Avoid Handbook Headaches

FOR MONROE HAMLIN, the outlook was rosy.

His waste hauling firm was busily keeping up with more and more contracts from businesses and government. His financial picture was solid enough for him to buy two new packer trucks. While most companies in the surrounding area were announcing lay-offs, his payroll had increased by 20 percent in two years. Last but not least, he was on the verge of growing his collection business by opening a materials recovery facility (MRF) across the river, in the next state.

Several months ago, he sat down with his lawyer to talk about the changes he would need to make as a result of his expanded workforce and operating area. One of the items they discussed was the company's employee handbook.

Of course, the material relating to the background of the company and its key officers did not need to be changed. Neither did the guidelines on employee conduct and appearance. But other matters were more complicated. For one thing, the employee benefit provisions needed to be tailored to the requirements of the state where the MRF was located. Easy enough, thought Hamlin: The lawyer can write a new manual that would be broad enough to cover employees in both states. Not so easy, responded the lawyer.

Laws vary from state to state on how an employer can modify an employee handbook. A one-size-fits-all manual for employees who work in different states may affect some employees but not all of them.

For instance, if a company wanted to introduce a less generous formula for the accrual of vacation leave or for sales commissions, typically it would notify each employee of the change and the effective date. But what if an employee were unhappy with the change, yet remained silent and continued to work under the new rules for several months before quitting? If, under the employee handbook, unused vacation time is compensable at termination, could he insist on the more generous formula? Could a salesman who had been fired sue for the difference between the commissions earned under the old system versus the terms in the revised handbook? The answers usually depend on where the employee works.

Most states treat benefit provisions in employee handbooks as unilateral contracts, involving legal principles applicable to at-will employment relationships.

This approach is well-illustrated in a ruling from the Arizona Supreme Court:

“At-will employment contracts are unilateral and typically start with an employer's offer of a wage in exchange for work performed; subsequent performance by the employee provides consideration to create the contract. Thus, before performance is rendered, the offer can be modified by the employer's unilateral withdrawal of the old offer and the substitution of a new one: The employer makes a new offer with different terms and the employee again accepts the new offer by performance.”

Under this theory, changes in employment policies are not a violation of the policy, but rather an offer for a new contract. An employee who stays on the job after the change goes into effect is considered to have accepted the new contract.

On the other hand, employers in Illinois may modify employee benefits, but if a worker objects, the employer may fire the employee or keep him under the old terms. Meanwhile, Florida courts do not recognize staying on the job as acquiescence in a modification.

Before tinkering with an employee handbook, be sure to get advice from an attorney who knows employment law in the areas where your company does business or is looking to do business.