The Importance of Adopting Employee Handbooks

Winter 2019 Article

The Importance of Adopting Employee Handbooks


An employee handbook is a written compilation of a company's policies, procedures, and other important information that is distributed to employees. This article addresses some of the legal and practical issues relating to the content of employee handbooks, with a particular focus on aspects of the employment relationship that vary in multi-state employee handbooks. Every company has its own culture, values, and personnel practices. Drafting or reviewing an employee handbook is an interactive process involving meetings, phone calls, and exchange of drafts between companies and legal counsel.


As companies start their business or grow, the need for uniform application of policies and procedures warrants the time and effort required to create or update an employee handbook. Because an employee handbook promotes consistency of treatment, it can reduce the risk of unlawful discrimination claims. Discrimination lawsuits are often based on claims that the employer acted arbitrarily, or singled out an employee for unfavorable treatment that was inconsistent with the treatment of other employees. Furthermore, confusion about unstated policies and benefits can lead to employee morale problems or union organizing efforts.

The collection of written policies makes employment decisions based on those policies more credible. In addition, a well-drafted employee handbook reserves for the employer the right to deviate from the stated policy in appropriate situations. Employee handbooks often help new employees in understanding a company's policies, procedures, and benefits; they also educate managers and supervisors in resolving employee complaints about policies and procedures.


Companies may implement any lawful policy as a term or condition of employment. Generally, employee handbooks include disclaimers stating that the employee handbook does not create, and is not intended to create, a legally enforceable agreement. To minimize the possibility that an employee handbook will be treated as a contractual document, employee handbooks should:

  1. Include a prominent disclaimer on the first page, in different type and color from the rest of the text, declaring that the employee handbook is not a contract and that it includes only guidelines regarding the company's policies;

  2. State in the disclaimer that, except for the at-will policy, all other policies can be modified by the company at any time without a written revision of the handbook;

  3. Include this language also in the handbook acknowledgement form, which employees should be required to sign on the employee handbook's receipt.


Companies may want to include the following policies in their employee handbooks:

  • equal employment opportunity statement; policy against harassment, discrimination, and retaliation;

  • at-will employment;

  • leave policies;

  • standards of performance, discipline and termination;

  • drug and alcohol policy; drug testing policy;

  • dispute resolution policy;

  • acknowledgment of receipt of employee handbook.

It is not uncommon to include arbitration provisions in the employee handbook, or otherwise draft an arbitration agreement, separately agreed to and signed by the employee. To be enforceable, an arbitration agreement should provide a mechanism for the selection of a neutral arbitrator; allow the employee to conduct adequate discovery and recover as much as would be available in a civil trial; call for a written decision by the arbitrator; limit the share of arbitration costs borne by the employee; and provide mutuality between the parties.


Companies that have a presence in more than one state must be aware of aspects of the employment relationship that are regulated not only at federal level, but also at state and local level. Employee notices and postings, reasonable accommodations, wages and hours, leaves of absence, post-employment relationship (including payment of final wages and document retention), for example, are only some aspects of the employment relationship that are regulated at state level and local level. Some of these aspects are explored in more detail as follows.

Leave of Absence Policies and Practices

Multistate companies are often faced with compliance challenges when it comes to state leave laws. Differences in federal and state leave laws emerge as to whether the company is covered under the leave law, or whether the leave may run concurrently with other paid or unpaid leaves. 

Companies must pay attention not only to state laws, but also to local laws. With respect to paid sick leave, for example, while under California law all employers are required to provide employees with at least 24 hours paid sick leave per calendar year, within the city of Los Angeles[1],  employers are required to provide 48 hours paid sick leave either at the beginning of each year of employment, calendar year, or 12-month period; within the city of Santa Monica[2],  employers are required to provide 40 or 72 hours paid sick leave, depending on the size of the employer; and in San Francisco[3],  employers are required to provide employees with one hour of paid sick leave for every 30 hours worked. As another example, the state of New York[4] does not require employers to provide employees with sick leave benefits, either paid or unpaid. However, within New York City, employees accrue sick leave at the rate of one hour for every 30 hours worked, up to a maximum of 40 hours of sick leave per calendar year.

Minimum Wage

The Fair Labor Standards Act (FLSA) is a federal law that requires most nonexempt employees be paid a federal minimum wage for all hours worked. Many states, however, have their own minimum wage laws that may provide higher wages than federal law. If state and federal law impose different requirements, a company must adhere to the standard that is most beneficial to employees.

A number of cities around the country, including major cities in California such as San Francisco, Los Angeles, and Santa Monica, have also implemented their own ordinances providing for higher minimum wages on certain covered employees. Within both the cities of Los Angeles and Santa Monica, for example, the minimum wage will increase on July 1, 2019 from current $12 per hour to $13.25 per hour for employers with 26 employees or more and from current $13.25 per hour to $14.25 per hour for employers with 25 or fewer employees.


The FLSA also requires that most nonexempt employees receive overtime pay at time-and-one-half the regular rate of pay for all hours worked over 40 hours in a workweek. Certain states, however, have further overtime requirements.

In California, for example, employees are entitled to overtime when they work more than eight hours in a workday, or a seventh consecutive day in a workweek. Double time must be paid for all hours over 12 in a day and for all hours of work in excess of eight hours on the seventh consecutive day of work in a single workweek.

Furthermore, the FLSA provides certain white-collar exemptions from overtime requirements for employees employed, inter alia, as bona fide executive, administrative, professional and outside sales employees[5].  States, however, do not necessarily adopt all of the exemption categories available under federal law. Therefore, multistate companies should carefully examine applicable state exemptions to determine whether their employees can be classified as exempt or nonexempt.

Payroll Practices

State laws also regulate the aspects of an employee’s wage and hour obligations. Areas such as wage deductions, meal and rest periods, payment of wages at termination, vacation and holiday pay, vary from state to state.

In California, for example, vacation pay is a form of wages that vests as it is earned and cannot be forfeited, even upon termination of employment. Since paid vacation benefits are considered wages, vacation pay must be included in the employee’s final paycheck or, if not used by year-end, must be paid to the employee in the employee’s last paycheck. In other states, such as Illinois, vacation pay is a forfeitable benefit of employment and a “use it or lose it” policy will be enforced. In New York, as another example, an employer may implement a “use-it-or-lose-it” policy, so long as employees are given prior notice of the policy, i.e., in the employee handbook or in the offer letter.

Drug Testing Policy

For multistate companies, drug testing presents another compliance challenge. There are federal and state restrictions on whether a company may require an applicant or an employee to submit to a drug test.

In California, there is no statute or regulation governing drug testing of employees and applicants by private employers; the parameters of workplace drug testing have been developed by case law. Courts apply a balancing test weighing an individual’s right to privacy under the California Constitution against an employer’s legitimate interest in regulating the conduct of its employees.

Furthermore, random drug testing may be permissible in certain limited circumstances, for example, where the employee is in a safety or security-sensitive position.


Requests for information or insights on the issue discussed in this article may be addressed to  This article is for information purposes only and does not constitute legal advice. The information contained herein may be outdated or incomplete, and shall in no way be taken as an indication of future results. The transmission of this article is not intended to create, nor does its receipt constitute, an attorney-client relationship between preparer and reader. You should not act on the information contained in this article without first seeking the advice of an attorney.

[1] Los Angeles Minimum Wage Ordinance, effective July 1, 2016.

[2] Santa Monica Minimum Wage Ordinance, effective July 1, 2016. 

[3] San Francisco Paid Sick Leave Ordinance, effective February 5, 2007.

[4] New York City Paid Safe and Sick Leave Law, effective April 1, 2014.

[5] Exempt employees are exempt from overtime pay and minimum wage laws. To qualify for exemption, employees generally must meet certain tests regarding their job duties and be paid on a salary basis at not less than $455 per week.