Business Law: Why Employee Handbooks Work

By Nina L. Kaufman, Esq

True story: Two-and-a-half years after the manager of “XYZ Company” resigns, she brings a sex discrimination lawsuit, claiming the company took sides with a male employee who created a hostile work environment. All of her claims are dismissed by the court as baseless, but not before a protracted legal battle that costs the company over $100,000.00 to defend. Why? The company lacked an official grievance policy and procedure for handling these kinds of matters. As a result, the courts gave the former manager the benefit of the doubt during most of the case proceedings, which allowed the litigation to drag on.

Just like the rhyme “for the want of a nail . . . the kingdom was lost,” so too, “for the want of an employee handbook,” a company can be “lost.” You safeguard your business assets by forming a corporation (or LLC). You do the same by having the right liability insurance in place. And for any business that has employees, an employee handbook is an effective – and essential – step for protecting your company.

Employee handbooks (also called “employee manuals” and “employee policies and procedures”) provide a number of useful functions. They help set employee expectations on a wide range of employment matters from vacation time to dress code to severance pay. They also help set a tone for your corporate culture – when handled properly, they create an environment of fairness and consistency. They also help business owners (or supervising employees) save time by serving as a reference guide to decision-making and following procedures.


A Solid Handbook Foundation

Complaints about employee handbooks abound. “They’re too expensive.” “They’re too cumbersome.” “I don’t know what I’d want to put in one.” “Why do I have to be so formal with my employees? I want to set a friendly tone.” Each one of those complaints can be addressed.

To concerns about cost – consider the costs of not having one; plus there are many free/inexpensive resources (Internet, local library) to help you create your own that an attorney can later review. To concerns about length – just give some thought to the provisions you really need (entrepreneurs have been known to copy another company’s handbook without considering whether the provisions really apply to them). As to not knowing what to include – you probably already do. Most companies already have systems and policies in place, if they really thought about it. It’s just that they haven’t codified them. Finally, as to formalities, it all depends on how you handle it. Present your employees with a user-friendly, plain-English manual (don’t show up on a random Tuesday and say, “Surprise!” – let them know it’s coming), and chances are, they’ll be grateful. Many employees appreciate the structure and the guidance that an employee handbook offers. It helps them identify the boundaries of what’s acceptable and what’s not, without unknowingly running afoul of a rule.

Handbooks come in all sizes and shapes; there’s no set format you need to follow. But a good handbook will have the elements of style, substance, and standardization.

• Style. What’s the point of a document if it’s unintelligible to the audience that needs it most? None. It’s useless. Remember that it will be read by people, most (if not all) of whom have had no legal training, or who may come from diverse cultural backgrounds. Also, bigger is not necessarily better. Copying the detailed and persnickety employee handbook from a Fortune 500 aerospace company will not likely serve the interests of your 30-person construction company. And while it’s hard to get away from all legalese, your employees and managers (perhaps that’s you) do need to understand how to act without hiring a translator. Here’s a good test: do the managers who need to implement your policies r-e-a-l-l-y comprehend what they say? Do they have a clear understanding of what needs to be enforced and how? If not, work on the language so that all interpretations are clear and consistent. Adding something as basic as a table of contents can help people find the right provisions quickly.

• Substance. How much should you include? How much is too much? How much is too little? Again, a “kitchen sink” approach to content may not serve you well. But erring on the side of brevity can leave your company exposed (sort of like the perennial debates about women’s dress hemlines). Find a balance that makes you comfortable. There are certain basics that you’ll want to include: work hours, compensation and benefits (like health care, paid time off, etc.), smoking and substance abuse policies, use and misuse of company equipment (telephones, computer, email, Internet), handling company and client confidentiality, expense reimbursements, performance reviews, grievance procedures, safety and accident rules, and non-discrimination/harassment policies. Beyond that depends on the nature and industry of your business.

• Standardization. It’s said that the best time to have an employment manual is “before you have your first employee.” Why? One of the ways that a company gets into trouble with its employees is when it goes through explosive growth without planning for it. A company may feel the urge to be generous at the outset. But generosity has its price. So the company decides to be a little less generous with its next crop of hires – after all, that’s good financial sense, and it’s in a growth spurt, right? Add this to the mix: the first group of employees were white, male college grads; the second, African-American women in their mid-40s . . . who find out while chatting “at the water cooler” that they’re receiving fewer benefits for the same work. Can you spell l-a-w-s-u-i-t? Enforcing company policies fairly and consistently is another reason that your employee handbook needs to be abundantly clear to your “enforcers.” If they have to rely on their own interpretations for when to apply policies or not, they could run into trouble for doing so selectively. For example, reprimanding Jennifer for wasting company time and equipment by planning her wedding on MyBridalRegistry.com, while giving Bryan the “nudge- nudge, wink, wink” while perusing YoungHotTeens.com, can land you in hot water.

Legal Language

While a handbook serves as a series of employee guidelines, let’s not forget that it is also a legal document that can have legal implications. Simply put, there are some sections of the handbook that will have to be a little more “legalistic” than others. This includes the language regarding disclaimers (as in “this handbook is not a contract of employment”), the company’s right to change its terms (“[Company] reserves the right to amend and/or modify these policies at any time”), and the request that employees sign a form stating that they have received and reviewed the handbook (an “employee acknowledgement”).

Especially if you have drafted the basic handbook yourself, make sure your attorney reviews it before you distribute it to your employees. She or he will ensure that the wording complies with the law and protects your company. A little tweaking in the language can go a long way to preventing a potential employee relations disaster.

© 2004-2009 The Legal Edge LLC. Nina L. Kaufman, Esq. is an award-winning business attorney, author, and speaker. Under her Ask The Business Lawyer umbrella, Nina offers easy-to-understand business law resources that protect small businesses and save them money. To learn more, and receive our FREE "LexAppeal" ezine, visit http://www.GreatBusinessLawTips.com  or contact Contact Us. This article is for your general information only. Be sure to consult with an attorney regarding your particular situation to make sure you get the specific advice you need.

Nina Kaufman, Esq. Award Winning Business Lawyer, Author & Speaker