Employment Contract

What many employers overlook is that employee handbooks and related documents are treated by the courts as formal, binding written contracts.

As such, they are subject to the numerous statutory rules of contract interpretation. One rule, of critical importance to employers, is that when contract provisions are in conflict, they will be construed against the drafter. Since the “drafter” of handbooks is always the employer, this means that handbooks and other contractual documents must be drafted with precision and a keen awareness of the law governing contracts.

For example, a handbook policy stating that warnings will be given before termination likely conflicts with an at-will employment policy, which provides that employees can be terminated at any time without notice. If challenged, a court would likely construe the conflicting provisions against the employer, by disregarding the at-will policy – a potentially catastrophic result. This is just one of numerous similar mistakes commonly made by employers.

If properly drafted employee handbooks and other employment contracts can be highly advantageous to employers by establishing an at-will relationship and the exempt status of employees for overtime compensation purposes, for example.

Special Note

The only way to “win” a lawsuit is to prevent it from materializing in the first place. This is an environment where even a mundane employment lawsuit can cost a million dollars or more to defend, win, lose or draw. Moreover, the employer (but not the employee) will typically be required to reimburse the employee’s legal fees and costs if the employee wins even a nominal award. So, tack on another million or so, before even considering the amount of the jury award, which is often staggering.

This feature of the law is even more disturbing when it is understood that employers in California lose the overwhelming majority of jury trials. This is due to composition of a typical jury, which usually consists of employees, not business owners or even supervisors. These juries are predictably highly sympathetic to the plaintiff suing the employer.

It is for this reason that, an employment contract requiring employees to submit all disputes to mandatory arbitration is highly recommended. Such an arrangement can reduce defense costs by as much as 90 percent, while enhancing the employer’s prospects for winning at trial.

These and related precautions, once in place, often reduce the prospect that an employer will be sued. This is because they make a potential case far less attractive to plaintiff’s lawyers by preventing employers from being “pummeled into submission” to an exorbitant settlement by their prohibitively-expensive legal defense costs.

Because these lawyers risk going uncompensated if the case fails to produce a favorable settlement, they carefully examine the circumstances to be certain of a sure winner before they will accept a case.

The less vulnerable a plaintiff’s lawyer perceives an employer to be, the less likely it is that a lawsuit will result. The precautions I recommend are specifically- designed to accomplish that result.

This explains why my law practice was built on the maxim: “an ounce of prevention is worth a pound of cure.”