A recent Massachusetts court ruling, Buttrick v. Intercity Alarms, LLC, 2009 WL 1744000 (Mass. App. Div. June 17, 2009), highlights the peril that an employment manual may present to an employer. While the general rule is that employment is "at-will"-that is, either the employer or the employee can terminate the employment relationship at any time with or without cause-a terminated employee armed with an employment contract may have grounds for legal claims against his employer. Some time ago, Massachusetts opened the door to the theory that an employment manual may constitute a binding contract between employer and employee. The rule is that if the employee reasonably believes that the employment manual is a statement of conditions under which employment will continue, then the employment manual may effectively be deemed a contract, limiting the employer's discretion in matters of discipline and termination.
Buttrick illustrates how employment manuals may turn into enforceable contracts that can be used against employers. There, the terminated employee won a jury verdict on his breach of contract claim based upon the employer's failure to follow the progressive disciplinary procedure set forth in the manual. The appellate court agreed that the employment manual was effectively an implied employment contract. The employee, at the employer's insistence, had signed prior versions of the manual. He also had been asked to sign (but never did) the version of the manual in effect at the time of his termination. The fact that the manual expressly provided that the employer could unilaterally modify its terms and that it was to serve only as a guide-not as an employment contract-did not protect the employer. The critical fact, the court found, was that the employee may have reasonably regarded the manual as forming a binding set of rules and procedures. Notably, in Buttrick the employer may have insisted upon the employee signing the manual because it contained (among other things) a two-year noncompetition clause.
In light of this decision, binding agreements between employers and employees that call for employee execution, such as agreements involving confidentiality, trade secrets, noncompetition, or ownership of intellectual property rights, should be placed in one or more separate documents outside the employment manual. Employment manuals should contain only non-binding personnel guidelines (which may vary from employer to employer). Further, the employer should avoid any action that could lead the employee to reasonably regard the manual as containing legally enforceable obligations.
Thus, in order to avoid unwittingly creating contracts through their employment manuals, employers should bear in mind that the courts will look to the employee's reasonable understanding, taking into consideration the manual itself, as well as the employer's actions in implementing the manual. While disclaimers may be effective, at least to some degree, no particular wording in an employment manual will conclusively establish that the manual does not form a contract. The challenge for employers is to ensure that employees do not perceive the manual as guaranteeing employee rights or binding the employer in matters of discipline and termination. Employers should consult with legal counsel concerning the best way to draft and implement employment manuals in order to reduce legal risks.
