Be Careful! Does Your Employee Handbook Create an Employment Contract?

The U.S. Court of Appeals for the Sixth Circuit, which covers Ohio and three neighboring states, recently ruled that the City of Decherd Police Department Policies and Procedures Manual created an employment contract between the City and its officers. Freeze v. City of Decherd. As such, the officers had a property interest in continued employment because they had a reasonable expectation that termination would be only for good cause. Even though this case addressed constitutional due process issues found only in public employment, this decision highlights — for all employers — the importance of a properly worded and constructed employee handbook.

In Freeze, the court held that the Manual contained “unequivocal” language demonstrating the City’s intent to be bound by its provisions. Specifically, the Manual stated that “discipline shall be for cause and shall follow the basic concepts of due process.” Additionally, the Manual directs “the agency to follow five steps of a progressive system when practicable.” Perhaps most importantly, the court focused on the fact that the Manual did not contain any disclaimers or other language expressing the City’s intent not to be bound or to create a contract. Instead, as the court repeatedly noted, in addressing reasons for discipline, the Manual uses mandatory language like “shall,” indicating that the City could only discipline an employee for cause.

As this decision points out, employee handbooks, which are usually intended to include advisory guidelines, can create contractual obligations if they are not carefully drafted. At a minimum, employee handbooks should contain an at-will disclaimer as well as other language expressing the employer’s intent not to create a contract.

If you are considering updating your employee handbook or you are concerned that your employee handbook may inadvertently create an employment contract, please contact Kastner Westman & Wilkins’ Tom Green.