Compass Newsletter - Articles

The Employee Handbook: Why Every Employer Should Have One

By Michael C. Peterson
(Winter 2010)

Almost every employer has policies governing the fundamental aspects of its relationship with employees, such as wage and hour issues, work rules, and discipline. While an employer may formally express some policies in writing, other policies may simply stem from historical practice.

As this article explains, every employer should create and maintain formal, written employment policies in the form of an employee handbook. In fact, an employee handbook is one of the most important employment records an employer can maintain.

  1. Reasons to Have an Employee Handbook

    Why is an employee handbook so important? Consider some of these reasons:

    1. Communication

      Employee handbooks provide an excellent opportunity for employers to introduce themselves to new employees and to inform them of workplace expectations.

    2. Legal Compliance

      Some laws require employers to maintain specific written policies. The federal Family Medical Leave Act, for example, requires employers to maintain written policies that inform employees of rights under the act. Some federal contractors may be required to maintain written affirmative action and drug-free workplace policies.

    3. Limitation of Liability

      One of the most important reasons to create and maintain employee handbooks is to limit potential liability from employees based on assertions of entitlement to employment, discrimination, harassment, or other theories.

      An employer can use its handbook to reiterate the "at-will" nature of employment. Such at-will disclaimers preserve employers' discretion to terminate employees. Handbooks are also an excellent place to explain policies against discrimination. Employers who have an effective, published policy against harassment with a detailed complaint and investigation procedure will have a defense to certain claims when the complainant fails to invoke the procedure.

      Further, employee handbooks can also be evidence in litigation. When the practices or procedures of the employer are at issue in litigation, formal written policies may be offered as evidence of the employer's standard of conduct.

      Finally, employee handbooks can limit the likelihood of lawsuits in the first place by helping to ensure fair treatment. Employees who believe they were treated unfairly are likely to consult with an attorney about possible legal claims. When employees are disciplined according to published, written policies that are uniformly enforced, they are less likely to conclude that they were treated unfairly and to pursue a legal claim.

  2. What Should an Employee Handbook Cover?

    So what policies should an employer write into its handbook? While it is not possible to cover every area that a specific employer’s handbook should cover, some universally important areas include:

    1. At-Will Disclaimers

      At-will disclaimers unambiguously state that the employer may fire employees at any time for any lawful reason. When drafted carefully and placed strategically in an employee handbook, disclaimers help employers preserve the at-will employment relationship.

      The handbook’s introductory section should contain a disclaimer stating that nothing in the manual may be construed as promising employment for a specific duration and that both the employer and the employee may terminate their relationship at any time for any lawful reason. The disclaimer should also state that no employment agreement for a specific duration shall have effect unless written and signed by both the employer and the employee.

      At-will disclaimers should also appear in any progressive, multi-step discipline policy. The disclaimer should indicate that the progressive discipline policy is only a guideline and that the employer may summarily discharge employees when deemed appropriate.

      Perhaps the most important place for an at-will disclaimer is the signed employee acknowledgment at the end of the handbook. The acknowledgment requires employees to sign a statement indicating that they received the handbook and understand its provisions. The acknowledgment should repeat that the employer may fire employees at any time for any lawful reason.

      Finally, employers should consider eliminating “probationary periods.” Some courts have concluded employees who survive probationary periods can be fired only for cause. If such a period is necessary to distinguish between employees who are entitled to benefits and those who are not, employers can convey that information in benefit policies without setting up a probationary period.

    2. Equal Employment Opportunity Statements

      Employers should state clearly that they will provide equal employment opportunity without regard to race, color, sex, age, disability, religion, national origin, marital status, or any other class status protected under federal, state, or local law. This policy communicates a commitment to refrain from discrimination. It reminds all employees that discrimination is not allowed can be evidence in the event of a discrimination claim.

    3. Paid Leave Policies

      Many employers provide paid time off to employees for vacation or illness. There is no legal requirement that employers provide paid leave. Consequently, employers have discretion to determine how much paid leave, if any, to provide. It is important to have paid leave policies that clearly define (1) which employees are entitled to paid leave; (2) how paid leave accrues; (3) whether leave can be carried over from year to year; (4) how employees should give notice of the intent to use paid leave; and (5) whether accrued and unused paid leave is paid to employees on termination. Employers who do not clearly set forth these elements may find themselves defending wage claims from former employees.

    4. Family Medical Leave

      Employers who have 25 or more employees are subject to Oregon’s Family Leave Act. Employers who have 50 or more employees are also subject to the Federal Family Medical Leave Act. Both statutes require employers to provide unpaid leave to employees for issues relating to medical conditions and military deployments.

      The requirements of the statutes are fairly complex and should be clearly communicated in a written policy. In fact, employers subject to the federal Family Medical Leave Act that have any written employment policies are required to also have a written family medical leave policy.

    5. Policy Against Harassment

      Workplace harassment can be a significant source of liability. Employers can mitigate the risk by clearly stating their policy against harassment. Good harassment policies not only prohibit harassment based on protected class status but also prohibit harassment of any type.

      The most important feature of any harassment policy is a complaint mechanism that specifically designates a primary and secondary person to receive complaints. Harassment policies with a clear complaint process can eliminate employer liability for certain types of harassment.

  3. Implementing and Maintaining Employee Handbooks

    Simply having a well-drafted handbook will not prove much benefit to an employer unless it ensures its employees read and understand the document and that policies are followed and kept current.

    Employers should introduce written employment policies with some fanfare. Holding a special staff meeting to provide an overview of a new handbook is an excellent idea. During the meeting, management should provide an overview of each new policy and explain how the new policies differ from previous ones. (While employers are generally free to change policies, they must be particularly careful not to destroy accrued benefits.) Employees should be encouraged to ask questions, and management should make every possible effort to answer them.

    At the end of the meeting, management should give every employee a copy of the handbook and explain that they are expected to read the entire handbook and return with questions if they arise. Management should also document that the meeting took place and the general subject matter covered. After a reasonable amount of time, management should collect employee signatures on the employee acknowledgments and place them in the respective personnel files.

    It is crucial that employers maintain and follow the policies set forth in their employee handbooks and require their employees do so as well. The significant benefits that flow from effective written policies disappear when policies are ignored. The communicative value of the handbook is lost. When not followed, the handbook also lacks any evidentiary value as proof of standard practices. Worse yet, important policies like a policy against harassment may be deemed ineffective by a court, which could result in staggering liability.

    Employers should also keep handbooks current. Employers can adopt new written policies as needed without completely rewriting handbooks. Individual policies can be explained and implemented. As with the complete handbook, however, employers should insist employees sign acknowledgments for individual policies. Once implemented, new policies should be kept with the existing handbook. If several individual policies are implemented over time, complete revision of the handbook may become necessary.


While an effective employee handbook may take time and effort to draft, implement, and maintain, the process is one that no employer can afford to skip.