Ralph F. Abbott, Jr., Editor; Susan G. Fentin and Marylou V. Fabbo, Associate Editor
Skoler, Abbott, & Presser

Vol. 18, No. 11
February 2008

EMPLOYMENT CONTRACT

Incentives for careful handbook drafting

Kimberly A. Klimczuk

Employers typically don't think of their employee handbooks as binding contracts, but employees ― and courts ― sometimes do. The following case demonstrates the importance of ensuring that your employee handbook contains clear disclaimer language. Read on.

The case of the very healthy employee

Robert LeMaitre worked as an engineer for the Massachusetts Turnpike Authority from February 9, 1975, until his retirement in November 2002. In his nearly 28 years of employment with the Authority, LeMaitre took only 14.5 days of sick leave. He took only 1.5 days of sick leave between 1975 and 1997.

Throughout LeMaitre's employment, the Authority offered an incentive program to encourage employees to limit their use of sick time. The program included a medical coverage provision and a cash payment provision, which provided additional compensation to employees based on a percentage of the value of their accrued, unused sick leave.

When LeMaitre began his employment with the Authority in 1975, the medical coverage provision stated that upon an employee's retirement, the Authority would place 25 percent of the value of the employee's accrued sick leave into an escrow account. That account would then be used to help pay for the employee's retiree health insurance premiums. In 1978 or 1979, that benefit was increased to 50 percent of the accrued sick leave value, and the benefit stayed at 50 percent until the elimination of the medical benefit in 1996.

The cash payment provision entitled employees to a lump-sum cash payment of a portion of their accrued, unused sick leave that would be paid upon retirement. From the institution of the cash payment benefit in 1979 until 1996, employees received 50 percent of their accrued leave. In 1996, the Authority reduced the benefit to 20 percent of accrued "leave," which the authority didn't define.

The golden years

By the time LeMaitre retired in 2002, he had accumulated 403 days of sick leave. The majority of his sick leave was accumulated between 1975 and 1997, when the medical payment and cash payment provisions offered their highest rates of contribution. When he retired, however, the Authority didn't provide him with any medical coverage benefit, and cash payout for sick leave covered only 20 percent of his accrued vacation leave. The Authority asserted that 20 percent was in accordance with the 1996 amendments to the incentive program in effect at the time he retired.

'But you promised!'

LeMaitre filed a lawsuit against the Authority alleging breach of contract. He argued that the Authority's employee handbooks, which set forth the rates of contribution for the medical and cash benefits, constituted an implied contract that bound the Authority to pay the incentives as provided in those handbooks. In its defense, the Authority argued that since it had the right to unilaterally alter the incentive program at any time, LeMaitre could have no reasonable expectation that it would honor the promises made in any version of the handbook.

The court disagreed, stating that the "mere fact that management can make unilateral changes to a personnel manual would not, standing alone, lead an employee to conclude that rights already obtained would be altered or taken away by such changes." The court found that each version of the Authority's handbook constituted a legally binding offer to reward employees with benefits in a particular amount. Once an employee accepted the terms of that offer by working for the Authority under those terms, the court said, it had a contractual obligation to fulfill its offer.

Insufficient disclaimer language

The court further stated that if the Authority hadn't intended to make any binding promises, it should have included in the handbooks clear disclaimer language providing that nothing in the handbook was to have the effect of creating an employment contract or any binding obligation on the part of the Authority. The court disagreed with the Authority's assertion that it had provided such language by printing the word "supersedes" in the corner of the first page of any documents that announced a change to previous policies.

The court stated that the meaning of "supersedes" in this context was ambiguous and suggested that it was the functional equivalent of "fine print" insufficient to make the terms of the handbook unenforceable. Accordingly, the court ruled in LeMaitre's favor and ordered the Authority to pay him $82,317.56 plus interest and costs. LeMaitre v. Massachusetts Turnpike Authority, Appeals Court of Massachusetts, 2007.

Bottom line

The lesson here is clear: Unless an employee handbook contains clear and prominent language limiting your obligations, a detailed handbook may create a legally binding contract that alters the "at-will" nature of the employment relationship. If you have any concerns about the language in your employee handbook, be sure to consult your labor and employment counsel for a handbook review.

Kimberly A. Klimczuk is an associate at the firm of Skoler, Abbott & Presser, P.C. She can be reached at (413) 737-4753 or kklimczuk@skoler-abbott.com.

You can find sample language for creating your employee handbook in the subscribers' area of www.HRhero.com, the website for Massachusetts Employment Law Letter. Just log in, scroll down to HR Tools, and click on "Sample Policies & Procedures." If you need help, call customer service at (800) 274-6774.

Copyright 2008 M. Lee Smith Publishers LLC

MASSACHUSETTS EMPLOYMENT LAW LETTER does not attempt to offer solutions to individual problems but rather to provide information about current developments in Massachusetts employment law. Questions about individual problems should be addressed to the employment law attorney of your choice.