Michigan Employers: Create Separate Agreement to Arbitrate, Non-Compete, and Non-Disclosure Contracts if Your Employee Handbook Contains a Contractual Disclaimer

Michigan employers should create and use employee handbooks. Handbooks provide employees with important information about the company and its customs, rules, culture and benefits for employees. Handbooks create clarity for employees and can provide certain protections for employers.

But realizing these and other benefits isn’t as simple as grabbing a template handbook off the internet and changing the company name to your own. The employer/employee relationship is too important, and potentially fraught with risk, to adopt a DIY approach to creating a handbook.

As a recent Michigan Court of Appeals decision demonstrates, each provision of a handbook must be carefully thought through to avoid unintended consequences—such as costly litigation.

Blanket Disclaimers—A Potential Problem in Many Handbooks

In addition to information about a company’s customs, rules, culture and benefits for employees, most handbooks contain language that disclaims that the handbook and any of its stated policies are not to be construed as any type of legally enforceable contract or agreement. This makes sense, since most employees are “at will” and employers want to reserve the right to modify their policies at their discretion.

However, if an employer does include this sort of disclaimer, it’s important that the handbook doesn’t include any provisions that the employer intends to be contractually enforceable, such as an agreement to arbitrate disputes, non-compete agreement and/or non-disclosure agreement. To the extent that an employer intends to bind some or all employees to such agreements, they should be standalone agreements—not included as provisions within a handbook that also contains a blanket contractual disclaimer.

Court of Appeals: A Handbook Disclaimer Makes Your Agreement to Arbitrate Unenforceable

This issue was recently the subject of an unpublished court of appeals opinion in an employment discrimination case.

In the underlying case, two plaintiffs filed a complaint against their employer alleging race-based employment discrimination and retaliation in violation of the Elliott-Larsen Civil Rights Act. The employers filed a motion to dismiss, arguing that the plaintiffs had agreed to arbitrate such disputes pursuant to signed agreements contained in the employer’s “Personnel Policy Manual”.

Plaintiffs argued that they did not intend to be bound by the agreement to arbitrate and, in any event, it was not enforceable against them given that the manual contained a disclaimer which provided: “The provisions of this arbitration procedure does [sic] not create any contract of employment, express or otherwise, and does not, in any way, alter the ‘at-will’ employment relationship.” The employer argued that the arbitration agreement was a separate agreement distinct from the rest of the manual.

The trial court granted the employer’s motion to dismiss, however the court of appeals reversed.

According to the court: “[W]e conclude that the disclaimer in this case was a manifestation of defendants’ intent not to be bound by the arbitration agreements.” The employer’s argument that the agreement to arbitrate was a standalone agreement unaffected by the disclaimer was rejected.

Know What to Put—and Not Put—in an Employee Handbook

If you don’t intend for your employee handbook to be a contract—and in almost all cases you shouldn’t—then don’t include arbitration, non-disclosure, non-compete, non-solicit, or other agreements you want to be able to enforce in your handbook. If you do, and your handbook contains a contractual disclaimer, then there is a good chance such agreements will be deemed unenforceable. Instead of relying on handbook provisions, create separate, standalone agreements.

Your employees are your most important assets, so it’s worth investing in sound employment law practices. If you have any questions about or require assistance with employment law issues, please contact Zana Tomich.