According to the Small Business Administration, “an employee handbook is the most important communication tool between you and your employees.”  The SBA also advises:  “An employee handbook should describe your legal obligations as an employer, and your employees’ rights.”  This sounds an awful lot like a contract and without careful drafting, an employer may end up creating an employment contract where none is intended.

Let’s start with the basics.  Texas is an “at will” employment state.  This means that absent an agreement to the contrary, employment can be terminated at any time by either party, with or without cause and with or without advance notice. If you are like the majority of employers, you like the idea of being able to terminate someone “at will” and want to be sure that you do not do anything that alters this right.  That is, you do not want to make “an agreement to the contrary” with the employee.  One of the ripest possibilities for this happening is the employee handbook where policies and procedures run the risk of being construed as contractual terms that create rights and duties between the parties.

So how do you avoid creating an employment contract with your employee handbook?  For starters, your handbook should contain a disclaimer that expressly states that the manual is not intended to create contractual rights. Here’s an example of one such disclaimer that has been found to preserve the “at will” relationship:

This manual is intended solely as a guide for management and employees during employment. It is not a contract of employment, and no such contract may be implied from its provisions. Nothing in this manual shall be construed to abrogate the employment agreement signed upon application for employment preserving the Company’s and the employee’s right to terminate this relationship at the will of either party.

The foregoing disclaimer was contained in the handbook of  a national company and was found not to change the “at will” relationship under Texas law.  For application in Texas, I would delete the last sentence and avoid anything that looks like an “employment agreement” in the job application.  This was apparently appropriate in one or more states in which the handbook was to be used but no such initial “employment agreement” is necessary under Texas law in order to create “at will” status.

Now for an important concept that can be a little confusing.  The “at will” doctrine does not mean that you cannot have any kind of a contract with your employee. It just means that you cannot have one in which the consideration on your part involves the promise of continued employment.  If the consideration on your part is something separate and distinct, the contract will be valid and “at will” employment will be maintained.

If it is done correctly, you can have an enforceable arbitration agreement with your employee and still maintain “at will” status.  But this can be tricky. If your arbitration agreement appears in a handbook or policy manual that puts an emphasis on being non-contractual or subject to change, you run the risk that the arbitration agreement will be found to be illusory and unenforceable.

You can also create a valid non-compete agreement while preserving “at will” employment.

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