February 03, 2021

Unintended Consequences of Employee Handbooks

Take a peek at the introductory language in your Employee Handbook.  I suspect it says something about the Handbook not constituting an express or implied contract. That is what one employer’s Handbook included.  The employer also had a policy that read that it would pay out earned, unused Paid Time Off (PTO) if an employee resigned after giving at least two weeks’ notice. Does the statement in the introduction protect the employer from a breach of contract claim when it decides to not follow its policy and withhold PTO when an employee resigns after giving two weeks’ notice?

One court recently said, “No.”  Why? “[A]n employer’s offer of PTO is an element of compensation like an hourly wage or salary. Following this logic, once the employee accepts the offer of compensation by performing work for the employer, the employer cannot withdraw the offer, just like the employer cannot refuse to pay the employee the agreed-upon wage…[I]f an employee is not entitled to rely on the language of an employer’s written description of the consideration for his employment, the employer effectively is free to modify the contract retroactively by inserting compensation terms under which the employee might not have agreed to work.”

The court notes that the employer may be free to change any of its policies prospectively. But when the employee worked under the existing policy, the PTO was like wages earned and became due and payable.

Lessons learned.  A rose is a rose.  You can call your Handbook and policies non-binding contracts. Whether they are or not is another question.  Even if the employer had won, it would be a loss from an employee relations standpoint.  Honor your commitments. A deal’s a deal.  If you want to change your policy or practice, do so prospectively.  Give employees advance notice of the change. Let them know what to expect. As I often say, a surprised employee is usually not a good thing to have.  And, when you are ready to make a change, chat with your legal counsel. Some states require advance notice of a change in an employee’s rate of pay, which may or may not include paid leave accruals.

Want more tips? Check out the February 24th archived webcast, “Employee Handbooks: Read ’em and Weep?!” where we cover a top-10 list of common policies and provide a sample table of contents. $25 per person and pre-approved by HRCI & SHRM for 1.25 credits.