorough legal review to ensure that all policies meet legal requirements for the employer.
  • Continuation of use of outdated policies. Outdated policies are those that may have been policies of the company at one time but are now out of date and are just as dangerous as inconsistently applied policies. An annual review of company policies is important to ensure that all policies are current and valid.
  • Use of other companies’ employee handbooks. Many employers are inclined to pick and use employee handbooks prepared by other companies. This is a dangerous practice because no company is just like yours. If your company is much smaller than the company providing the handbook, the policies will hold you to a much higher standard than is required and you may not be able to adhere to the policies consistently. If your company is much larger than the company providing the handbook, the handbook may be too detailed and comprehensive in scope. The handbook, also, may be prepared for an employer from your state which would include policies that are not consistent with your state law. Finally, your state law may specifically require that you adopt policies tailored to your own business operations.
  • Overly restrictive policies. Companies that adopt overly restrictive policies may be tying their own hands and require the employer to follow a much higher than required procedure or practice. An example of an overly restrictive policy is a progressive discipline policy in which the employer promises to first give a verbal warning, then a written warning, then suspension, then probation, then termination, or some other similar format. This type of policy is detrimental for a couple of reasons:
    1. It restricts the employer’s ability to implement a more severe disciplinary action for more serious offenses
    2. It can be used as evidence that the employer is not an at-will employer and is unable to terminate employees at will.
  • Overly vague policies. Overly vague policies are of little use to employers and employees and may set up the employer for inconsistent application of the policies and subsequent claims of discrimination.
  • Overly detailed policies. Policies concerning company benefits and leave procedures, in particular, can be very complex and difficult to interpret. With the detail of insurance policies and the overlap of state and federal leave laws, these policies should be only generally summarized with management considering each case on an individual basis. When company policies are overly detailed, they run the risk of misstating or omitting important facts, resulting in an illegal practice not intended by the company.

For information on how to develop a handbook, see our article, An Employee Handbook: the 6 ’C’s.

Based upon an article by:

Van A. Thaxton, MS, is a human resources consultant in San Diego. She has over 16 years experience as a human resources consultant, helping clients prepare employee handbooks, performance appraisal programs, affirmative action plans, salary surveys, and independent contractor agreements. Ms. Thaxton is cofounder of the Associated General Contractors (AGC) Emerging Business Task Force. She is a co-author of Practitioners Publishing Company’s Guide to Personnel Management and has conducted numerous seminars and published many articles regarding successful employment practices.


CFS is not rendering legal advice. If you have questions of a legal nature, you should consult with a lawyer.