The Innovators’ Counsel: Implied Contracts & At-Will Employees

Jeremy Weltman Uncategorized

Most who are reading this blog would understand the phrase “at-will employment” to mean the traditional U.S. employment relationship in which an employee can be dismissed by an employer for just about any reason – that is, without having to establish “just cause” for termination – and without warning. However, what most may not realize is that even in the absence of an express written agreement, employers of all sizes may still find themselves legally bound to implied employment agreements arising from handbook provisions, bylaws, or other policy provisions; and/or, from representations made to employees at the inception of, or throughout the term of, employment. Jackson v. Action for Boston Cmty. Dev., Inc., 403 Mass. 8 (1988).

Scenario: Company X gave every employee a company handbook on their first day of work. Is there an implied employment contract for “at-will” employees?

Indeed, the SJC in Jackson held that in certain circumstances, an employer’s employment handbook may constitute a contract. Id. at 13. Further, held the SJC, an employee remaining with the employer after receiving a manual provides the consideration necessary to support the contract. 403 Mass.  at 14. A few years later, any wiggle room left in the wake of Jackson was eliminated when the SJC stated that if the parties agree in advance of employment that a personnel manual will set forth relative rights and obligations of employer and employee, the manual becomes part of the employment contract, even for so-called “at-will employees.” O’Brien v. New England Tel. & Tel. Co., 422 Mass. 686, 691-692 (1996). The SJC went even further in the O’Brien case when it unequivocally stated that “[i]t is also apparent that the circumstances of a particular employment relationship could warrant a finding of an implied contract that includes the terms of a personnel manual.… If an employer adheres to the procedures set forth in its manual, that would be some evidence that the terms of the manual were part of the employment contract.” 422 Mass. at 692 (internal citations omitted).

Scenario: Company X and the at-will employee a) did not discuss the company handbook when negotiating the job offer, and b) the employee was never required to agree to the provisions of the handbook. Do the terms of the handbook form the basis for an implied employment contract?

The Jackson opinion, decided in 1988, initially led to confusion because certain facts that were stated to be present or not present in that case have been argued by employers as constituting a list of conditions that must exist in order to justify a ruling that the terms of a personnel manual are part of an express or implied employment contract. See Pearson v. John Hancock  Mut. Life Ins. Co., 979 F.2d 254, 256-257 (1st Cir. 1992). This confusion was cleared up when the O’Brien court stated that “[t]The various circumstances discussed in the Jackson opinion are not a rigid list of prerequisites, but rather explain factors that would make a difference or might make a difference in deciding whether the terms of a personnel manual were at least impliedly part of an employment contract. For example, one of the Jackson factors is whether there had been negotiations over the terms of the personnel manual. If there had been negotiations leading to an agreement, that fact alone would justify the conclusion that more than an at-will employment contract existed. [However] the fact that the NET manual was not the subject of negotiation is neither significant nor surprising.” 422 Mass. at 692.

Scenario: Company X fires an “at-will” employee one day for a reason other than “cause.” The former employee sues Company X for wrongful termination, claiming that she reasonably relied on the implied contract formed by Company X through its company handbook – to her sole detriment.

In 2008, the SJC reframed and clarified the proper analysis when it ultimately found that the context of the preparation and distribution of handbooks and policies is the most persuasive proof of whether the employees’ reliance on it as binding is reasonable. LeMaitre v. Mass. Tpk. Auth., 452 Mass. 753 (2008). After LeMaitre, no longer will an implied contract be avoided by reliance on a checklist of factors such as including the employer’s right to unilaterally change the handbook at any time, stating that the manual is for guidance and is not a commitment, not negotiating regarding its provisions, not calling special attention to the manual in hiring, and the employer not seeking to get the employee to agree to the provisions of the manual.

Scenario: Company X is updating its employee manual and plans to distribute it to all “at-will” employees. What sort of considerations should be had?

The evolution of the case law in Massachusetts makes clear that breaches of implied contract actions based on employee manuals and corresponding employer “standard” practices are emerging as cognizable and viable courses of action. Given the increasing judicial recognition of these claims arising from an employer’s failure to adhere to its established procedures when making personnel decisions, employers who include such procedures in employee manuals should draft them cautiously with the expectation that it just might be considered to create a contractual obligation where none previously existed.