Importance of Employee Handbooks (plus Q&A: Why Do Smaller Firms Need Employment Practices Liability Insurance?)
(County Bar Update, March 2001, Vol. 21, No. 3)


Importance of Employee Handbooks

Employee handbooks can enhance the employer-employee relationship and help defend against wrongful termination, discrimination and harassment claims. Regardless of firm size, when properly drafted and legally reviewed, the employee handbook can be the keystone to good employment practices.

Some federal and state laws require certain employment policies be in writing. However, there is no law that requires an employer to provide employees with a handbook. Nevertheless, there are many good reasons, both legal and non-legal, to publish a handbook.

A handbook is a means of uniform distribution of firm policies and procedures to all firm employees. Some policies are required by law to be posted in the workplace. However, if these and other firm policies are posted on bulletin boards alone or are conveyed to management for dissemination to employees, there is no way for the firm to know which employees actually read them.

While employee handbooks may contain policies on everything from employee benefits -- sick leave, vacation, holidays and insurance -- to performance and discipline policies, there are several essential exposure-limiting policies that should be included.

"At-Will" Employment Disclaimer

An employee handbook should contain what is known as an "at-will" employment disclaimer. In this country, the relationship between the employer and employee has traditionally been governed by the doctrine of "employment at will". Under this doctrine, there is a presumption that an employee's relationship with his or her employer is intended to be at-will rather than contractual. This means that the employee or the firm may terminate the employment relationship at any time, without notice, for any lawful reason.

A common allegation brought by terminated employees is that the employer breached an implied contract of continued employment. A handbook disclaimer to the contrary in the employee handbook may provide a defense against such allegations. It's important to make the disclaimer stand out to improve its prospects of being read. This can be accomplished by printing it in bold uppercase letters at the beginning of the handbook. In an employment dispute, this statement may also dissuade a court from declaring the handbook itself a binding written contract between the employer and employee.


Accusations of harassment, including sexual, racial, and ethnic harassment, are a very common and costly occurrence in the workplace today. The Supreme Court has stated that an employer, at a minimum, must have certain provisions in its non-harassment policy, or it will not have a defense to a harassment claim. Communication is the key to minimizing harassment claims. The firm should send a clear message to all firm members that harassment is illegal, will not be tolerated and those who engage in harassment will be severely disciplined or terminated. Because there is often confusion over what constitutes harassment, especially sexual harassment, the non-harassment policy should describe and give examples of the various types of conduct that might be considered harassment. It should be made clear that only some examples have been provided and that it is not an all-encompassing list.

The policy should also include a detailed complaint process whereby employees are directed to report any claims of harassment to someone at the firm such as their direct supervisor, a partner or the person in charge of human resources. Employees should be able to choose from several designees because of the possibility that one of them could be the alleged harasser. Retaliation against a person who has made a harassment allegation is illegal, and the policy should state that no action will be taken against any employee in any manner for reporting or opposing any form of unlawful harassment.

Open-Door Policy

Employees who work in an environment where open communication is encouraged may be less likely to go to an attorney with their complaints. An open-door policy is the perfect vehicle for encouraging employees to air their concerns before they escalate into a major problem for the firm. An open-door policy can be a simple statement that encourages employees to discuss their work-related concerns with management or the human resources department.

Equal Employment Opportunity Policy

Almost all employers are required by federal and state law to provide a workplace with equal employment opportunities for all persons. A written equal employment opportunity (EEO) policy is a way for the firm to acknowledge that it embraces the law and to inform employees of its non-discrimination policy. The EEO policy should state that the firm believes that all persons are entitled to equal employment opportunity. This statement can specifically list all the protected classes -- race, color, religion, sex and so on -- or can indicate generally that the firm does not discriminate against employees protected under the various federal and state laws.

Leaves of Absence

Firms should be aware that state and federal laws require employers to provide certain types of leaves of absence for eligible employees. State laws differ, and employers may be required by law to provide leaves for workers' compensation, pregnancy disability, alcohol and drug rehabilitation, military duty, jury and witness duty, voting time and more. Many of these leave laws include specific written notice requirements.

For example, the federal Family and Medical Leave Act of 1993 (FMLA) requires employers to provide their employees up to 12 weeks of unpaid leave per year for the birth or adoption of a child, or for the serious health condition of the employee or a close family member. This seemingly simple law becomes complicated due to the detailed notice requirements on the part of the employer. Failure to comply with the law can be costly and disruptive to the firm. FMLA applies only to employers who have 50 or more full-time, part-time or temporary employees within a 75-mile radius. However, there has been talk of legislation that would decrease the number of employees required for FMLA coverage from 50 to 25. The employee handbook is the perfect forum for disseminating notice of leave policies whether or not the law requires written notice. Consult with a labor and employment law attorney for the appropriate language to include in all leave policies.

All of the firm's efforts in implementing a handbook may be of no benefit if a dispute arises and an employee claims he or she never received the handbook. Be sure to obtain a signed receipt from each employee after they have had time to read it thoroughly. The receipt should acknowledge that the employee has received and read the handbook, understands its contents and agrees to abide by its policies and procedures. Keep the receipt in the employee's personnel file.

This article is meant to be a brief overview of the importance of implementing an employee handbook. There are countless other policies and procedures that can and should be included in a well-drafted employee handbook. The firm can draft its own policy handbook or purchase a commercially prepared handbook and tailor it to the firm's specific needs. In either case, it is imperative that an attorney who specializes in labor and employment law review the handbook. Employment and labor laws change frequently, and an employee handbook should be reviewed and updated on a regular basis.


Q&A: Since most federal employment discrimination laws apply only to firms with 15 or more employees, why do smaller firms need employment practices liability insurance (EPLI)?

It's true that many federal employment discrimination statutes apply only to firms with 15 or more employees. Title VII of the Civil Rights Act, the Americans with Disabilities Act, and the Pregnancy Discrimination Act apply to employers with15 or more employees, and the Age Discrimination in Employment Act applies to firms with 20 or more employees. But an employee can also bring a claim against a firm under state and local discrimination statutes.

Some states and cities have laws that reflect federal discrimination laws. In addition, they often apply to all employers regardless of staff size. Additionally, these state and local laws may prohibit discrimination based on other factors not addressed by federal laws such as marital status, sexual orientation, smoking habits, political activities, volunteer activities and other off-duty conduct, to name a few.

Claims that allege discrimination, sexual harassment or wrongful discharge often have a variety of common-law tort, quasi contract or other state law claims attached. All employers have exposure to common-law actions brought by employees. For example, a common wrongful termination claim brought by employees against smaller firms is breach of an implied or oral contract for continued or permanent employment. In this type of case, the employer intends to establish an at-will employment relationship, but the terminated employee argues that due to certain actions by the employer he or she was guaranteed employment indefinitely.

All employers are also subject to common-law tort claims for assault, battery and false imprisonment. These claims are often included in sexual harassment lawsuits. Other common-law tort claims that may accompany wrongful termination lawsuits are libel, slander, defamation, invasion of privacy, intentional infliction of emotional distress, fraud and negligent misrepresentation.

The bottom line is that although smaller firms may be exempt from some federal employment discrimination statutes, they still have a considerable amount of employment liability exposure via state statutes, local ordinances and state common law. Remember, even frivolous suits require a vigorous defense where defense costs alone could cause major financial trouble for a smaller sized firm. Self-insuring for employment practices liability exposure could prove to be a critical mistake for smaller firms.


The two articles above, "Importance of Employee Handbooks" and "Q&A" are of a general nature and are not intended as specific legal advice. Readers should consult with a lawyer if they have specific concerns. Neither the Los Angeles County Bar Association nor Aon Direct Insurance Services assume any liability for how this information is applied in practice or for the accuracy of this information. These articles are reprinted with the permission of Aon Insurance Services and the EmployerGardian.

For additional information on employment practices liability insurance or the EmployerGard product, contact the Los Angeles County Bar Association's sponsored program, Aon Insurance Solutions, for information/applications at or 1-800-634-9177.

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