With another strike against employers’ rights, the Arizona Supreme Court recently decided in Demasse v. ITT Corp., 15 IER Cases (BNA) 97 (Ariz. May 25, 1999), that an employer could not unilaterally change the lay-off policy contained in its employee handbook. ITT Cannon ("ITT") had issued five editions of its employee handbook over a ten-year period. Earlier editions contained a provision that employees would be laid off in order of reverse seniority, while later editions provided that ability and job performance would be considered in a layoff. Although ITT’s handbook contained a disclaimer that reserved its right to modify its policies, the Court found that the disclaimer was not sufficiently clear and conspicuous to prevent the creation of an implied contract.
According to the Court, an implied contract is formed when a "reasonable person could conclude that both parties intended that the employer’s (or the employee’s) right to terminate the employment relationship at-will had been limited." Thus, a job security provision contained in a handbook "that an employer should reasonably have expected the employee to consider as a commitment from the employer" may constitute an offer to form an implied contract. An employee then accepts this offer by virtue of accepting employment. In this case, the lay-off provision set forth in ITT’s handbook was accepted by ITT’s employees when they agreed to work for ITT.
Importantly, the Court refused to allow ITT to later modify this "contract" by simply issuing a new handbook with a different lay-off policy. The Court set forth the necessary factors to modify a contract. To modify an implied (or express) contract there must be: (1) an offer to modify the contract; (2) assent to or acceptance of that offer; and (3) consideration. According to the Court, ITT’s issuance of a new handbook (containing a revised layoff provision) was merely an offer that could then be accepted or rejected by the employees. The continued employment of the employees, standing alone, was not sufficient to constitute "consideration" or the "acceptance" of ITT’s new offer. Before the Court would find acceptance of a modification, there must be notice of the modification to the employees, and the notice must be more than the signing of an acknowledgement of receipt of the latest handbook.
Although this case was decided under Arizona law it demonstrates the importance to employers in all states of having clear and conspicuous disclaimers in their handbooks (e.g. providing that employment is at-will and reserving an employer’s right to modify its policies and procedures). In addition, employers should continually and carefully review their existing handbooks to determine whether any modifications are necessary, and if so, ensure that employees understand the changes and agree to them.
If we can be of any assistance in answering questions about employment handbooks, or employment policies in general, please contact us by telephone or e-mail as set forth below.
The information provided herein is for general guidance on matters of interest only. While every effort has been made to ensure the information provided herein is accurate and timely, no decision should be made or action taken on the basis of information without first consulting an Epstein Becker & Green, P.C. professional.
