Employee handbooks, policies and guides are a double-edged sword for employers.
They are important vehicles for employee relations. They are also effective in communicating corporate expectations and culture.
However, if not carefully written and presented, such communications can also form enforceable contracts between the employer and an otherwise at-will employee, with unexpected and harmful effects for the company.
In November 2007, the Massachusetts Appeals Court revisited these issues, finding that the Massachusetts Turnpike Authority’s published policies constituted a contract with its employee. The case contains some new lessons for in house counsel in drafting and publishing employee handbooks and policy statements.

Contractual liability and employee handbooks

In 1988, Massachusetts courts first began to erode the at-will employment doctrine by holding that employee handbooks could constitute enforceable contracts. The typical analysis was the six-factor test of Jackson v. Action for Community Development (403 Mass. 8). The Supreme Judicial Court decision, which found no contract existed, was favorable to business, as later decisions interpreted it to require all six indicia for contract formation.
However, eight years later, in O’Brien v. New England Tel. & Tel. Co. (422 Mass. 686), the SJC opened the door to employee contractual claims by proclaiming that the six factors were not each necessary for contract formation, but that the issue should be decided upon the reasonable expectations of the employee as determined by such factors, including the policy language, distribution and other particulars. Under such factors, the handbook at issue represented more than “general guidance as to the employer’s policies,” and rose to the level of a contract.
Before and after O’Brien, other decisions also clued employers to adopt language or procedures, such as prominent (as opposed to buried) contractual disclaimers, non-negotiated language, or providing access to handbooks only after hiring. Given the liberalization of the SJC approach, employers have struggled to draft policies and handbooks which, while providing sufficient clarity, remain general statements of policy not raising reasonable expectations of enforceability consistent with the evolving law.

Appeals Court ruling

In the recent Appeals Court ruling (LeMaitre v. Massachusetts Turnpike Authority, 70 Mass. App. 634), the plaintiff, Robert LeMaitre, worked as an engineer for the MTA from 1975 until he retired in 2002.
During that entire time, the MTA sponsored an “incentive program” under which employees would be paid a certain amount at their retirement for sick days accrued but not used. The MTA had complete discretion to modify the policy at any time, and did so several times, informing employees of changes by means of handbooks, policies and bulletins.
Initially, the cash payment was 50 percent of the accrued, unused sick leave. In 1996, the MTA reduced it to 25 percent. When LeMaitre retired, the MTA paid him 25 percent for all of his accrued but unused sick time.
LeMaitre sued, claiming he was owed 50 percent of his accrued, unused time prior to 1996, and 25 percent of the time he accrued after 1996. The MTA argued it had no contractual obligation to pay the larger sum.
The Appeals Court agreed with LeMaitre, finding that the personnel manuals constituted a contract, and that LeMaitre had a contractual right to the larger percentage for the pre-1996 accrued time.

Handbook language and distribution

Much of the court’s analysis focused on the handbook language. In finding that the manual containing the initial policy was an “offer” to form a contract, the court asked, consistent with Massachusetts contract law, whether the words were sufficient to cause a reader reasonably to believe that an enforceable offer had been made.
The court answered yes. Even though the MTA had discretion to, and did, modify the program whenever it wished, and even though LeMaitre knew that, the court found it reasonable for LeMaitre to believe that any rights he had already obtained would not be changed going forward.
In so finding, the court noted that the handbook contained no prominent disclaimers of legally binding promises. Furthermore, the incentive program was described in detail in the handbooks. There was no indication, in the handbook or otherwise, that the express terms of the policy in the handbook was simply a guide to policies as opposed to a binding incentive offer.
In holding that the change to the 1996 sick leave policy did not apply to sick time accrued prior to 1996 the court noted that the documents reducing the rate applied after 1996 did not specifically state that the new policy “superseded” the old one.
The court was also influenced by the fact that the handbook was regularly distributed to employees. The court said that “the manual’s preparation and distribution is, to us, the most persuasive proof” of a binding offer. It also noted the employees were required to sign a receipt acknowledging “that the [MTA] is directing me to read and comply with each policy.”

Lessons for in-house counsel

All employee handbooks should continue to adopt clear and prominent language that no policy represents an enforceable promise, that employees gain no rights from the policies expressed, that the employer has unfettered discretion to unilaterally alter any policies at any time, and that the handbook is an informational guide only.
After LeMaitre, to avoid a reasonable belief that past policies will not be changed retroactively, handbooks should also separately provide that any change to policies may apply retroactively.
Any updates of handbooks or policies should specifically state that they supersede and replace the old policies, that the old policies are of no continuing force or effect, and that the changes apply retroactively.
Employers should also consider describing incentive policies more vaguely, leaving the precise details to be implemented by management without publication.
Employers should consider avoiding broad publication of employee handbooks to all employees. Rather than signed receipts requiring reading and complying with policies, employers should consider language that the policies are available and the employee is advised to familiarize herself with them.
However, in-house counsel should also be aware that, regardless of the language used, companies may be unable retroactively to restrict benefits, where those benefits are provided to encourage employee behavior.
The LeMaitre court suggested that, where the policy is in fact intended to incentivize employees, the employer may not retroactively reduce the benefit, at least where the policy is communicated with express promises conditioned on specific behavior.
Of course, many of these recommendations may be at odds with other, equally valid concerns of companies such as ease of administration, employee relations, or ensuring that employees take its policies seriously and adhere to them.
Implementing some or all of these suggestions will aid in avoiding legal liability on a contract the employer never knew existed.
Kevin S. Murphy is a shareholder with Yurko & Salveson, PC in Boston. He specializes in complex business litigation, including employment and trade secret litigation, and shareholder disputes. Yurko & Salveson represents a varied client base in all aspects of business litigation and dispute resolution. Mr. Murphy can be reached at [email protected] or 617.723.6900.