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Employers can, and often do, create contractual commitments with employees. This can take the form of formal written employment agreements, mandatory mediation/arbitration policies, employee handbooks or oral agreements.

Depending on the circumstances, any of the above can be legally binding.

What many employers overlook is that employee handbooks are treated by the courts as formal, binding written contracts.

As such, they are subject to the numerous statutory rules of contract interpretation. One rule, of critical importance to employers, is that when contract provisions are in conflict, they will be construed against the drafter. Since the “drafter” of handbooks is invariably the employer, this means that handbooks and other contractual documents must be drafted with precision and a keen awareness of the law governing contracts.

For example, a handbook policy stating that warnings will be given before termination likely conflicts with an at-will employment policy, which provides that employees can be terminated at any time without notice. If challenged, a court would likely construe the conflicting provisions against the employer, by disregarding the at-will policy – a potentially catastrophic result. This is just one of numerous similar mistakes commonly made by employers.

If properly drafted, employment contracts can be very advantageous to employers by establishing the at-will relationship, the exempt status of employees for overtime compensation purposes or the independent contractor status of outside workers, for example.

Special Note

The best way to win a lawsuit is to prevent it from materializing in the first place.

This is particularly true in the increasingly complex, and dangerous, legal environment California employers must navigate.

This is an environment where even a mundane employment lawsuit can cost a million dollars or more to defend, win, lose or draw. Moreover, the employer (but not the employee) will typically be required to reimburse the employee’s legal fees and costs if the employee wins even a nominal award. So, tack on another million or so, before even considering the amount of the jury award, which is often staggering.

This feature of the law is even more disturbing when it is understood that employers in California lose the overwhelming majority of jury trials. This is due to composition of a typical jury, which usually consists of only employees, not business owners or even supervisors. These juries are predictably highly sympathetic to the plaintiff suing the employer.

It is for this reason that, an employment contract requiring employees to submit all disputes to mandatory arbitration is highly recommended. Such an arrangement can reduce defense costs by 90 percent, while greatly enhancing the employer’s prospects for winning at trial.

These and related precautions, once in place, generally reduce the likelihood that an employer will be sued. This is because they make a potential case far less attractive to plaintiff’s lawyers, whose compensation in these cases consists of a percentage of any eventual settlement or award.

Because these lawyers risk going uncompensated if the case fails to produce a settlement, they carefully examine the circumstances to be certain of a sure winner before they will accept a case.

The less legally vulnerable a plaintiff’s lawyer perceives an employer to be, the less likely it is that a lawsuit will result. The precautions I recommend are specifically-designed to accomplish that result.

This is why my law practice was built on the maxim: “an ounce of prevention is worth a pound of cure.”

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