Avoid Liability with Express Disclaimers in Employee Manuals and Handbooks

Josh SchmandJosh Schmand

Last month, in Sanchez v. Whole Foods Mkt. Grp., Inc., the United States District Court for the District of Maryland reaffirmed the general rule that express disclaimers in employee manuals and handbooks will protect employers from creating unintended implied contracts under Maryland law.

This is a good reminder of the importance of including clear and conspicuous disclaimers, even as simple and overt as “this manual is not a contract,” because absent such language employee manuals and handbooks can create contractual obligations for employers.

Employee manual was not a contract under Maryland law

Employees supervised by Ms. Sanchez complained about her managerial style. They alleged that she touched employees inappropriately and that she intimidated and harassed them. Whole Foods placed Ms. Sanchez on administrative leave, investigated the allegations, concluded that she was not meeting the expectations of her role, and presented her with a Final Written Warning for “repeated inappropriate behavior.” Her offense constituted a “major infraction” under the employee manual.

After resuming her job, Whole Foods gave Ms. Sanchez an action plan for improving conditions within the team and performance in general. However, Ms. Sanchez failed to achieve the objectives set forth in the plan, and Whole Foods terminated her employment. In turn, Ms. Sanchez filed a lawsuit alleging, among other claims, that Whole Foods breached its contractual obligations arising from its employee handbook. Specifically, Ms. Sanchez argued that Whole Foods failed to follow its own progressive discipline policy contained in the employee handbook and that she was terminated without verbal counseling, written reprimand, or a legitimate final warning.

Whole Foods argued in response that the employee handbook that Ms. Sanchez relied on repeatedly states that employees are employed at-will and that the employee handbook creates no contractual rights or obligations. And, Whole Foods highlighted that it had its employees, including Ms. Sanchez, sign a similar disclaimer every time a policy in the employee handbook was updated. The Court agreed with Whole Foods (and the United States District Court for the District of Columbia’s similar 2018 opinion) that, based on the repeated express disclaimers, the employee handbook was not a contract under Maryland law.

Progressive discipline policies allow employers to use their discretion

Even though the Court found that no contract existed based on the employee manual, it addressed Ms. Sanchez’s other arguments. In response to one of Ms. Sanchez’s arguments, that Whole Foods’ corrective action policy contained in the employee handbook required progressive discipline before employees can be terminated, the Court noted that the policy gave Whole Foods the discretion and flexibility to use differing disciplinary procedures and to terminate employees without prior notice. The corrective policy defined different types of infractions, and carved out situations where counseling and warnings were not required.

Takeaways

Besides ensuring that their employee manuals and handbooks actually have an express disclaimer that nothing contained therein creates any contractual rights or obligations, employers should also:

  • Place an express disclaimer on the first page (or in the preface or introduction) to indicate that it applies to the employee manual or handbook;
  • Repeat the express disclaimer throughout the employee manual or handbook;
  • Make sure that the express disclaimer is prominently highlighted; and
  • Have employees sign and acknowledge the express disclaimer.

Because of the recent updates to Maryland’s employment laws (discussed throughout Employment Edge), now is the perfect time for employers to review their employee manuals and handbooks for the appropriate disclaimer language needed to avoid potential contractual liability.

For more information, contact Josh at 301-347-1273 or jcschmand@lerchearly.com.