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Ensure Your Practice's Employee Handbook is not a Contract


A recent case between a hospital and its former employee emphasizes the need for practices to make sure their handbook is not an accidental handbook.

Almost every physician practice maintains an employee handbook that sets forth the rules and policies it has established for its employees.  However, physician practices need to be careful not to establish an unintentional contract with employees by making it clear that its handbook is not a contract and only contains "guidelines" or "policies." 

Although state law varies on how employee handbooks are interpreted, in an interesting unpublished decision of the Illinois Appellate Court, a "no contract" handbook disclaimer was upheld and an employee's breach of contract claim filed against his former employer (a hospital) was dismissed.  In that case, the employee alleged that he had an "oral and implied" employment contract based on the hospital's handbook and other personnel practices, memoranda, policies, and procedures.  In particular, the handbook established a detailed employee conflict resolution program, which the employee alleged created a formal administrative process for addressing employment disputes.  The employee alleged in his lawsuit that the hospital breached the employment agreement between the parties because he was terminated without a proper investigation or hearing as provided in the handbook. 

In refuting the claims, the hospital argued the employee was only an at-will employee and that the handbook did not create a contract.  Although the lower court agreed with the hospital and dismissed the complaint, the Appellate Court recognized on appeal that even at-will employment relationships can become contractual if the elements of a contract are established by an employee handbook or other set of policies.  The only way to prevent this from occurring is to include a disclaimer in the handbook, which clearly states that the handbook promises nothing and does not act as a contract. 

In this particular case, the hospital's handbook expressly provided that its "policies and procedures serve as guides" and that the hospital reserves "the right - at its sole discretion -to change, suspend or cancel with or without notice, all or any part of the policies, procedures, programs and benefits discussed in this handbook."  Even more importantly, the handbook contained a specific statement that the handbook did not establish contractual rights, in whole or in part, between the hospital and its associates. 

The Appellate Court found the hospital's disclaimer to be clear and unambiguous.  The Appellate Court also contrasted the case with other similar cases, and pointed out that employers still need to be careful since even where the disclaimer language is properly used. If you fail to sufficiently setoff such language from the rest of the handbook text, the disclaimer might be insufficient and a contract could be deemed to have been created. 

In order to make sure that your employee handbook does not unintentionally create a contract with your employees, consider the following steps:

1. Make sure to include a specific disclaimer in the handbook that no contract is being created.

2. Make sure the statement is clear and conspicuous by using bold and capital letters, or even enlarging the font.

3. Set the disclaimer off from the rest of the handbook provisions.  Use a title to identify the disclaimer, such as "NO CONTRACT CREATED".

4. Make sure that your handbook describes your policies and procedures as "guidelines" and expresses that disciplinary action "may or may not" result.

Because the law varies from state to state, make sure to review your practice's handbook, rules and policies with counsel on a regular basis.  The above protections may or may not be sufficient in your state to prevent your handbook from becoming a contract. 

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