Washington Appellate Court Reviews Employee Handbook Contract Claim

Division III recently decided a case that sheds light on the courts’ efforts to make sense of employee handbooks.  Carlson v. Lake Chelan Community Hospital, 116 Wn. App. 718, 75 P.3d 533 (2003).  Larry Carlson worked for Lake Chelan Community Hospital (“LCCH”).  His supervisor wanted to discuss performance issues with him.  Carlson insisted on having a third party present and wanted to tape record the meeting.  The supervisor refused, and Carlson walked out.  The next day the supervisor again tried to arrange a meeting – this time with a third party present – but Carlson again wanted to tape record the meeting.  The supervisor refused and Carlson again refused to meet with him.  The supervisor then suspended Carlson for insubordination and advised that he would recommend termination. 

 Employees who are at-will can be terminated with or without cause and for any reason or no reason.  One exception to this doctrine arises where the employer makes promises in an employee handbook that rise to the level of being contractual commitments.  LCCH’s handbook had a “Progressive Discipline” policy.  Per that policy, an investigation was done and the termination recommendation was approved.  Carlson then sued LCCH alleging the Progressive Discipline policy was not followed, there was no basis for termination and thus that there was a breach of contract.  The litigation centered on whether Carlson was terminated for “Insubordination toward a reasonable supervisory directive.”  The case went to trial.  LCCH argued that its policies were only guidelines and not contractual obligations.  To that end, LCCH pointed to the handbook’s disclaimer, which reads: “This Handbook is intended as a set of general guidelines and should not be construed as a contract or covenant of your employment.  Management reserves the right, at any time, to revise this Handbook, wholly or in part.” 

The court found that this language was not strong enough to constitute a “clear, conspicuous statement” of an intent not to be bound by its policies.  In so ruling, the court cited stronger language from two cases in which the employers prevailed, Payne v. Sunnyside Cmty. Hosp., 78.Wn.App. 34, 39, 894 P.2d 1379(1995) and Clark v. Sears Roebuck & Co., 110 Wn.App. 825, 41 P.3d 1230 (2002).  In Payne, the disclaimer provided:

The policies and procedures described [here] are implemented at the sole discretion of the hospital and are subject to change at any time, without prior notice… This [document] is designed to outline general hospital policies and procedures.  Nothing contained [here] is to be considered as an employment contract.  Employees have the right to resign the employment at any time, without notice, for any reason or no reason.  The hospital retains a similar right to discontinuation of the employment of any employee.

In Clark , the disclaimer provided:

Employment at Sears is for an indefinite period and terminable at the will of either Sears or an associate with or without notice and with or without cause at any time…  References in this Guide to reasons for termination are illustrative only and are not intended to limit in any way either the reasons for which an associate may be terminated or Sears authority to terminate at will…  Employment at Sears is for an indefinite period and … Sears reserves the right to depart from its standard disciplinary procedures when, in its discretion, such a departure is deemed warranted.

Ultimately, the jury found for Carlson and awarded him $408,000 in damages.  Division III affirmed.  The Washington Supreme Court recently granted a petition for review.  Regardless of how the case is finally decided, the moral of the story is that employers need to be extremely careful in drafting handbook language.  The language must be general enough to make no promises or guarantees, but also specific enough to prevent misinterpretation.  Because the employer drafts the handbook language, creating unintended contractual obligations is a self-inflicted wound that can and should be avoided.