Handbooks as Contracts: A Cautionary Tale
Posted on August 20th, 2008 by Tim Eavenson | No Comments »Filed under: Employee Benefits, HR Issues |
This recent 7th circuit opinion is a good reminder why employment lawyers should be involved in every step of a company’s HR program – this case involves FMLA rules, state breach-of-contract claims, employee notice and designation procedures, and more. And it’s all because of a handbook (are you listening, Sam Zell?):
In Peters v. Gilead Sciences, Inc. (July 14, 2008), an employee sued after the company denied him reinstatement after what he thought was FMLA leave. This is from an Ogletree Deakins Client Update:
The day after beginning his leave, Peters received a letter from Gilead, stating the terms of his “FMLA” leave, and informing him of his right to reinstatement after leave. The letter tracked language that was set forth in the company’s employee handbook regarding employees’ entitlement to family and medical leaves. Although the letter and the handbook both included the 1250 hour/12 month language, neither included the 50-employees-within-a-75-mile-radius (“50/75”) language and, in fact, Gilead did not have 50 employees within a 75 mile radius.
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In April of 2003, Gilead decided to replace Peters with another employee. On April 25, Gilead sent a letter to Peters, designating him as a “key” employee. Under the FMLA, that designation – which includes the highest paid 10% of all salaried employees – allows a company to replace such a key employee rather than hold his position open. The letter advised Peters that his position had been filled, but offered an alternative position to him, which he declined.
When the employee sued, the district court granted summary judgment because the company did not meet the 50/75 requirement. But the 7th Circuit Court of Appeals remanded the case, because it thought Mr. Peters could have a state law contract claim, since the FMLA language was folded into the handbook. The theory is this: a handbook can be a contract under certain circumstances, and if that handbook is a contract, and it contains the same promises that are offered under the FMLA, it doesn’t matter whether you would be subject to the law or not, you’ve contractually obligated yourself to provide for leave the way the handbook says.
The moral of the story, of course, is be careful with your handbooks. Don’t just take a boilerplate policy set and hand it out. What you think is just an explanation of a possibly-applicable law could become a binding contract and obligate you to all kinds of scary things like reinstatement and back pay.
[ed. note: We normally don’t cite to firm publications, but I have to HT Ogletree Deakins for this one – we missed it here, and I haven’t seen it anywhere else, either.
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