In a recent Alabama case, the Supreme Court of Alabama held that an employee handbook, which included language specifying mandatory employee discharge/termination procedures, was specific enough to constitute a unilateral contract between an employer and its "at-will" employee.

The opinion relies on previous Supreme Court case law on the issue of when handbooks can become binding contracts with employees and is a cautionary warning to employers on the importance of carefully considering the language of their employment policies and procedures.

Details of the Case

In the case, the employee was hired in 2007 as an "at will" employee and received a copy of his employer's handbook upon hiring. The handbook included detailed step-by-step discharge procedures that the employer stated it would follow before terminating an employee, including written notice, a "Determination Hearing" in which the employee and a representative could participate, final review of the decision by the mayor of the employer city, and employee appeal rights.

In 2015, the employer determined that the plaintiff employee had violated several provisions of the handbook and terminated his employment, but in doing so allegedly did not follow the handbook's discharge procedures. The employee sued for breach of contract over the employer's alleged failure to follow the discharge procedures, but the trial court granted the employer's motion for summary judgment.

The Handbook: A Binding Contract

On appeal, the Alabama Supreme Court initially reiterated that it is well settled law in Alabama that the employment of an employee hired "at-will" may be terminated by either the employer or the employee "with or without cause or justification," meaning "a good reason, a wrong reason, or for no reason at all". Nonetheless, the Court noted that it "has recognized that an employee handbook can represent a binding contract obligating an employer to satisfy certain conditions precedent to dismissing an employee." The Court re-stated its prior three-part test to determine if a handbook created a contract:

  • The language in the handbook must be specific enough to constitute an offer,
  • The offer must have been communicated to the employee by the issuance of the handbook, and
  • The employee must have accepted the employer's offer by either accepting or retaining employment after the employee has become generally aware of the employer's offer (the handbook's language). Factors two (2) and three (3) are often not disputed, and they were not at issue on this appeal.

Turning to the handbook in question, the Supreme Court observed that the handbook's "pervasive" use of "shall" when describing the discharge procedures demonstrated that they were intended to be binding on the employer.

The Court noted that the mandatory meaning of "shall" was "made clear" by comparing it with the handbook's frequent use of "may" when describing other procedures or policies. The Court reasoned the use of mandatory versus permissive, discretionary language demonstrated that the employer knowingly chose to make some provisions of the handbook, specifically the discharge procedures, binding on the employer.

The Court further concluded that, "An employee, faced with such exhaustive, mandatory language, 'could reasonably believe that, as long as he worked within the guidelines set out in the handbook, he would not be terminated until all procedures set out in the handbook would be followed.'" Thus, the Court held that the discharge procedures were specific enough to constitute an offer of contract.

The employer offered several arguments that were rejected by the Supreme Court. First, the Court said the employee's status as "at-will" was "irrelevant" to the question of whether the employer had to follow its discharge procedures because the reason for termination is distinct from the means of termination.

Second, the employer cited the "disclaimer" of a contract language in the handbook. The Court acknowledged that a disclaimer in a handbook that states it does not create any contract whatsoever would defeat the employee's claims, but the handbook's limited disclaimer only disclaimed a contract "for any specific period of time." Thus, the language was not sufficiently broad enough to disclaim away the employee's contract argument.

Finally, the employee argued its handbook was not a contract because it contained language stating the employer retained the freedom to change the policies and procedures. However, the Supreme Court found that the employer's right to change its procedures was different from language expressly reserving the right to deviate from its procedures - which the Court has previously held to be sufficient to conclude that any alleged promises in the handbook were "illusory" and could not constitute an enforceable contract - and thus the employer's reserved right to change procedures did not render the promise in the handbook to follow existing procedures to be an unenforceable contract.

The Court reversed the summary judgment ruling in favor of the employer and sent the case back to the trial court to address the issue of whether the employer, in fact, violated the handbook's discharge procedures.

The Alabama Supreme Court's reasoning in this case is a helpful warning to employers of the consequences of failing to follow mandatory/binding employment policies and procedures that have been communicated to employees in handbooks, even for otherwise "at-will" employees. It is also a reminder that employers should review in detail all current or future employment handbooks/manuals to be certain that their language accurately conveys the employer's intent, and particularly if it is a policy about which the employer wants/needs to retain necessary discretion or ability to deviate from in certain circumstances.

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