Human Resources Management
 

Reducing Legal Risks with Employee Handbooks

Employers can protect themselves through implementing and updating employee handbooks with risk-reducing language and policies.

By Phillip M. Perry
May 2025
 

Employee handbooks communicate policies, polish a law firm’s image and promote staff morale. Common errors in wording, though, can create unintended contractual relationships that result in costly legal battles. Firms need to strike a balance between advancing staff-friendly practices and retaining managerial flexibility.

A Wisconsin organization thought it was doing the right thing by having employees sign documents attesting they had “read, understood and agreed to abide by” the terms and conditions of their employee handbook. What seemed an innocent and even prudent requirement, though, later backfired when a terminated staff member sued for wrongful discharge. The court determined that the agreement “to abide by” the handbook’s terms was in effect a valid “consideration,” by which a contract of employment was created.

Upshot: The employee had escaped so-called “employment at will” status and could proceed with the lawsuit.

“You can be an employer at will in most states, but you can overcome it by creating a contract of employment,” says Bob Gregg, of the Employment Practice Law Group at Boardman & Clark LLP. “When distributing handbooks to employees, it’s best to confine any signed disclaimer to a statement that the individual has read the handbook and understands its terms and also understands that nothing in the handbook alters the employment at will status.”

Promise and Peril

The Wisconsin lawsuit is just one example of a larger problem: While employee handbooks provide important benefits in terms of employee morale and motivation, they can also elevate risks when firms inadvertently cross legal boundaries. “Handbooks are a double-edged sword,” says Ronald Adler, President of Laurdan Associates Inc., an HR consulting firm. “They can create both opportunities and liabilities.”

Adding fuel to the fire is a fundamental shift underway in the purpose and practice of the typical handbook. “Employee handbooks are no longer just listings of work rules,” says Adler. “A growing number of organizations are using them to describe strategic objectives.”

Ambitious statements about a firm’s progressive culture, though, risk overpromising in terms of the organization’s staff relationships. “Employee handbooks that are misaligned, improperly drafted or ineffectively implemented can have negative consequences,” says Adler.

“Handbooks are a double-edged sword ... They can create both opportunities and liabilities.”

Protecting the Employer

While firms of all sizes need to be careful of the statements they include in their handbooks, the converse is also true: Well-written handbooks can help protect employers from legal liability. And one characteristic of a good handbook is the inclusion of procedures employees should follow when they encounter workplace problems.

“The handbook should describe processes that employees can use to express concerns about employment practices that affect them,” says Peter Cassat, Partner at CM Law PLLC. “Because employers must have had knowledge of an alleged incident to be liable for violation of the law, they can often defend themselves by noting that employees filing suit did not avail themselves of reporting avenues as outlined in the manual.”

Attorneys also advise including the following:

Overtime policies

Failing to pay properly for overtime can carry serious financial consequences. However, the Fair Labor Standards Act (FLSA) has created a “safe harbor” from liability for unpaid overtime when employers have instituted adequate procedures that grant employees opportunities to request wage corrections.

“When an overtime issue arises, administrative agencies such as the Wage and Hour Division of the U.S. Department of Labor will ask to see a copy of the employee handbook,” says Jean E. Novak, Chair of the Employment Group at Strassburger McKenna Gutnick & Gefsky. “They look for adequate notice to employees about reporting procedures.”

Employment attorneys suggest organizations include a statement such as this in their handbooks: “If you think we've made a mistake, bring it to our attention. We want to know and will correct any error.”

The FLSA safe harbor protection will only work, though, if the employer has taken pains to follow the law. “If the organization knew employees were working off the clock and did nothing about it, or they weren't enforcing their stated policies, it won't make a difference,” cautions Hunter K. Yoches, an Associate in employment law at Bass, Berry & Sims.

One characteristic of a good handbook is the inclusion of procedures employees should follow when they encounter workplace problems.

Email policies

“Employment manuals should make clear that employees do not have an expectation of privacy in their electronic communications over their employer’s network,” says Cassat. This policy applies to more than just email. Modern workplace communications include a host of electronic transmissions, such as text messages, Zoom video calls and social media posts. All transmissions can be both transcribed and searched and are potentially discoverable in employment disputes.

“The handbook should state that all communications become the property of the employer,” says Gregg. “That is in effect fair warning that everything an employee communicates may be viewed, even if the individual deletes it.”

Drug policies

“Employers want their employees to show up, be ready and able to work — and not be impaired by drugs or alcohol,” says Novak. “And that expectation should be included in the handbook.”

The handbook may also include a statement to the effect that employees will not be penalized for seeking help by accessing the services of the Employee Assistance Program (EAP) or other resources, and that time off will be provided for rehab. This may be balanced by a statement that the firm may terminate addicted employees who do not utilize available resources.

Medical privacy

The handbook should affirm compliance with the Genetic Information Nondiscrimination Act (GINA). That legislation prohibits the collection of an employee’s genetic or family medical history. As with overtime, this will help provide a “safe harbor” against lawsuits for alleged discrimination occurring because of such information.

Gregg adds that employers should inform medical providers they do not want to be given information about the medical history of an employee’s family. And general terms should be used when physicians communicate employee-related medical topics. For example, rather than state that an employee is absent from work because of a heart condition common to their family, the doctor should use a general term such as “serious medical condition.”

Holding Back

Some well-intentioned handbook statements can come back to bite the unwary employer. Attorneys suggest leaving out the following:

Progressive discipline statements

Many firms rightly take pride in enlightened progressive discipline policies to correct wayward behavior. Even so, there is a risk of getting locked into set procedures.

“Rigid progressive discipline policies can backfire because they seem to be guarantees,” says Gregg. “Employers may end up being bound by them.” When egregious misconduct occurs, employers may feel constrained from seeking to terminate employment immediately. “It’s better that the handbook state(s) the firm has discretion to decide the level of discipline at any time and can terminate employment at its discretion,” he explains.

Gregg adds it can be helpful to provide fair warning by listing a few things that can get people fired. “You can't list everything, but you can include major ones such as dishonesty, theft and harassment,” he says.

Absentee verification policies

“It can be important to include attendance policies that describe how to call in sick and what steps to take to authorize an absence,” says Gregg. Trouble can arise, though, when an employer defines verification time frames.

Suppose a handbook states that the firm may require medical verification for any absence longer than three days. That’s exactly the kind of thing that can create an unintentional contract, notes Gregg. Suppose the same firm later fires an employee for calling in sick for two days because the employee was discovered to have actually been out playing golf. The employee has a defense against termination because the firm had given up its right to require verification for a three-day period.

Too much detail in general

When in doubt, omit detail. “Employment policies should allow for flexibility where appropriate,” says Cassat. “Otherwise, employers might be accused of failing to follow their own directives. That can make it more difficult to rely on them as a basis for disciplinary action.”

Paper or digital, the employee handbook is a living, breathing document that can enhance the working environment in the eyes of a firm’s personnel. Doing without one, despite the requisite hassles, is a mistake.

Here’s an example: An employee handbook states that people may never drink in the workplace. Then, the employer sponsors a workplace event during which alcohol is served. This gives an employee who drinks on the job a defense against termination since the employer broke its stated policies.

Employers should also avoid the temptation of including morale-boosting statements such as, “Our policy is to promote from within,” or, “We know you will enjoy your long-term employment.” Such well-intentioned statements may be advanced as evidence later by disgruntled employees who consider them contractual.

Annual Reviews

Adopting a compliant employee handbook can be a daunting task, particularly for smaller firms. The legal landscape is becoming more complex as federal agencies issue a continuing round of new regulations that tighten the employer-staff dynamic.

State governments are also getting into the act, making the challenge greater. “California and New York are no longer the only states playing in the field of employment law,” says Yoches. “Every year, more states are mandating new obligations. Employers need to get in line with those laws or face legal exposure.”

Law firms should ensure they remain up to date by going through their handbooks at least once a year. “While most employment laws and principles stay pretty much the same, regular tweaks occur,” says Gregg. “For example, the Pregnant Workers Fairness Act (PWFA) is a recent law that expands reasonable accommodation requirements and necessitates policy changes.”

Computers can help. “Many organizations are moving toward digitization,” says Cassat. That makes text updates easier. Employee attestation also becomes easier without the need to maintain physical files of paper signatures. “However, many people still like the feel of physical handbooks,” notes Cassat. “So, I think there's a place for both.”

Paper or digital, the employee handbook is a living, breathing document that can enhance the working environment in the eyes of a firm’s personnel. Doing without one, despite the requisite hassles, is a mistake. “A well-written handbook can be a hugely valuable tool,” says Cassat. “It can articulate the law firm’s mission, unite employees behind a common purpose and detail how the organization operates in compliance with the law.”

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