Be Careful When Using Employment Handbooks – by BPE Law Attorney Elizabeth Arias
A common feature of many if not most workplaces is a document or manual often called an “Employment Handbook”. While these are very useful tools to identify company policies and workplace standards, they must be used with caution… if they are used at all.
As the name implies, these should only be used in situations where there is actually intended to be an employer-employee relationship.
When to Avoid:
Many businesses do not operate in an Employer-Employee model, particularly real estate brokers and franchises. Making an error here could potentially destroy the business.
1. Real Estate – Brokerages typically operate using an “Independent Contractor” model where the agents are all independent people who contract to work under a Broker for their mutual benefit. Agents are not employees and thus are exempt from typical workplace employment laws requiring minimum wages, over-time, breaks, etc. In California (and most states) the sole requirement to maintain independent status is that the agent be: 1) licensed as a real estate agent; 2) derives most of their income from commissions on sales; and 3) there is a signed written contract stating that the person is an independent contractor for tax purposes. However, the real estate brokerage independent contractor model has been under assault around the country through such lawsuits as Barasani v Coldwell Banker in California to Monell v Boston Pads in Massachusetts in which it is argued that the degree of control exercised by the Broker goes beyond what is allowed with an independent contractor. In many of these cases, the courts are looking at workplace manuals for guidance, where they exist. These often define required workplace standards such as dress code, floor time, Board of Realtor membership, advertising, and many other requirements, which make the relationship appear more of an employer-employee relationship. The current real estate industry would arguably collapse if all agents had to be treated and paid as employees. Some estimates are that it could shrink by over 50%. Definitely, do not use any Manual or policy using the words “employer” or “employee” in an independent contractor relationship. In a follow-up Article, we will discuss how to establish workplace standards for a real estate business.
2. Franchises – Just as the real estate industry is under attack from those who seek to break the independent contractor status of agents, similar attacks are occurring seeking to hold franchisors liable for the bad acts of franchisees. Here the relationship is not as direct as the broker-agent, yet in many ways it is similar when it comes to the amount of control that the franchisor exercises over a franchisee. In 2014, the National Labor Relations Board issued a Ruling that McDonald’s was the joint employer of all of the employees in its franchised restaurants. In subsequent meetings, NLRB representatives stated: “Only if franchisors exercised control beyond that intended to protect the brand would they be joint employers with their franchisees”. This sounds substantially similar to the real estate brokerage issue and reasonably could open the door for claims against franchisors for the liability of a franchisee.
When to Use:
Employer-Employee Relationships: Giving employees an employee handbook that describes your employment policies is a good idea, but caution should be taken in the drafting of those policies. Courts have recognized that policies contained in an employee handbook or personnel manual may constitute an enforceable contract between an employer and employee. Specific procedural guarantees regarding employee discipline and discharge are more likely to be construed as a contract than are very general statements of policy. For example, if the handbook outlines a progressive discipline policy providing for verbal warnings, written warnings and suspension before discharge, a court could conclude that the employer is contractually bound to exhaust this system of progressive discipline before terminating the employee. A disclaimer denying any intent to alter the at will employment relationship will generally preclude a contract claim, but the disclaimer must be “conspicuous.” For example, a progressive discipline policy will not give rise to a breach of contract if it also states that the employer can depart from the procedure at the employer’s discretion.
Employers should exercise caution when developing handbooks and related policy statements. To avoid implied contract claims, employers should issue only general statements of policy in employee handbooks and should always include an explicit statement reserving the right to alter, amend, or change any handbook policy at any time and for any reason.
California is an “employment-at-will” state. Therefore, an employer may generally terminate an employment relationship at any time and for any reason unless a collective bargaining agreement, employment contract, existing law, or recognized public policy provides otherwise. Despite the statutory presumption in favor of the at-will standard, however, the California courts recognize that an implied contract may be formed by statements in an employee handbook. In examining such a claim, courts may look at factors such as the employer’s personnel policies or practices, the employee’s longevity of service, actions and communications by the employer that seem to assure continuing employment, and regular practices of the employer’s industry.
The following are some common employee handbook mistakes:
* An overly detailed discipline procedure. As explained above, this could lead to a court construing the discipline process as creating a contract rather than an at will employment relationship. Also, there may be times when the first incident is a serious violation of a harassment prevention policy or an act of workplace violence where a verbal warning as a first disciplinary step does not make sense.
* Not controlling overtime. Overtime policies should be set out to limit unauthorized overtime. First, employers should define the “workweek” for purposes of calculating overtime; otherwise, employees may be free to define the workweek as they choose. The overtime policy should also specify employees are not permitted to work overtime without prior supervisory authorization. Though an employer cannot refuse to pay an employee who works unauthorized overtime, the employer can discipline employees who fail to follow the specific directive not to work overtime without permission.
* Use it or lose it vacation policies. In California, vacation and paid time off (PTO) are considered vested wages. This means employers cannot take accrued vacation or PTO away from employees. Many employers have a “use it or lose it” policy which provides if an employee fails to use all of his or her vacation/PTO by the end of the year, the employee loses the right to take it. Instead, vacation policies should be written to allow accrual up to a maximum, with no additional vacation accrual once an employee reaches the maximum. If an employee’s accrual falls below the maximum, then he or she begins accruing vacation again.
* Not reviewing/revising the handbook regularly. Employment laws change often, which means that the handbook should be reviewed regularly so policies can be amended or updated when appropriate.
If you have employees and are interested in how BPE Law Group can help you with your employment-related matters, call us at (916) 966-2260 or email Elizabeth Arias at earias@bpelaw.com.
This article is not intended to be legal advice, and should not be taken as legal advice. Every case requires review of specific facts and history, and a formal agreement for service. Please feel free to contact us if you need legal advice and are interested in seeing if we can help you
A common feature of many if not most workplaces is a document or manual often called an “Employment Handbook”. While these are very useful tools to identify company policies and workplace standards, they must be used with caution… if they are used at all.
As the name implies, these should only be used in situations where there is actually intended to be an employer-employee relationship.
When to Avoid:
Many businesses do not operate in an Employer-Employee model, particularly real estate brokers and franchises. Making an error here could potentially destroy the business.
1. Real Estate – Brokerages typically operate using an “Independent Contractor” model where the agents are all independent people who contract to work under a Broker for their mutual benefit. Agents are not employees and thus are exempt from typical workplace employment laws requiring minimum wages, over-time, breaks, etc. In California (and most states) the sole requirement to maintain independent status is that the agent be: 1) licensed as a real estate agent; 2) derives most of their income from commissions on sales; and 3) there is a signed written contract stating that the person is an independent contractor for tax purposes. However, the real estate brokerage independent contractor model has been under assault around the country through such lawsuits as Barasani v Coldwell Banker in California to Monell v Boston Pads in Massachusetts in which it is argued that the degree of control exercised by the Broker goes beyond what is allowed with an independent contractor. In many of these cases, the courts are looking at workplace manuals for guidance, where they exist. These often define required workplace standards such as dress code, floor time, Board of Realtor membership, advertising, and many other requirements, which make the relationship appear more of an employer-employee relationship. The current real estate industry would arguably collapse if all agents had to be treated and paid as employees. Some estimates are that it could shrink by over 50%. Definitely, do not use any Manual or policy using the words “employer” or “employee” in an independent contractor relationship. In a follow-up Article, we will discuss how to establish workplace standards for a real estate business.
2. Franchises – Just as the real estate industry is under attack from those who seek to break the independent contractor status of agents, similar attacks are occurring seeking to hold franchisors liable for the bad acts of franchisees. Here the relationship is not as direct as the broker-agent, yet in many ways it is similar when it comes to the amount of control that the franchisor exercises over a franchisee. In 2014, the National Labor Relations Board issued a Ruling that McDonald’s was the joint employer of all of the employees in its franchised restaurants. In subsequent meetings, NLRB representatives stated: “Only if franchisors exercised control beyond that intended to protect the brand would they be joint employers with their franchisees”. This sounds substantially similar to the real estate brokerage issue and reasonably could open the door for claims against franchisors for the liability of a franchisee.
When to Use:
Employer-Employee Relationships: Giving employees an employee handbook that describes your employment policies is a good idea, but caution should be taken in the drafting of those policies. Courts have recognized that policies contained in an employee handbook or personnel manual may constitute an enforceable contract between an employer and employee. Specific procedural guarantees regarding employee discipline and discharge are more likely to be construed as a contract than are very general statements of policy. For example, if the handbook outlines a progressive discipline policy providing for verbal warnings, written warnings and suspension before discharge, a court could conclude that the employer is contractually bound to exhaust this system of progressive discipline before terminating the employee. A disclaimer denying any intent to alter the at will employment relationship will generally preclude a contract claim, but the disclaimer must be “conspicuous.” For example, a progressive discipline policy will not give rise to a breach of contract if it also states that the employer can depart from the procedure at the employer’s discretion.
Employers should exercise caution when developing handbooks and related policy statements. To avoid implied contract claims, employers should issue only general statements of policy in employee handbooks and should always include an explicit statement reserving the right to alter, amend, or change any handbook policy at any time and for any reason.
California is an “employment-at-will” state. Therefore, an employer may generally terminate an employment relationship at any time and for any reason unless a collective bargaining agreement, employment contract, existing law, or recognized public policy provides otherwise. Despite the statutory presumption in favor of the at-will standard, however, the California courts recognize that an implied contract may be formed by statements in an employee handbook. In examining such a claim, courts may look at factors such as the employer’s personnel policies or practices, the employee’s longevity of service, actions and communications by the employer that seem to assure continuing employment, and regular practices of the employer’s industry.
The following are some common employee handbook mistakes:
* An overly detailed discipline procedure. As explained above, this could lead to a court construing the discipline process as creating a contract rather than an at will employment relationship. Also, there may be times when the first incident is a serious violation of a harassment prevention policy or an act of workplace violence where a verbal warning as a first disciplinary step does not make sense.
* Not controlling overtime. Overtime policies should be set out to limit unauthorized overtime. First, employers should define the “workweek” for purposes of calculating overtime; otherwise, employees may be free to define the workweek as they choose. The overtime policy should also specify employees are not permitted to work overtime without prior supervisory authorization. Though an employer cannot refuse to pay an employee who works unauthorized overtime, the employer can discipline employees who fail to follow the specific directive not to work overtime without permission.
* Use it or lose it vacation policies. In California, vacation and paid time off (PTO) are considered vested wages. This means employers cannot take accrued vacation or PTO away from employees. Many employers have a “use it or lose it” policy which provides if an employee fails to use all of his or her vacation/PTO by the end of the year, the employee loses the right to take it. Instead, vacation policies should be written to allow accrual up to a maximum, with no additional vacation accrual once an employee reaches the maximum. If an employee’s accrual falls below the maximum, then he or she begins accruing vacation again.
* Not reviewing/revising the handbook regularly. Employment laws change often, which means that the handbook should be reviewed regularly so policies can be amended or updated when appropriate.
If you have employees and are interested in how BPE Law Group can help you with your employment-related matters, call us at (916) 966-2260 or email Elizabeth Arias at earias@bpelaw.com.
This article is not intended to be legal advice, and should not be taken as legal advice. Every case requires review of specific facts and history, and a formal agreement for service. Please feel free to contact us if you need legal advice and are interested in seeing if we can help you