One of the worries car dealers express about having an employee handbook is that the document might be interpreted as a contract by the courts. However, a carefully drafted handbook can be a great employee relations tools.

Dealers and dealership managers often worry that their employee handbooks will be used against them in litigation. In particular, they could be concerned that employees will claim that policies are contracts that must be followed exactly.

However, the simple act of putting your policies in writing should not create a binding contract, if the policies are written as guidelines that explain "generally" or "typically" what the requirements are and how employees "normally" will be treated. At the same time, the policies present a great vehicle for communicating your dealer-ship's values and practices to employees.

Still, it is possible to create a contract by using language that conveys rigid rules that must be followed exactly as written in all circumstances.

Courts on employee handbooks

Courts typically find that an employee handbook or policy becomes a binding part of the employment relationship when:

1.  The language of the policy is clear enough that an employee could reasonably believe a contractual offer was being made;

2.  The policy is distributed to the employee; and

3.  The employee accepts the offer by starting or (in some jurisdictions) continuing to work for the employer.

Courts have treated as contracts promises made by employers regarding job security, use of specific disciplinary or termination procedures, or benefits. For example, in one Connecticut case, the court found that an employer was liable for breach of contract when it terminated an employee without just cause. The organization's employee handbook stated that it would treat employees fairly and would terminate only for serious misconduct.

And, in a recent New Mexico case, the court determined that a 32-year employee, terminated without prior notice or cause, could recover damages for breach of an implied contract. The contract was created by three factors. First, the provisions in the employee handbook said no employee would be discharged without a chance to succeed. Second, the employer had both a disciplinary policy and practice of warning employees of performance problems and of discharging only for justifiable cause. And finally, the employer trained its managers not to terminate employees without notice.

"Mixed messages" also can create contract problems for employers. In some cases, at-will disclaimers may be made ineffective by other statements or practices that contradict the disclaimer.

For example, in Vermont, the court found the at-will statement printed in an employee manual was at odds with the elaborate employee discipline and discharge procedures that the employer said would be applied in a fair and consistent manner. According to the court, the employer sent mixed messages to employees about their at-will status. It therefore allowed a terminated employee to pursue her breach of implied contract claim since the employer had set a precedent by following these procedures in almost all other cases.

Five mistakes to avoid in employee handbooks

As the above cases demonstrate, car dealers should build flexibility into the wording of a handbook and steer clear of any promises that could be interpreted as a contract. For example, policies should not:

1.  State that the organization will "only" or "always" do something or "must" act in a particular way;

2.  Describe employees as "permanent;"

3.  State that employees will be terminated only for "cause;"

4.  Make promises of job security; or

5.  Use all-inclusive lists, such as in disciplinary procedures or work rules.

Instead, use terms such as "generally," "typically," "usually," and "may" so that dealership managers have flexibility in interpreting and applying the policies. In addition, always specifically retain management's right to update, change unilaterally, and implement all policies as it sees fit.