Reviewing Employee Handbooks Under the Increasing Threat of Class Action Litigation

Overview

Employers face a challenging landscape as they seek to shield themselves against the risk of workplace class action litigation. According to a recent survey, in 2015 companies spent $2.1 billion on legal services related to class actions, and labor and employment accounted for 24.1 percent of those cases. Another report suggests that although employers now settle far fewer discrimination class actions than at any point over the last ten years, wage-and-hour litigation continues to rise and represents the primary litigation risk in the workplace. This data represents a real nightmare for employers. Workplace class actions can prove very expensive and involve a high reputational risk, both of which can result in substantial financial exposure and negatively impact a company's value.

Even when employers adopt pro-active policies to minimize the chances of employment-related lawsuits, no strategy guarantees immunity against the threat of class action litigation. Nevertheless, employers can leverage the opportunity of being in the position to control the drafting of documents that typically appear at the core of an employment dispute, one of which is the employee handbook. At a minimum, an employee handbook can avert or mitigate employer liability by clarifying company expectations and legal obligations, establishing a process that allows employees to become familiar and comply with work rules and procedures, and avoiding language that may create legal risk, such as facially discriminatory policies. In addition to those broader drafting principles - which may also prove useful in protecting against individual employment claims - some employers try to minimize exposure by including in their employee handbooks provisions such as employment-at-will and binding arbitration clauses including a class and collective action waiver. Although it is true that a poorly written or outdated employee handbook may get employers in trouble, an updated, well-drafted, and closely adhered to employee handbook can establish a first line of defense and make the difference between winning and losing a battle.

 

Reviewing Employee Handbooks: The Devil is in The Details

Employee handbooks are rule compilations -- in other words manuals that contain important information regarding workplace policies. Employee handbooks are a critical communication vehicle between employers and employees because they set forth the parties' mutual expectations, as well as important rights and legal obligations. When it comes to drafting and reviewing a handbook, a generic, one-size-fits-all approach is far from prudent.

Before beginning to write an employee handbook, drafters must understand what information they are required to disseminate to employees by law. Federal and state laws may require businesses to maintain specific policies, and many businesses include those policies in their employee handbooks. For example, an employer may be required to cover in its handbook areas such as equal employment and non-discrimination, worker's compensation, accommodation of disabilities, breast-feeding, as well as policies on smoking, drugs, alcohol, and sexual harassment. If a business operates in more than one state, employers may have to draft different handbooks to ensure compliance with each state's unique employment laws.

At the same time, laws, regulations, and legal interpretations tend to evolve rapidly, so reviewing employee handbooks to make sure they satisfy new requirements is important. Drafting a pristine handbook in terms of its conformity to all applicable laws, but then failing to update it so that it can stand up to future scrutiny by a federal agency or court can be a waste of resources and a cause for unnecessary legal headaches. Drafters must be aware that even within a single year laws affecting business operations could change dramatically, and failing to make policy revisions may deprive employers of legal defenses or trigger new lawsuits.

For instance, in 2015, important changes at the federal, state, and local levels require employers' attention to ensure compliance obligations are timely met in their 2016 handbooks. In a report released in March this year, the National Labor Relations Board (NLRB) opined on the issue of confidentiality rules in employee handbooks and concluded that statements that give employees the impression that they cannot discuss wages, hours and other terms of employment with fellow employees or nonemployees, such as union representatives, are unlawful. The same NLRB report clarified that handbook rules that could reasonably be read to ban employees from speaking to the media or other third parties and to discuss their wages, benefits, and other terms and conditions of employment are also unlawful. Given the popularity of social media use, handbooks must provide clarity about prohibited communications, but also refrain from policies that ban or restrict conduct protected by the National Labor Relations Act (NLRA)ⁱ, as the NLRB is increasingly reviewing such restrictions as a potential unfair labor practice under the Act. Employers should also be aware that changes vis-a-vis equality and same-sex benefits brought about after the Supreme Court's landmark ruling in Obergefell v. Hodgesⁱⁱ necessitate review of their leave, anti-discrimination policies, and employee benefit plans.ⁱⁱⁱ

In addition to ensuring regulatory compliance of a company's policies and procedures, a well-drafted employee handbook can be a powerful tool in protecting employers because it can be drafted so as to reserve rights for the employer, such as workplace inspections, making changes to benefits, and drug testing, which the employer might not otherwise have. Embedded in policy manuals, those rights are communicated to employees, thus providing a strategic advantage in defending not only individual claims, but also concerted actions against the employer. Each employer will certainly choose to reserve rights that are tailored to the particularities faced by each business, but handbooks will typically include policies regarding overtime and attendance, leave, social media, technology, drug and alcohol abuse, disciplinary procedures, and workplace violence prevention.

Additionally, some employers include in their handbooks an at-will statement and a disclaimer expressly stating that the handbook is not intended to create a contract of employment. Many companies are worried that employee handbooks may create a binding employment contract, and this is indeed a valid concern if drafters are not careful. Although in almost every state employment is at-will, meaning that an employer may fire an employee for any reason or no reason, except those prohibited by law, and may make unilateral decisions to change benefits or employment practices, many courts will find that certain wording in the handbook creates an implied contract between the employer and the employee, which imposes limitations on the employer's ability to act at-will. To prevent misunderstandings regarding the nature of the employment relationship and to avoid lawsuits under a breach of contract theory, which can be particularly damaging if multiple employees are involved, some handbooks contain a contract disclaimer and an at-will statement followed by signed acknowledgement of understanding regarding that relationship. Nevertheless, some employers may choose to omit such provisions because of concerns that they may disrupt employee morale and goodwill or because contract disclaimers may preclude an employer's ability to bind the employees as to certain terms, such as a restrictive covenant or a binding arbitration clause, as a recent Court of Appeals decision recently held.^iv

Another set of key provisions for protecting employers are those addressing equal opportunity, anti-discrimination, and harassment. Those provisions establish that the company has taken steps to comply with all relevant laws, and set forth the formal process for reporting and addressing complaints. Employers need to ensure that those policies are updated and followed consistently to avoid claims that employers imposed unlawful rules, failed to enforce their own policies or applied them inconsistently. If those parameters are met and yet litigation arises, those provisions may prove critical in minimizing employer liability because juries may sympathize with employers who have policies disallowing the improper conduct in question and be unfavorable towards employees who fail to follow prescribed protocols.

Many handbooks also include arbitration agreements, which sometimes contain class action waivers. Assuming the dispute falls within the scope of the arbitration clause as drafted, most arbitration agreements will generally prove enforceable.^v However, the state of the law with respect to class action waivers in arbitration agreements is still unsettled. The root of the problem lies with a fundamental tension between the Federal Arbitration Act (FAA)^vi, which favors the enforcement of arbitration agreements, and Section 7 of the NLRA, which establishes the right to act collectively for mutual aid or protection in the workplace.^vii In two recent cases^viii, the Supreme Court has upheld the enforceability of express class action waivers in arbitration agreements in the consumer and antitrust context respectively, concluding that they are valid under the FAA, notwithstanding the claim that the arbitration clauses at issue were unconscionable and hence fit within the FAA exception for contract clauses that would be overturned on grounds generally applicable under the appropriate state's law. Some courts have extended the Supreme Court's reasoning in those cases to uphold class action waivers in the employment context as well. Nevertheless, in two recent cases^ix the NLRB ruled that arbitration agreements that require class or collective action waivers constitute an unfair labor practice under NLRA Section 8(a)(1) because they violate the employees' Section 7 rights to act collectively. Currently, a few courts have adopted the NRLB's view, whereas many others have rejected it. Until the Supreme Court rules on the issue, it is unclear whether the NLRB holdings conflict with the FAA and whether class action waivers in arbitration agreements can withstand scrutiny and protect employers in collective actions against them.

Conclusion

Identifying important changes in the law, including critical provisions, and regularly reviewing the rules contained in employee handbooks can shield employers from class-wide liability or minimize the cost of defending a lawsuit. However, employers cannot afford to allow their updated policies and procedures to become merely an empty letter. To make sure they will have a strong defense in the face of a dispute, employers need to adopt a pro-active and systematic approach that inspires as well as requires their management teams to enforce these policies uniformly and consistently. _____________________