Businesses are always searching for new ways to reduce liability and insulate themselves from risk, but one of the easiest and least expensive tools is often the one most frequently overlooked. Creating, promulgating, and most importantly enforcing an employee handbook is a simple and efficient way to communicate company policy and expectations to your employees and at the same time reduce your overall liability. A properly drafted and properly updated employee handbook is a multifaceted tool which comes in handy in a number of circumstances, some of which we will dive into here.

The Value of Well-Drafted Handbooks

The first circumstance we’ll discuss is one many employers will face despite their best efforts, because, as the old adage goes, anything that can go wrong will go wrong. Even the most careful and thoughtful employers get sued. Employment discrimination claims are free to file at most federal, state and local agencies, and there are almost no hurdles for disgruntled former employees who want to bring claims against their former employer. This is where a well-drafted and enforced employee handbook comes into play. One of the first things that many agencies, whether it be a FEPA [1] or department of labor, will seek is your employee handbook. While a handbook may not be required under any law, many agencies will look unfavorably upon an employer that does not have one. This is because a handbook is not only a tool to protect your company, but also a clearly defined presentation of expectations to your employees. Many state departments of labor (or their equivalents) include handbooks in their first request for information to employers following a complaint, and handbooks are the most frequently cited company documents when responding to charges of discrimination. Simply put, when drafted properly they not only provide employees with clear expectations, but they display a demeanor of compliance from your company.

Further, in certain situations, a properly drafted handbook can prevent liability entirely. In situations where an employee has brought a claim for hostile work environment-based harassment and no adverse action was taken against the employee by the employer, the employer may be able to assert what is commonly known as the Farragher-Ellerth defense [2]. This defense can assist employers in avoiding liability for the actions of errant supervisors where the employer can prove that they both exercised reasonable care to prevent and correct harassing behavior and where the employee unreasonably failed to take advantage of opportunities provided by the employer to prevent or correct this harm. One of the ways employers demonstrate their actions to prevent and correct these types of behavior is by providing evidence of their harassment prevention and response policy, the promulgation of the policy, and their efforts to enforce the policy.

In addition to widely known defenses such as the Farragher-Ellerth, protections for employers can vary by state. For example, in 2019, Tennessee amended its Healthy Workplace Act [3] (“HWA”) to cover private employers. The HWA required the Tennessee Advisory Commission on Intergovernmental Relations to “create a model policy for employers to prevent abusive conduct in the workplace.” [4] While the HWA did not create a new cause of action for employees, or require employers to adopt the policy, it did provide those who do adopt the policy with immunity “from suit for any employee’s abusive conduct that results in negligent or intentional infliction of mental anguish.” [5] While not applicable to employers outside of Tennessee, this law is a great example of the potential for liability mitigation through the use of a properly drafted and updated handbook.

Another policy which may sway your opinion on employee handbooks is commonly known as the FLSA [6] Safe Harbor policy. The FLSA governs wage and hour standards for covered employees, including the determination of which employees may be considered exempt from overtime for hours worked in excess of 40 in a week. The standard basis for employees is that they are all considered nonexempt (no matter if they are paid on a salary or hourly basis), unless one of several exemptions applies, which we will not delve into in this article. While not determinative in and of itself, one of the requirements to satisfy overtime exempt status is payment on a salary basis. Employers may not make improper deductions from an exempt employee’s pay or risk losing the exemption for that employee. However, in the case of accidental or inadvertent deductions, which would otherwise eliminate the employee’s exemption, employers may rely on the safe harbor policy defense where they can demonstrate, among other things, the existence of a clearly communicated policy prohibiting such deductions with an appropriate complaint mechanism.

Whenever we reference employee handbooks, we always mention “well-drafted.” This is not a reference as to the writing quality itself, but to the adherence to the nuances of state law which could prove detrimental to employers who don’t know the pitfalls that are out there. One of the most prominent examples is the at-will disclaimer. The at-will disclaimer is used by almost every employer in one way or another, whether that be in their offer letters, within their employee handbook, or both. By including this terminology, usually accompanied by an employee signature acknowledging the at-will nature of the relationship, an employer establishes the non-permanent nature of employment. However, some states, such as South Carolina, have passed laws requiring additional requirements to maintain this baseline.

Conclusion

A properly drafted employee handbook can be a relatively inexpensive and extremely useful tool in limiting your company’s liability. However, knowledge of which laws, regulations and/or ordinances may apply to your business at any given time is essential to drafting a proper employee handbook and avoiding potential pitfalls.

Also, as a parting note, it would be improper not to mention the shift at the National Labor Relations Board over the last few years. For those businesses with employee handbooks already in place, it may be time to assess whether your current policies would survive scrutiny from the current administration, especially those pertaining to employee discipline.

——————————–

[1] Fair Employment Practices Agency.

[2] See Burlington Indus., Inc. v. Ellerth, 524 U.S. 742, (1998); Faragher v. City of Boca Raton, 524 U.S. 775 (1998).

[3] Tenn. Code § 50-1-501 et seq.

[4] Tenn. Code § 50-1-503.

[5] Tenn. Code § 50-1-504.

[6] Fair Labor Standards Act.

[View source.]