California Labor Code section 2922 provides: “An employment, having no specified term, may be terminated at the will of either party on notice to the other.”[1] Simple enough, right? Unless an there is an agreement that an employment relationship is going to exist for a specific period of time, the relationship is considered “at-will” and may be terminated by either the employee or employer, with or without cause, for any reason or no reason at all. Not so fast. What constitutes an agreement between an employer and employee? The answer is, many events may convert “at-will” employment relationships into “employment for a specified term” within the meaning of Section 2922.
Many employers incorrectly assume that their employment relationships are protected by provisions in employee handbooks. Unfortunately, even clearly worded disclaimers, specifically stating that all employment relationships within their company are “at-will” are often insufficient to avioid a finding that an employment contract exists. In fact, California courts have held that, notwithstanding such disclaimers, an employer’s past practices, policies, actions and communications may result in an assurance of continued employment that defeats the presumption of “at-will” employment.
Employers regularly rely on generic employee handbooks purchased from Internet sources or office supply stores. Still others believe their business is adequately protected by a handbook the employer prepared based on his or her experience over the years. A poorly drafted employee handbook may itself defeat the presumption and create an employment relationship that may be terminated only for cause.
Probationary or Introductory Period
Many employee handbooks describe a probationary or introductory period at the beginning of the employment relationship. This provision usually exists to, among other things, define when the employee is entitled to receive company sponsored benefits. Care must be taken to insure that the introductory period provision does not imply that the “at-will” relationship exists only during that period.
Disciplinary Procedures
Employee handbooks typically include descriptions of conduct and behavior that may subject an employee to discipline. These provisions often include disciplinary procedures that result in sanctions of increased severity upon repeated violations. If not well thought out and carefully prepared, an enumeration of offenses for which an employee may be disciplined, and disciplinary procedures, may well be read to imply that “at-will” employment does not exist. A poorly drafted description of disciplinary procedures can be intrepted as establishing conditions that must occur before employment may be terminated. Further, such provisions may be read as a promise that the employee relationship will not be terminated even upon an employee’s subsequent breaches of the minimum conduct standards set forth in the handbook.
The obvious question is, given the potential pitfalls, why do I need an employee handbook to begin with? There are many advantages to a well crafted employee handbook, drafted after careful consideration of your specific business and its unique needs and circumstances.
Standardize Application of Policy
The actions and communications of managers to employees have been found by courts to have created implied employment agreements. Employee handbooks provide employers the opportunity to establish policies relating to the actions and communications of their managers and supervisors and standardize the application of these policies to their employees.
Evaluation of Current Practices and Procedures
As noted above, an employer’s past practices and policies may create an implied promise of future employment. An employee handbook requires an employer to examine the existing practices of his or her company and modify them if necessary to comply with applicable state and federal laws.
Limit Litigation Exposure
Employee handbooks can not only protect the “at-will” nature of employment relationships, they can also limit an employer’s exposure in the event of litigation. Establishing a procedure for employees to follow in the event of workplace harassment, such as reporting and investigation procedures, can be beneficial in defending against employee claims of such a nature. A well drafted employee handbook containing procedures to for employees to follow in the event of workplace harassment, including a defined reporting and investigation procedure, make available the argument that the employer exercised reasonable care to prevent and correct the harassment and the complaining employee failed to take advantage of the preventative or corrective opportunities made available to him or her.
Just as industries and market conditions regularly change so does the law in the area of labor and employment on both the federal and state levels. Employers are well advised to remain current on these changes and adapt their operating policies and procedures to limit the exposure of their business investment. To this end, employee handbooks should be reviewed by legal counsel no less than annually.
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[1] Section 2922 defines “employment for a specified term” as employment for a period greater than one month.
