By Gary S. Fealk
July 29, 2010
Employee handbooks are used by employers to specify their guidelines, expectations and procedures for employees. A well-drafted employee handbook can provide useful information to employees and can help reduce an employer’s potential liability and protect its rights. One of the cornerstones of a well-drafted employee handbook is a disclaimer clause that states that the handbook is not a contract, and that the employer reserves the right to change or modify its policies at any time. This common, and recommended, disclaimer clause means that certain issues that the employer does want to be addressed contractually should be addressed in separate contracts with employees.
About 20 years ago, many pre-dispute arbitration policies were contained in employment handbooks. Many courts determined that employees were not required to arbitrate claims unless the parties had a binding arbitration agreement, and that an employment handbook containing a contract disclaimer did not constitute a binding arbitration agreement. For this reason, if an employer desires to require employees to arbitrate employment disputes, it should specify which disputes are subject to arbitration and the arbitration procedure in a separate arbitration agreement. This agreement should be presented to and signed by the employees that it applies to.
Another issue that should be addressed in a separate agreement is a limitation on statutes of limitations for certain claims. For example, some states permit a reasonable pre-dispute agreement to shorten the statute of limitations. If you are operating in a state that has a three-year limitation on discrimination claims, you may be able to shorten that statute of limitations by agreement. State laws vary on the degree to which the parties can agree to shorten a statute of limitations and the Equal Employment Opportunity Commission will not recognize attempts to limit its jurisdiction.
Covenants Not to Compete, and the protection of trade secrets and confidential information should also be addressed in an agreement that is separate from the employment handbook. Such an agreement should specify the confidential information that is protected from disclosure, the remedies available (e.g., that an injunction may be sought in court, as well as damages), and clearly define what constitutes confidential information or trade secrets. Covenants Not to Compete should be selectively presented to employees and specifically tailored to address a reasonably protectable business interest. Also, to be enforceable, such agreements and must be reasonable in terms of geographic coverage and length or time. Sales, engineering and executive management employees often can be subject to enforceable restrictions on future competitive employment. Covenants Not to Compete are not one size fits all documents – they should be carefully crafted to address the Company’s reasonable competitive interests with regard to specific classes of employees.
Another item that you may want to address in a separate document (not in an employment handbook) is the issue of sales commissions. Many states have default rules for determining when commissions are payable (e.g. upon shipment, upon payment), when the company does not have a written sales commission plan. For example, when a salesperson leaves a company he or she may be entitled to commissions after he or she leaves employment based on blanket purchase orders placed while he or she was employed, unless your plan specifies otherwise. As a result, you should put your sales commission policies in writing. Don’t attempt to address sales commissions in a handbook because most employees don’t get sales commission, and because you may want different plans for different types of salespeople. It is a good idea to provide employees who are eligible for sales commissions with sales commission plans, and have them sign those plans to indicate their agreement.
The bottom line is that employment handbooks are necessary and useful tools for informing employees of general employment policies and to protect the company against potential liability. However, some issues are better addressed outside of the employment handbook. This includes any item that you which to be a binding contract and items that are limited to a narrow group of employees.
Gary S. Fealk, a shareholder at Vercruysse Murray & Calzone, P.C. in Bingham Farms, Mich., represents employers in all areas of labor and employment litigation. Fealk can be reached by e-mail at gfealk@vmclaw.com.