Eric Updegraff

Hopkins & Huebner

Des Moines Office

Your Employee Handbook and You

The biggest misconception that employees have about their employee handbook is that it creates a binding legal contract that either side can enforce.  In almost all circumstances employees remain employees at will regardless of the terms of their employee handbook.

Employment at Will

The general rule in Iowa is that employees are employed at will.  This means the employer can terminate the employee’s employment for any reason, no reason or a bad reason.  The exceptions to this general rule are:  (1) terminations that violate public policy; and (2) terminations that breach an employment contract.

The effect of this general rule is often misunderstood.  An employer can fire an employee at will because the sky is purple.  It does not matter that the color of the sky is irrelevant to the employee’s job.  It does not matter that the statement “the sky is purple” is factually incorrect.

The best justification for this rule is that employers need the freedom to terminate their employees in order to protect their business.  For instance, if an employer had 100 employees, but needed to reduce the work force to 90 employees to stay in business, then the employer has to be free to do so.  If the employer had to wait for misconduct to terminate the 10 employees, then the business would fail and all 100 employees would lose their job.  This, of course, is cold comfort if you are one of the 10 employees that gets the axe through no fault of your own.

Employee Handbooks as Unilateral Contracts

Iowa law does allow for an employee handbook to become a contract.  If the employee handbook is definite enough in its promises that a reasonable person would rely upon it in continuing employment, then the handbook become an implied contract.  The legal standard is whether a person could “reasonably rely upon” the statements in the handbook as binding promise.

This legal standard led enterprising attorneys in the 1980s and 1990s to add disclaimers to the employee handbooks.  The typical employee handbook now includes a disclaimer that says “this is not a contract for employment” and “an employee remains an employee at will despite any statements in this handbook.”  At that point it is likely impossible for anyone to “reasonably rely” on the handbook.

What does this mean for you?  If you have been relying on your employee handbook, then you need to check for the disclaimer.  A disclaimer means the employee handbook is unenforceable against the employer.