Labor & Employment/Jan 14, 2020

Employment Policy Disclaimer Ruled Adequate to Prevent Contract Formation

In Bodnar v St John Providence, Inc, 327 Mich App 203 (2019), the Michigan Court of Appeals addressed the enforcement of employment policies as contracts, finding that an appropriate disclaimer can prevent policies from becoming contracts.

Bodnar was one of a group of nurses working at St. John Providence. St. John’s had written policies requiring severance pay and benefits for employees who were terminated and not offered a comparable job. Due to financial struggles, St. John’s decided to outsource the nurses’ services to a separate entity. St. John’s terminated the nurses and contracted with the separate entity to hire the nurses to continue providing their services. The new employment offers to the nurses, however, cut many of their benefits. Many nurses refused to take the new positions, arguing they were not comparable. They then sued for the severance pay and benefits owed under the employee policies.

The court in Bodnar started its analysis by noting that the Michigan Supreme Court held in Cain v Allen Elec & Equip Co, 346 Mich 568 (1956) that employee handbooks and policies can indeed become employment contracts in some situations. The court then discussed the Michigan Supreme Court’s precedent regarding wrongful termination specifically, noting that termination may require “just cause” under two theories: 1) the negotiations between employer and employee became a part of the employment contract and required just cause for termination, or 2) the “legitimate expectations” of the employee based on the employer’s written policy required just cause. Toussaint v Blue Cross & Blue Shield of Mich, 408 Mich 579 (1980). The court then noted, however, that the Michigan Supreme Court refused to extend the legitimate expectations rationale beyond wrongful termination cases, leaving the court to analyze the employment policies under traditional contract law.

One of St. John’s policies contained a clause stating “this policy provides guidelines only and does not constitute a contract of any type, or guarantee of continued employment in any position for any duration.” While a dissenting opinion argued this clause only prevented the policy from requiring just cause termination, and this clause only applied to the single policy in which it was found, the majority found the plain language of this clause was broad enough to prevent both policies from becoming binding contracts. The majority also distinguished this disclaimer from Cain by arguing Cain only prevents an employment policy from eliminating a right that had already vested, whereas this disclaimer prevented a right from ever vesting.

Employment policies and handbooks are complicated, and the Court’s analysis in Cain and Toussaint or the dissent’s argument in Bodnar may apply to yours. If you want to make sure your employment policy or handbook does what you intend it to do, the experienced attorneys at Gielow Groom Terpstra & McEvoy can help.

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