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Why a Company Should Have an Employee Handbook Learning the Pros and Cons

In most states, employers are not required by law to issue an employee manual or handbook.  The decision is largely a practical matter and not a legal one.  In large part, this is due to the relative difficulty employees face in attempting to maintain lawsuits predicated on an employee manual (even a poorly drafted manual).  Accordingly, an employer generally benefits from having an employee manual because the legal risks associated with adopting a manual are far less substantial than they otherwise would be if the at-will presumption was not as difficult for employees to overcome.

This does not mean, however, that there are no legal considerations that precede, or implications that flow from, an employer’s decision to adopt an employee manual.  Once a decision to issue an employee manual has been made, certain requirements must be met.  But, as detailed below, the pros of having a properly drafted manual should outweigh the cons.  In short, there is more upside benefit to adopting a manual than downside risk.  Moreover, most of the downside risk can be contained.

1. The Pros of Having an Employee Manual

A main advantage of issuing an employee manual is establishing uniform, well defined employment policies.  Even the most novice human resource professional recognizes that the hallmark of good employee relations is standardized and consistently applied personnel policies.  In its most basic format, an employee manual defines and codifies the employer’s standards.  These defined and communicated standards allow employers, however large, to treat employees consistently on a long term basis.

Obviously, an employer need not have an employee manual to have uniform, well defined personnel policies.  In practice, however, it is the adoption of an employee handbook that creates the uniformity and definition which allows for consistent application of the employer’s policies.  Simply stated, most employers that do not have an employee manual also do not have standardized personnel policies.  Creating an employee handbook focuses an employer’s attention on adopting across-the-board standards.  Indeed, it is often the creation of a handbook that is the springboard for establishing a sophisticated (or more sophisticated) human resources function.

An employee manual is also the most convenient device for communicating established employer standards to the workforce.  As most employers recognize, there is just not enough time to orient newly hired employees to their positions and communicate all that the employees need to know.  This is particularly true given the ever growing number of forms that employers and employees must complete before the employee actually starts working.  An employee manual or handbook allows employers to encapsulate its policies in a format that is easy to disseminate to the workforce.

Once distributed (and understood), the employee manual should establish a common understanding between employer and employee regarding performance standards and workplace behavior.  Creating such a common expectation is, perhaps, the key advantage of issuing an employee manual.  Most often, it is the lack of a common expectation that causes the breakdown in employee relations.  This is certainly true for poor work performers.  Clearly, there is no excuse for a break down of expectations regarding core issues like sick leave and pay day.

Last, but not least, an advantage of a properly drafted employee manual is the prevention of employee lawsuits.  As detailed above, a manual that clearly states that it is not intended to create a contract will, in general, foreclose lawsuits for breach of the manual’s terms.  In addition to preventing common law claims (such as breach of contract), a manual can reduce the risk of employment discrimination suits.  This reduced risk is achieved by consistent application of the employee manual.  Again, employers that have employee manuals and handbooks are much more likely to apply policies in a consistent manner, regardless of an employee’s traits such as age, gender or race.

In sum, some of the main advantages of a adopting an employee manual are:

  • Establishing uniform, well-defined standards

  • Creating a vehicle for disseminating the employer’s standards

  • Establishing a common understanding and expectations regarding employer standards

  • Reducing the risk of employee lawsuits

    2. The Cons of Having an Employee Manual

    Employee manuals do have downside risks.  Some risks are management created and some are manual created.  Management-created risks exist regardless of the quality of the manual, whereas manual-created risks exist because the manual is of poorly drafted.

    a.  Management-Created Cons

    The downside risk to the standardization created by an employee manual is management inflexibility.  Many employers enforce a black letter interpretation of their employee manuals.  These employers simply ignore the fact that employee manuals cannot adequately address the infinite and ever changing issues that arise between employers and employees.  This inflexibility phenomenon is most prevalent among mid-level managers who sometimes do not see the forest for the trees.  Some of these managers forego common sense for easily applied, black letter standards.  Others fear reprisal for failing to tow the company line.

    The downside management-created risk at the opposite end of inflexibility is failure to uniformly apply the manual’s standards.  While this risk always exists, a manual creates the presumption that standards will be uniformly applied.  Nothing angers a workforce more than management’s failure to apply policies in a uniform manner.  Even more dangerous, an employer’s failure to uniformly apply its handbook policies is often the reason an employee files a discrimination claim and the manual, in these cases, will invariably be used as evidence to support the claim.  Accordingly, when an employer memorializes its policies, it must be prepared to follow them.

    b.  Manual-Created Cons

    The primary manual-created disadvantages are products of poor drafting.  An imprecise or ambiguous manual is an ineffective tool.  It confuses both management and the workforce and often creates divergent expectations between the employer and employees.  Equally troublesome is an employee manual that includes unlawful provisions.  Despite the tremendous press coverage of employer-employee relations, many manuals contain provisions that are either unlawful on their face or allow for an unlawful application.  For example, some manuals include provisions that restrict employment opportunities to disabled employees (e.g., “employees who are not physically able to perform their job will not be permitted to work”).

    Another disadvantage is incompleteness.  First, as indicated by the cases discussed above, some manuals contain a “just cause” or “discipline procedure” provision, but do not contain strong disclaimer language (i.e., “The manual is not, nor is it intended to be, a contract or a guarantee of employment, and does not change the long-standing right of either party to terminate the employment relationship at will.”).  Without this language, employees (and plaintiff’s attorneys) are more prone to believe what the manual says, irrespective of the at-will presumption.  Second, some laws, like the Family and Medical Leave Act of 1993, require that a covered employer include an FMLA policy in its manual.  Failure to do so may impact the employer’s rights under the Act.  Finally, in light of the recent Supreme Court decisions on sexual harassment, employers should ensure that their employee manuals contain effective anti-harassment policies.  Again, employers that fail to include an anti-harassment policy in their manuals may forgo possible defenses to harassment claims.

    Obviously, an inaccurate, unlawful or incomplete employee manual can spawn lawsuits.  Even a poorly drafted manual which does not support an independent cause of action may be used as evidence to support another viable claim.

    In sum, some of the main disadvantages of an employee manual are:

  • Fostering management inflexibility

  • Establishing standards to which management does not adhere

  • Engendering workforce dissatisfaction due to imprecise or incomplete language

  • Prompting or supporting employee lawsuits

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