Tuesday, April 12, 2016

Are employee handbooks legally binding contracts in Pennsylvania?

Can an employee sue his or her employer based on a breach of the terms of an employee handbook or manual? Law101: The answer to every question is always, "it depends."

Generally, the answer to this question is "no" - but with the qualifier that... wait for it... "it depends." Ordinarily, I wouldn't rely on an unpublished federal trial court opinion for state law issues, but I particularly like this summary (and it relies on published Pennsylvania appellate court opinions):
[W]e note that "the presumption under Pennsylvania law is that all employment is at-will, and, therefore, an employee may be discharged for any reason or no reason." Luteran v. Loral Fairchild Corp., 688 A.2d 211 (Pa. Super. Ct. 1997). The burden of overcoming the presumption rests squarely with the employee. Rutherford v. Presbyterian-University Hospital, 612 A.2d 500 (Pa. Super. Ct.1992). In order to rebut the presumption of at-will employment, a party must establish one of the following: (1) an agreement for a definite duration; (2) an agreement specifying that the employee will be discharged for just cause only; (3) sufficient additional consideration or (4) an applicable recognized public policy exception. Luteran.  
The Supreme Court of Pennsylvania in Luteran stressed that when alleging that an employee handbook created an implied contract, the handbook must contain a clear indication that the employer intended to overcome the at-will presumption. Moreover, courts should not presume that the employer intended to be legally bound by distributing the handbook nor that the employee believed that the handbook was a legally binding instrument. Id. The court stated that absent any language that the handbook was intended to be a legally binding contract, it could not hold that the employer intended to form a contract. This was in spite of the fact that the handbook stated that an employee "may only be discharged for just cause."
Consolmagno v. Home Depot, No. 06-1097 (W.D. Pa. 2006).

In other words, the courts generally assume that a handbook is not a contract "absent any language that the handbook was intended to be a legally binding contract." As a practical matter, as someone who has seen dozens of employee handbooks, I'll note that:

  • I have never seen an employee handbook that says, "this is totally a contract" or anything even remotely resembling that; and
  • Almost every handbook I've seen says the exact opposite, "THIS IS NOT A CONTRACT." (with varying degrees and combinations of obnoxious bold, all caps, underlined, and super-sized text).
Employers may wish to consider adding such a disclaimer to their handbooks. As an employer, would you rather go into court and ask it to apply a presumption? Or ask it to apply both the presumption *and* the text of the disclaimer? That's a no-brainer. I often draft or revise handbooks, and the "this is not a contract" disclaimer goes in every one. 

For Ohio law on this issue, check out Jon Hyman's Ohio Employer Law Blog