The Importance of Employee Handbooks in California

Although there are many advantages to utilizing an employee handbook, from a purely legal perspective, the employer is usually hoping to establish ground rules of acceptable conduct and prevent the company from being subjected to legal liability. The sources of such liability are many, from wage disputes to wrongful termination, discrimination and harassment claims.

A good employee handbook will not prevent such a claim from arising, but can assist the company in defending its actions.

A poorly drafted handbook can actually be used against the company to prove the claimant's case. For example, some preprinted handbooks contain sections dealing with the progressive discipline of employees, containing a comprehensive scheme from oral warning to termination. Courts have found that a company that does not follow this disciplinary scheme can be held liable for wrongful termination. Other courts have held that such policies may imply that the company can only terminate for good cause. This can be a problem in California where employees are typically "at-will" employees. This means that an employee can be terminated any time, and for any reason (so long as the reason is not based on race, religion, etc....). However, if an employer adopts a progressive discipline system, the company may find that its employees are no longer "at will" employees.

Many prepared handbooks contain so-called "use it or lose it" provisions governing vacation pay. In fact, the California Supreme Court has declared such policies to be illegal. A company that utilizes such a policy to forfeit the accrued but unused vacation pay of a departing employee can find itself liable not only for the monetary value of the accrued vacation time, but interest and penalties equal to 30 days worth of the employee's salary.

The decision to create and enforce company policy in a written document is an excellent idea. However, care must be taken to make sure that the employee handbook complies with all state and federal laws and regulations. Once in place, the employee handbook must be updated at least once, if not twice, a year.

The Orange County lawyers at Jacobs and Dodds can assist you in drafting your company's employee handbook. Call us at (949) 645-7300 or visit us at our web site at

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