The Employee Manual: Mechanism for Avoiding Expensive Employee Disputes


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A company’s employees often are its most valuable resource. Unfortunately, misunderstandings or disputes with employees also can lead to some of a company’s biggest and most expensive headaches.

Workers are turning to the courts in growing numbers with such claims as wrongful termination, discriminatory treatment, unsafe working conditions, and harassment. Employers, sobered by huge jury awards, are increasingly coughing up thousands of dollars to settle even minor disputes. The economic effect of an employee lawsuit can be particularly devastating on a small company.

Although there is no magic potion for eliminating employee disputes, a company can minimize the costly headaches by maintaining sound personnel practices. At the heart of such practices is the employee manual.

A well-written and carefully used employee manual can reduce the risk of lawsuits and can be a company’s first line of defense when disputes do arise. In addition, an employee manual puts employees on notice as to workplace rules and provides guidance to supervisors and managers in implementing policies.

The lack of an employee manual often results in ad hoc decision making, inconsistent treatment of employees, and misunderstandings and confusion as to personnel policies. In some cases, it may even lead to inadvertent violations of the law, resulting in unnecessary penalties and liabilities.

Small companies, in particular, frequently neglect to establish formal personnel policies. Not having the luxury of a separate personnel administrator or personnel department, a small employer often takes the attitude, “I’ll deal with personnel problems if and when they come up. "

The problem with this approach is that complaints or disputes with employees invariably will arise in a whole range of areas, including matters such as absenteeism and tardiness, vacation and sick leave, performance and salary reviews, termination of employment, and harassment, to name a few. If an employer has not established clear written policies regarding such issues and consistently applied those policies, a disgruntled current or former employee will be in a strong position to successfully challenge the company in court or before the Labor Commissioner, exposing the company to potentially major liabilities.

By taking a proactive approach and defining its personnel policies before disputes arise, a company not only avoids charges of arbitrariness and bias, but also gains greater control over the workplace. Instead of simply responding to personnel problems one by one as they arise, a company can use an employee manual to take the initiative in establishing rules and setting priorities for its workers. Employees, meanwhile, are alerted as to what is expected of them.

To maximize the benefits of an employee manual, an employer should take the time to carefully go through the manual with all new employees. In addition, feedback from employees should be encouraged to identify policies that are confusing or outmoded.

By establishing and following a good employee manual, a company can ensure that it meets legal requirements and provide a basis for resolving misunderstandings or disputes with employees. When forced into court, such a company also will be in a much stronger position to defend itself.

Moreover, a company that maintains a well-designed employee manual can expect improvements in employee morale and efficiency. Workers who feel that they are being treated fairly and consistently are likely to be more loyal and more productive.

In sum, establishment and maintenance of a good employee manual is preventive medicine of the best kind and will pay many dividends in terms of professionalizing the work environment and minimizing costly disputes.

David Burgess graduated from Stanford Law School in 1981 and has been practicing business law since then. He currently is a partner with the Business Law Group in San Jose, California. For contact information, visit his firm’s website at

Copyright 2005 David Burgess


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