This article by Stuart L. Adams, Jr. appeared in the 

Louisville Computer News

December 2000

Deciding if You Need an Employee Manual

by Stuart Adams

    Your company, if it is successful, will grow beyond your individual ability to perform all the functions necessary to keep it going. At some point, you'll probably realize that you have a bunch of employees hanging around. Shortly thereafter, someone will inquire about their vacation time, maternity leave, a particular religious holiday, or something else you had not told them about in the day to day press of keeping your business running.

    Not too long after the event described above, another employee may ask you the same or a similar question. The first time you give a different answer to the same question, you'll find that all of your employees who have asked you that question have compared their notes and found you guilty of a management error. Soon, you may find yourself explaining the policy to all of your employees, one at a time, or in small groups.

Talk Around the Water Cooler

    The good news is that you may be operating in an "at-will" employment state. That means you can fire an employee without "cause," no reason being needed to fire them. This is a good thing for employers, since the only real remedy for the employee is to look for unemployment benefits. This, correspondingly, is bad news for employees.

    This, of course, is not the way you had intended to handle management issues of this type. Oh, did I mentioned that before the employees started coming to you, they were huddled in groups, on company time, debating whether your inconsistent policy was the result of favoritism for some employees, dislike of others, the onset of Alzheimer's, or simply chronic inattention to the details of running your company on a day-to-day basis?

The Cost of Not Having an Employee Manual

    Collectively, this discussion may have taken hours of your employees' time, all of which you were paying for but from none of which did you benefit. This may also have resulted in anything from hurt feelings, to some employees operating at less than peak efficiency, all the way to downright sabotage. It could also lead to a valuable employee logging on to one of those gigantic Internet job placement sites to post a resume’, hoping to find an employer with a more consistent and "fair" management style. Having already talked about how hard it is to find a good new employee and how expensive it is to simply go through the employee replacement process, you may determine this is not something you want to have happen on a periodic basis. You may find yourself defending an unemployment claim and paying a finder’s fee to an employment agency, just to get an employee back in the position vacated by your lack of a policy.

    Since it is hard enough to find good employees in the first place, and you are already too hard without having to spend extra time explaining maternity leave or accrued vacation time policy to employees, you may have stumbled upon the concept of the employee manual. The employee manual is very different from the job manual described previously. Reasonable minds can differ on whether an employee manual is an employer’s salvation or the Devil in disguise.

The Danger of Having an Employee Manual

    Years ago, I was a partner in a law firm which some of us felt had grown large enough to need an employee manual for the secretaries, clerks, bookkeepers, and receptionist. I was a proponent of an employee manual, which would set out the policy on holidays and vacation days, since this had been the cause of some unrest between employees who worked primarily for various partners. They, it seems had treated their employee’s vacation requests slightly differently. The employees, of course, did compare notes, and soon the partners nearly found themselves spending more time talking to employees and debating among themselves with regard to this issue, than they spent practicing law.

    We had one partner who was a labor lawyer and his practice was entirely devoted to employment issues. He convinced the rest of us, primarily because his insistence that an employment manual could inadvertently create an employment contract, was given credibility by virtue of the fact that his practice was solely devoted to employment issues. We were all busy, but we knew that we didn't want to create an employment contract for all of our employees at that point in the development of our new firm. We dropped the idea of an employment manual, so I can't tell you how things would have turned out if we had created one. I can tell you that we continued to spend more time than we wanted to on relatively minor employment issues.

"At Will" Employment and the Magic Manual Language

    There is no doubt that an employment manual can create an employment agreement. Relatively minor safeguards, however, should be sufficient to eliminate this possibility in "at will" employment states. There are cases where an employee has successfully used an employment manual to prove the existence of an employment contract with the employer. To combat this danger, I suggest you insert language (I prefer a statement at the beginning and another just above the employee's signature line at the end) to the effect that this manual does not create a contract; the employer may change any of the provisions of the manual from time to time without employee approval; and the employee may be terminated at will, without cause, at any time.

    There are a number of decisions in most states, which, like Kentucky, have long had an "at will" employment status by default. Courts have held that an employee manual, which outlined the conditions of employment, including a probationary period, a progressive discipline system but no "at will" disclaimer, did alter the at will default and created an employment agreement. Not all states have an at will status for employees, but in those that do, typically, the courts have held that language in an employee manual, which is similar to what I have set out above, is sufficient to defeat the argument of the employee that the manual created an employment agreement.

The Implied Employment Agreement

    When I meet with a client who claims their former employer breached an employment agreement when they discharged, disciplined or otherwise changed the conditions of their employment, I ask them to bring not only their employee manual, if they have one, but also any letter initially offering them employment, as well as any relevant memos, bulletin board notices or other material which might, when construed together, give rise to an implied employment agreement. I have found employers who have mandated employee conduct and discipline to such an extent through memos, that an argument could reasonably be made that if the employee complied with the memos, continuing employment was assured to the level of a contractual commitment.

    Oral contracts can be enforced and have been held by the courts in many cases to have altered the employment at will doctrine. As an example, in a Kentucky case, the court held that an oral agreement not to terminate an employee could be enforced. In Hammonds v. Heritage Communications, the employer's oral statement that an employee would not be fired just because her picture appeared in Playboy, was allowed to proceed to a jury to determine if an oral contract had been created.

Non-contract Contracts? Contracts by Implication

    At will employment status can be altered not only by an employment manual or other employer documents, but also by circumstances or a series of events. An implied contract can arise when an employer makes promises, such as in a letter to a prospective employee promising benefits like health insurance, stock options, or fair treatment. There is an equitable theory called promissory estoppel. Basically, this provides, in those states that recognize it and in some specific circumstances, that one party to a transaction cannot pursue or defend a particular position because:

1    the estopped party's conduct, including actions, inaction, words used or silence equate with either a representation or a concealment of a material fact; and

2    the estopped party is aware of this material fact; and

3    the other party is not aware of this material fact; and

4    the estopped party acts with expectation the other party will rely on such action; and

5    the other party relies, to his detriment, on the conduct of the estopped part.

    In other words, if you acted in a certain way, knowing you were probably fooling somebody else into thinking that something was true, even though you knew it was not true, and this was a substantial matter (such as whether or not they had health insurance provided by the employer), you are up the creek when they get sick and look to you to cover their medical bills. Don’t let your employees think they have insurance or stock options when you know you have not finalized that for them. You may find out that the court will award them such benefits, right out of your pocket.

 Other Employment Rights

     There are a multitude of other employee rights granted by federal, state and local laws, as well as by court precedents. There are statutes in many states on public policy firings. These typically say that you cannot discharge an employee because, for instance the employee filed a claim for workers' compensation benefits. There are also whistle-blower statutes which apply in certain limited circumstances. Additionally there are laws which prohibit firing or discipline if done contrary to a statute giving civil rights protection or in contravention to a union or government employee or other special circumstance situation. In those cases, a whole different set of rules may apply.

     Different states may apply different rules, so, once again, you need to run this by local employment counsel in your jurisdiction. If you do have some sort of employment agreement, you may find that it has a provision applying the laws of a different state than the one you are working in. These choice of law provisions typically are enforceable, so be careful in presuming you know what the law will be in the event of a dispute. You may be surprised.

     An employment manual can be a good way to show employment is not arbitrary. The employer should make it clear that the manual is policy only and not contractual. The magic "at will" language should be inserted at least once conspicuously in the manual, and preferably right next to the employee’s signature. When introduced to employees for the first time, it is helpful to come up with some sort of perk or benefit to go along with it, so the employees will welcome the "new era" of professionalism the employer is introducing along with the manual.

     Employers put lots of things in an employee manual. Sometimes this is good and sometimes it is not. In recent years, primarily because of litigation, matters such as e-mail policy, Internet use, sexual harassment, sexual orientation and others have crept into the manuals. Many employers like to use the manual to talk about the history, mission statement and goals of the company, although this is certainly not mandatory. Here, however, are some fairly standard things which are covered in an employee manual:

    I recommend you go through the elements of the employee manual in the first interview after hiring, as well as in an exit interview when they depart. Get their signature acknowledging they have read and discussed the manual and policies with their supervisor and keep this document in their employee file. Have your local legal counsel draft the document for you. This is not a case, because of the multitude of federal, state and local employment laws (all of which are constantly changing) where you should spend your time drafting something this important nor should you simply copy one from another company. Theirs could or should be different than yours for a very good reason. If you follow these simple rules you’ll have a better chance of surviving a walk past the water cooler.

© 2000 by Stuart Adams

    This is the 7th installment in the Author’s online book. Your comments and input would be appreciated in helping the Author make this an "organic book," which will continue to grow and adapt to change, just as any business itself must do. E-mail your comments and suggestions to the author at