Employee Handbooks: In Arizona, Did You Know…?
A. …an employer can create an “expectation of employment” in its handbook?
The Arizona Court of Appeals has ruled that when an employee manual contains provisions that could lead to an expectation of employment on the part of the employee, this expectation can be avoided through the inclusion of a prominent disclaimer. This disclaimer should indicate that the manual is “not a statement of contractual rights” and that employment is terminable (other than for discriminatory reasons) at will by either the employer or the employee, with or without notice and with or without cause. Last year, in the Roberson v. Wal-Mart Stores, Inc. case, the Court held that the Wal-Mart employee could not have reasonably interpreted statements in the Wal-Mart employee handbook as a limitation of its right to terminate the employee’s at-will employment because Wal-Mart had, in fact, included clear disclaimers in the manual. So the employee’s breach of implied contract of employment and wrongful termination claims against Wal-Mart failed.
The Court cautioned, however, that disclaimers do not always insulate employers from liability for wrongful termination and breach of implied contract. For example, if an employer provides the employee contrary written or oral assurances during a hiring interview or a performance review, those assurances could be construed as an implied contract, altering the “at-will” relationship. The bottom line is that employers must teach their supervisors and managers never to create an expectation of employment by making oral or written promises to the employee.
B. …handbooks that imply a contractual relationship between an employer and an employee cannot be unilaterally modified by the employer?
In 1999, in a case known as Demasse v. ITT Corporation, the Supreme Court of Arizona ruled that a statement in a handbook is contractual when it “discloses a promissory intent…that the employee could reasonably conclude constitutes a commitment by the employer.”
Employers may avoid the possibility of creating contractual promises by developing an employee handbook that clearly expresses that the handbook is not a contract of employment, but is merely intended to describe the employer’s present policies and provide guidance to employees. Under this premise, the employer is free to update and modernize its handbook as needed, since the disclaimer in the handbook does not create any contractual obligations on the part of the employer.
However, if the handbook’s disclaimer is not expressed in clear language, it may create an “implied-in-fact” contract. As a result, the employer is prohibited from making unilateral modifications to the employee handbook. Because the handbook is now a legal contract, Arizona law requires that any modification of its terms must be made by mutual consent of the parties and for consideration. Consideration requires the employer to give the employee something of value, like money. Continued employment alone is not sufficient consideration to support a modification to the handbook when it is deemed to be an implied-in-fact contract.
In order for employers to avoid creating an implied-in-fact contract through the use of employee handbooks, employers could either:
(a) issue no employee handbook or manual at all; or
(b) issue an employee handbook that clearly and conspicuously expresses to the employees that the manual is not part of the employment contract and that the employee’s job is terminable at the will of the employer.
C. …Arizona’s Employment Protection Act limits wrongful termination actions?
Arizona provided protection to employers from wrongful termination lawsuits brought against them by former employees, when the Arizona Legislature passed the Employment Protection Act (EPA). The EPA limits the circumstances in which a terminated employee may sue an employer for wrongful termination to those situations involving either qualifying written contracts or an employer violating the public policy of the State.
One of the most significant changes brought by the EPA is that the Act shifted the burden from the employer to the employee to prove that a modification to the at-will relationship had occurred, creating a contract of employment. Taylor v. Graham County Chamber of Commerce was a case based on the issue of wrongful termination in violation of Arizona’s public policy. It alleged that various provisions of the personnel manual constituted a contract for employment. But the court found that the employee failed to establish that the personnel manual was a contract of employment. It held that, because of the clear and unambiguous language on the first page of the manual, which disclaimed any intent to create an expressed or implied employment contract, the defendant had established that quite satisfactorily. In addition, the company specifically reserved the right to terminate any employee at any time, with or without notice or cause. Therefore, the manual clearly confirmed the at-will status of all employees.
There is an old adage that a house is only as solid as the foundation it’s built on. Well, that’s true of handbooks as well. Be sure the foundation of your handbook is solid – that the policies, procedures, benefits and disclaimers are clearly stated and in line with the law. Provide the proper training for your managers and employees and review and update your manual at least annually. Then perhaps you won’t have to admit: “I didn’t know …”