Employee Handbooks and Employment Agreements: Understanding the Difference

Is your handbook an employment contract? Should it be?

Many employee handbooks contain provisions intended to bind employees to certain obligations. For example, handbooks may state that employees are required to maintain the confidentiality of proprietary confidential information. They may also provide that, upon termination of employment, employees are prohibited from soliciting the company’s employees or clients for a given period of time. Some handbooks even dictate that disputes arising out of the employer-employee relationship must be submitted to arbitration. Employers often assume that these handbook provisions carry the weight of a binding contract.

But many handbooks also contain a provision explicitly stating that the handbook is not an employment agreement.  Employers include such provisions for their own protection; they do not want to be held to statements in the handbook regarding compensation, benefits, hours, etc., as if they were contractual obligations on the part of the employer.

Many employers fail to consider the impact of the handbook’s “not-a-contract“ provision on the validity of provisions they wish to be able to enforce. In other words, employers assume that they can choose to treat the handbook as a contract when it suits them, such as when they wish to keep a former employee from disclosing confidential company information, while treating it as “just a handbook” the rest of the time—including when an employee asserts a contractual right to the benefits or compensation terms detailed in the handbook.

What is the answer to this conundrum? The answer is certainly not to omit the “not-a-contract” language from the handbook. This provision is highly important. An employer whose handbook does not state that it is not a contract, and who requires the employees to sign the handbook upon receipt, may be faced with the unwelcome surprise of an employee lawsuit seeking to enforce outdated policies appearing in the handbook. This is particularly true since, unfortunately, many employers fail to update their handbooks regularly. As a result, handbooks often refer to outdated policies regarding insurance benefits, vacation time, office hours, company policies, etc. (PMP recommends updating handbooks at least every two years to help ensure that changes in internal policies and in employment law are being addressed.)

The best solution, then, is to keep the not-a-contract provision in the handbook, but move any provisions that the employer wishes to be contractually enforceable out of the handbook into a separate document. That document should be structured as an enforceable contract.  If this sounds like too much trouble, consider the fact that, for an employer who is already taking the time to provide all new hires with a copy of the handbook, there is little additional burden in also providing them with a confidentiality, nondisclosure, nonsolicitation, and/or arbitration agreement to sign at the same time. Employers who do this can have their cake and eat it, too – the protection of an enforceable contract where needed, and a handbook that serves the purpose that a handbook should:  as an informative summary of general employee policies.

For assistance with drafting enforceable confidentiality, nonsolicitation, arbitration agreements and more, do not hesitate to contact PMP. We can also help you revise and update your employee handbook. Remember, when it comes to protecting company assets and avoiding employee lawsuits, a handbook is only one tool in an employer’s toolbox.

Sign up for our fall workshop, Need-To-Know Employee Handbook Updates: Staying Compliant with Legal Changes.

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This article is intended for general information only and should not be construed as legal advice.



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