Employment Contracts and Employee Handbooks

HNW employee handbookIs an Employee Handbook (Manual) an Enforceable Contract?

The subject of employee handbooks/manuals became a huge topic in NJ employment law around 1985 after the NJ Supreme Court held that representations made in employee handbook(s) or manual(s) can be deemed a contract and are, therefore, enforceable against (most often) the employer:

Said the court, “[w]hen an employer circulates a manual that, when fairly read, provides that certain benefits are an incident of the employment, then those articulated benefits are enforceable in accordance with the reasonable expectations of the employee(s).

What must be understood under the law is determining when an employment manual qualifies as a contract, and if so, is the contract only between the employee and the employer and not between the employer and other employees.

In determining whether a manual is enforceable, courts will look to its purpose, those employees intended to be included, its terms, the reasonable meaning of those terms, and the circumstances under which the handbook was prepared and distributed.

The Importance of Having the Manual Distributed

To be enforceable, a manual must be (or have been) distributed or generally disseminated to the relevant portion of the workforce for which it is intended to apply because it supports the position that (1) the employer intended to be bound and (2) the employee(s) were generally aware of and could have reasonably relied upon the manual’s terms.

In cases where a manual was not generally distributed, employee contract claims mostly fail because of a lack of actual reliance. One court repeated the requirement of general distribution and/or reliance upon the manual instead but decided that

“a presumption of reliance by the employee arises and the manual’s provisions become binding when the manual is distributed to the general work force, but employees neither have to read the manual, know of its existence, or rely on it to benefit from its provisions any more than employees in a plant that is unionized have to read or rely on a collective bargaining agreement to obtain its benefits.

Legally Binding Language is a Must for an Enforceable Handbook

The language of an employee handbook must be “explicit and clear” to conclude that the handbook was intended to be binding upon the employer to be enforced. Conversely, the provisions of a handbook will not be enforced if the language is such that “no one could reasonably have thought it was intended to create legally binding obligations.” As one court stated: “If the document (here the document was the handbook – remember, we are working under the rules of contract law) was intended to serve as a guarantee of employee benefit(s), it is reasonable to expect that it specifically set forth what those benefits consist of.” But if what is written is found to be too vague or indefinite to constitute a binding promise. In such a case, the employee’s claim will likely fail.

In a reported NJ case involving an employment manual, the issue involved job security provisions found in the manual. The court found the evidence supported the employee’s position to allow a jury to decide whether an enforceable (implied) contract was created.

“Just Cause” Allowing for Job Termination

An employment manual that prohibits termination except for “just cause” is intended to protect against “arbitrary discharge.”

‘Just cause’ is generally thought to be a fair, reasonable, and honest basis (together with good faith) on the part of the employer exercising the power. A discharge for ‘just cause’ is one based on facts that (1) are supported by substantial evidence and (2) are reasonably believed by the employer to be true and also (3) is not exercised in furtherance of an arbitrary, capricious, or unlawful reason.

Note that the employer’s reasonable belief of the evidence relied upon to exercise good cause does not, in fact, have to be 100% correct. In one case, a court held that “just cause” did not require that the employer be correct, only that the employer make a reasonable decision supported by credible information.

Termination Because of Economic Circumstances

Absent an express promise to the contrary, employers are generally allowed to terminate employees for economic reasons, even if the employee manual is silent or lists other grounds for termination (i.e., excessive absenteeism).

Economic reasons include job elimination. Elimination of the job itself due to legitimate economic or business reasons, and not as a bad faith pretext to arbitrarily terminate the employee is not generally a wrongful discharge but many factors come into play.

Whether an economic justification for a layoff or elimination of a job position is truly economic based or an excuse to avoid the good cause reasons imposed by a manual may force the employer to give notice and be compliant with the manual before job layoffs and/or terminations.

Employees Under an Express Employment Contract

The topic of express employment contracts is interesting when applied to employment manuals. If you are an employee covered by a collective bargaining agreement or you have signed an individual employment contract, then your contract supersedes any claims based on an employee manual. The law is very clear that the terms and conditions of the employment agreement control the relationship and generally worded manuals that govern employees without individual or collective bargaining agreements are not applicable.

What About Oral Employee Handbook Claims?

It is clear that NJ Courts will enforce company-wide policies in a written employment manual distributed to its employees, but the law is still very much undecided about orally communicated, company-wide policies. In such a case, to have a realistic chance of prevailing under an alleged oral policy, a plaintiff must show

(1) that the oral employment policy contained “an express or implied promise concerning the terms and conditions of employment”; (2) that the policy was “a definitive, established, company-wide policy”; (3) that the oral statement of policy by a supervisor constituted an “accurate representation of policy”; and (4) that the supervisor or company official was “authorized to make” the oral statements of policy.

But beware! A clear and prominent disclaimer in an employee manual can be sufficient to avoid the creation of a purported oral agreements.

Can a Verbal Promise Made to an Employee Become Enforceable?

Sometimes managers and higher-level management make promise(s) and representation(s) to their employees. A fair example is a promise that “if you work for us full-time for 6 months, you’ll get a $1,000 bonus.” But then after the employee puts in 6 months of work, the employer discontinues the incentive. The claim for the employee is promissory estoppel. Proof of promissory estoppel consists of four elements: (1) a clear and definite promise by the promisor, meaning the representation or action relied upon must be clear and definite; (2) the expectation that the promise will rely thereon; (3) actual reliance by the promisee; and (4) incurrence of definite and substantial detriment as a result of the reliance. In my example above, the employee would win his/her case.

Both promissory and equitable estoppel can be tough cases to support but the employee can win their case to avoid injustice.

Detrimental Reliance

Proof of detrimental reliance is essential to a case based on promissory estoppel. The facts and evidence must clearly demonstrate by words, actions, conduct, and other examples that the employee or prospective employee truly relied upon the promise and was economically damaged by the employer as a result. Cases like this are winnable in court before a jury but are much more difficult to prove as a matter of law before a judge.

Are Lifetime Contracts of Employment Enforceable?

An employment contract may specify a fixed term of employment but lifetime contracts of employment are tough to enforce. Agreements of this nature generally fail in the courts unless the evidence is highly persuasive and clearly proven that it was the intent of the parties to enter into such a long-term commitment. The material terms and details of the contract must be clearly and specifically set forth.

But even if all requirements are satisfied, it still appears to be the controlling case law in NJ that truly lifetime contracts will not be recognized and contingencies will be read into the contract. For example, the employer must remain in business with work available for the employee, and the employee is able and willing to do his or her work satisfactorily thereby negating any good cause defense for the discharge.

One court summarized that contracts for lifetime employment are extraordinary and will be enforced but only in the face of clear and convincing proof of a precise agreement setting forth all of the terms of the employment relationship, including the duties and responsibilities of both the employer and the employee. However, a lifetime contract that protects an employee from any termination is distinguishable from a promise to discharge only for cause. Termination for cause protects an employee only from arbitrary termination.

Have a claim as an employee or facing a demand for compensation from an employee based upon an employment handbook? Then contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing or telephone consultations if you are unable to come to our office.

Fredrick P. Niemann Esq.






Written by Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a New Jersey Employment Law Attorney

NJ Employment Law Attorney serving these New Jersey Counties:

Monmouth County, Ocean County, Essex County, Cape May County, Camden County, Mercer County, Middlesex County,
Bergen County, Morris County, Burlington County, Union County, Somerset County, Hudson County, Passaic County