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Employee Handbooks and Contracts: The Ounce of Prevention Worth Pounds of Cure.

New civic and infrastructure projects have spurred secondary private investment, further reinforcing the current swell of economic development. While the economy is starting to regain its former stability and construction demand is picking up, employers see the opportunity for business expansion. For those who are willing to grow, it is the perfect time to invest in the systems that will protect your business now and for years to come.

While often overlooked, Employee Handbooks and Employment Contracts are the first line of defense for any employer, often working in tandem to provide the best protection. In the past, some employers have tried to cut corners by implying that the handbook is part of, or is the entire employment contract. However, this practice is potentially as dangerous to employers as having no written contracts at all. It is important to understand how both of these documents work, and more importantly, how they work to protect you.

Employment Contracts:

A common misconception is that an employment contract that is not committed to writing will be treated as an “at will” contract. This is a very dangerous misconception. Oral contracts are usually just as enforceable as written contracts. Unfortunately, though, they suffer from the human conditions of forgetfulness, misunderstanding, and mistake. When an employee becomes disgruntled, an old oral contract could present an opportunity for the employee to dishonestly challenge less favorable terms.

Employers are protected by clarity and certainty of documentation. Therefore, it must be made absolutely clear within the Employee Handbook that the Handbook should NOT be considered as part of the Employment Contract. In an employment dispute, an unscrupulous ex-employee could use a poorly drafted handbook to add unintended terms to the employment contract, bolstering an allegation against the employer. Proactive employers should seek to have very distinct and limited employment contracts drafted by counsel.

Even basic written “at will” contracts offer important benefits to both employer and employee. The first and foremost advantage of an “at will” contact is simplicity. Under a well written “at will” contract, an employee can be terminated “at any time, for any legal reason or for no reason at all.” An employer is protected by reserving the right to terminate the employment relationship at its discretion, and without notice, so long as the termination is not based on race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, marital status, sex, age, sexual orientation or other legally protected categories. This allows any business the ability to expand or contract its size as needed, with confidence that the business will not later be pursued by an ex-employee.

Second, written “at will” contracts provide an opportunity for both employer and employee to memorialize an arbitration clause in the contract. Arbitration is an indispensable money saving tool. By having employment disputes heard before a neutral third party, employers avoid the expenses associated with formal litigation and overly sympathetic jurors.

Be wary though, arbitration clauses need to be carefully drafted by an attorney. While courts are friendly to the idea of arbitration to relieve a backlogged civil docket, courts are also quick to strike an ambiguous or contextually inappropriate arbitration clause that might unfairly advantage an employer. Legal counsel will need to draft this part of the contract to meet the legal requirements appropriate for the employment context. This is the point where an investment in a couple hours of attorney drafting can save an employer from hours upon hours of stressful and expensive litigation.

Employee Handbooks:

Employee handbooks are one of the least expensive, most valuable, and easiest ways to train a new employee about your business. Handbooks also serve as the best resource guide for all employees who have questions about your business practices or how they can seek help. In essence, a well written handbook can serve as the policy bedrock of the HR component of your business.

Handbooks are a great way to describe the nuts and bolts of employment issues, including pay periods, meal periods and internal conflict resolution. Please notice the distinction, that a good handbook describes how an employee should act within the business or describes what the business provided to the employee, while the employment contract describes what is required from both parties.

A proper handbook will have an “Acknowledgment of Receipt” section that will be signed by the employee receiving the handbook and returned to the employer after review. From counsel’s perspective, this is the best written record that an employee has been informed, trained, and knows where to learn about all topics covered in the handbook. In the event of an employment dispute, the Handbook and the Acknowledgment of Receipt are powerful records to refute allegations based on a lack of supervision, training, or access.

Additionally, handbooks do a good job of introducing staff to California Labor and Employment Law. A prudent handbook is drafted to ensure that the employer’s practices are in compliance with all labor laws. A great handbook is written not only to describe compliance but to also steer employers away from potentially dangerous business practices. For example, employee “progressive discipline” programs, such as a set number of warnings, write ups, and suspensions before a termination can occur, raise a presumed exception to an “at will” employment contract. The presumption that an employee is entitled to progressive discipline before termination, creates grounds for an employee to raise a “wrongful termination” or “retaliation” action if the discipline procedures are not properly followed before termination. A great handbook will describe only that an employee can be disciplined, but does not open the employer up to further liability for failing to follow a set procedure.

Finally, handbooks provide a critical mechanism for updating your staff on changes to California and federal labor law. As labor laws and regulations are subject to change, handbook updates are occasionally needed. Those updates provide a condensed and readable interpretation of new laws, helpful to employees and management alike. Management and employees can both use this resource as needed to quickly and cheaply resolve internal disputes, which all too often is the rookery of litigation.

Conclusion:

Prevention is the ultimate advantage of well drafted Employee Handbooks and Employment Contracts. If you have not already acted to educate your work force or define the terms of your employees’ employment, you are not properly protecting yourself or your business from burdensome legal risk and financial loss. Employee retaliation lawsuits are easy to start but costly to defend. All that is generally required is an attorney willing to take the case. However, an attorney is less likely to risk their time or professional reputation on frivolous complaints rendered baseless and subject to arbitration by professionally drafted contracts and handbooks. It is simply easier for the attorney to find an employer would has not invested in such protections and is more vulnerable to successful claims. Well crafted employee contracts and handbooks are your best first line of defense in preventing employee lawsuits.

Article by Timothy Scully, Esq. Mr. Scully is a Junior Associate attorney with Porter Law Group, Inc. His practice is concentrated in the areas of corporate management, company formation, and construction litigation. For more information, please email him at: tscully@porterlaw.com or call (916) 381-7868.