Many employers have employee handbooks, personnel policies, or other written rules or guidelines to govern their employment policies and practices. These documents are useful because they standardize practices, reduce uncertainty, and serve as the basis for making sound employment decisions. Indeed, written employment policies or handbooks may sometimes be used by employers as a shield against claims of unlawful discrimination and harassment.
On the other hand, an employee handbook or personnel policy may sometimes be used as a sword by employees claiming the document constitutes an implied contract preventing employers from terminating their employment or taking other adverse actions against them. To deprive employee handbooks of their potential contractual effect, employers often include "contract disclaimers," i.e., language making it clear that the document does not create contractual rights for employees. Whether such contract disclaimers are effective – and what is required to make them so – depends on state law, and laws vary widely from state to state.
New South Carolina Statute on Contract Disclaimers
South Carolina recently enacted a statute regarding contract disclaimers in employee handbooks and personnel manuals. Under the new South Carolina legislation, any employee handbook, personnel manual, policy, procedure, or other document issued by the employer after June 30, 2004 will not create an express or implied contract if the document contains a conspicuous disclaimer. To be effective, the disclaimer in a handbook or personnel manual "must be in underlined capital letters on the first page of the document and signed by the employee." Disclaimers in other employment-related documents (e.g., policies or procedures) need not be signed by the employee but must meet the other requirements.
Before this law was enacted, South Carolina courts routinely refused to dismiss handbook-based contract claims before trial if the employee handbook contained mandatory language, such as the directives often found in progressive discipline, harassment, or EEO policies. The courts reasoned that the mandatory language was contractual in nature and conflicted with the disclaimer language, thus creating a jury issue as to whether the handbook was a contract. Under the new statute, South Carolina employers that include appropriate disclaimers in their handbooks may obtain a more favorable outcome when seeking to avoid liability on implied employment contract claims.
Court Decisions in Other States
Apart from South Carolina, most states addressing the handbook-as-contract issue have typically done so through the courts rather than through legislation. Although some state courts have refused to recognize employee handbooks and written personnel policies as implied contracts, courts in a majority of states have held otherwise, and the presence of an effective contract disclaimer is often crucial in those states to prevent a handbook or policy statement from creating enforceable contract rights. The courts in those states, however, have taken different approaches in determining when a disclaimer is effective. Some state handbook or policy statement. Case law in several jurisdictions, however, requires that a contract disclaimer be "clear," "unambiguous," and/or "conspicuous" to be effective, and these terms are open to wide interpretation by the courts. In general, a contract disclaimer that is signed by employees and that uses clear language, appears in a prominent place in the document (such as the first page), is in large and/or bold type, or is in all-capital letters, underlined, or the like is more likely to be considered clear, unambiguous, and conspicuous than disclaimers that simply blend in with other language in the document. Even so, a contract disclaimer may be rendered ineffective if other language in the document, or conduct by managers or supervisors, contradicts its language.
Practical Implications
Carefully drafted employee handbooks and personnel policies, coupled with clearly worded contract disclaimers, can be effective tools to avoid binding implied employment contracts. Employers should review their employee handbooks and personnel manuals to ensure that they contain an appropriate contract disclaimer and should avoid provisions that may negate the disclaimer. Employers in South Carolina should take advantage of the newly enacted law by issuing employee handbooks and personnel manuals that contain a contract disclaimer satisfying the statutory standards.
The information contained in this article is not intended as legal advice or as an opinion on specific facts. For more information about these issues, please contact the author(s) of this article or your existing firm contact. The invitation to contact the author is not to be construed as a solicitation for legal work in any jurisdiction in which the author is not admitted to practice. There will be no charge for the initial contact. Any attorney/client relationship must be confirmed in writing. You may also contact us through our Web site at www.kilpatrickstockton.com
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