CODE OF CONDUCT OR BINDING CONTRACT? COURT FINDS HANDBOOK NOT AN ENFORCEABLE CONTRACT IN APPELLATE VICTORY FOR THOMPSON BURTON

The Tennessee Court of Appeals is clarifying what changes an employee handbook from mere guidelines for the workplace to a binding contract between workers and their employer.

In Mankin Media Systems v. Timothy Corder, an audio-visual and lighting systems integration company filed suit against a former employee for interfering with its customer relationships when the employee left to join a competitor. The employee worked for the company as a salesman, a forward-facing role that gave him access to proprietary information and customer data. The job required him to communicate regularly with clients and be the face of the company. During his employment, the salesman received an employee handbook and signed an acknowledgement that he reviewed the handbook. The handbook contained provisions that, among other things, protected the company’s trade secrets and intellectual property. When the salesman left to perform the same role for a competitor AV company serving the same market, he downloaded his former employer’s database of client contacts. He also took proprietary files with him and called clients to invite them to an event hosted by his new employer.

The employer filed suit against the its former employee in a Tennessee state trial court. The  former employee moved to dismiss the suit because the handbook he signed contained an arbitration provision. The court agreed, and ordered the parties to arbitrate the dispute. The arbitrator issued an award in favor of the employee, finding the employer’s employee handbook did not constitute a contract, and as such the employee could not have breached the provisions it contained regarding trade secrets and company property. The employer filed a motion to vacate the arbitration award arguing that the arbitrator exceeded his authority by finding that the handbook was not a binding contract but then proceeding to hear the case under the arbitration clause contained in the handbook. However, trial court confirmed the award. 

On appeal, represented by Thompson Burton attorneys Cole Dowsley and Sarah Ferraro,  the employer argued the case should not have gone to arbitration, because if the handbook was not enforceable, neither was the arbitration provision. The Tennessee Court of Appeals agreed, holding the language used in the handbook did not evidence intent to form a binding agreement. The court found it was error for the trial court to enforce the arbitration of the handbook despite concluding no contract had been formed. The court then reversed the order confirming the arbitration award and remanded the case to the trial court.

The Court of Appeals’ opinion in Mankin Media is instructive to employers. As a general matter, handbooks can be beneficial to operating a workplace. Handbooks, for example, provide management with guidelines for discipline and give employees an idea of what leave time they may be entitled to. However, employers should be aware that the specific wording of a handbook can determine whether it can be enforced as a legal agreement between employee and employer.

There are several reasons why an employer may or may not desire a contractual relationship with an employee. For example, some states, including Tennessee, consider at-will employment a default employment relationship, meaning an employee may be terminated at any time for any lawful reason. Some employers include disclaimers in their handbooks clearly stating it is not a contract in order to avoid any implication that the employee will be hired for a set term or may only be terminated for cause. On other hand, an employer may want a handbook to be construed as a contract to the extent it contains language about protecting trade secrets the employee should be bound by. 

While a court’s determination as to the enforceability of a handbook is extremely fact specific, some takeaways have been consistent across most jurisdictions and situations:

• A disclaimer such as “NOTHING IN THIS HANDBOOK IS INTENDED TO BE UNDERSTOOD AS AN EMPLOYMENT CONTRACT BETWEEN THE COMPANY AND THE EMPLOYEE” is typically sufficient to show intent not to form a contract
• However, a disclaimer is not required to be in capital letters or bold print to be valid
• An employer does not bind itself to act in a particular way if it merely expresses vague goals or values
• A contract can be formed when an employee provides consideration, such as foregoing their right to unionize

Because the language used in employee handbooks has lasting significance, including as in the Mankin Media case where dispute resolution is concerned, employers should use caution preparing handbooks and be mindful of the company’s specific goals and concerns. Thompson Burton has experienced counsel ready to assist with a variety of employment and contractual needs – from drafting a handbook from scratch to filing or defending a lawsuit concerning terms of employment.