Hang on. This isn't going to be pleasant. But the topic -employee contracts –and the discussion are vital to helping you prevent costly legal claims by employees.

This discussion started about two weeks ago when I was critiquing an employee handbook, in a telephone conference call. This handbook had several statements that read like employee contract provisions -promises -to the employee. The entire handbook read like a contract written by an attorney, or at least by a legal aide in an attorney's office. Yet, this handbook also had the obligatory "this is not a contract of employment" disclaimer inserted in it.

So the first, obvious question I had for the employer about her employee handbook was: Is it, or isn't it, a contract? And the same question for you. Is, or isn't, your employee handbook a contract? Actually, your handbook itself, in total, may not be a contract of employment between the employer and the employee. But statements, provisions and promises in the handbook may be -and often are -part of the con- tract of employment. And if these statements, provisions and promises in your hand- book become an issue in a dispute with an employee...you can expect a hearing officer, judge or jury to give them the weight of contract language.

In fact, all kinds of statements you and your supervisors make, orally and in writing, can be considered contractual statements. The most recent example: An arbitration agreement in an employment application form.

Say what? In a job application form? How can a job application form contain employment contract language? The applicant isn't even an employee?

Well, it's like this. The U.S. Supreme Court in May decided to hear a case (Circuit City us. Adams) in which Adams, a former employee of Circuit City, claims that his signed Dispute Resolution Agreement with Circuit City -contained in his job application form -isn't enforceable. The disputed provision calls for arbitration for any dis- puted employment-related claims. Here's the point of dispute: The arbitration agree- ment statement specifically states it does not "form a contract of employment between Circuit City and me (the applicant)." The U.S. Circuit Court of Appeals ruled this language "was an employment contract." This is a complex case, too complex to ex- plore here. But it implies that all kinds of agreements employees make (for example, to comply with safety rules, to submit to drug and alcohol tests, to keep certain business-related information confidential) are parts of contracts of employment.

Here is what's important: You DO have a contract of employment with each employee.

So, how do you know what's in your employment contract? If an employee brings a wrongful discharge suit against you, for example, how will you know exactly what the terms and conditions of employment are. ..which a judge and jury will enforce?

Consider this summary statement (from The Employee Handbook Audit, Update 14, Alexander Hamilton Institute) which tells you how broad the answer could be:

"To have a binding obligation in an employment context, it is not necessary that the terms of the agreement be in writing. Instead, courts will look at the conduct of the parties, the practices of the particular industry, oral representations, the longevity of the working relationship, and the damage that will be suffered by one party if his or her reliance on the representations or actions of the other party are not enforced as binding obligations."

So...the terms and conditions of your contract with an employee can include:

Your actual practices. How you and your employee have actually conducted the employment relationship. How you have treated other employees and previous employees in similar circumstances.

Oral representations...even casual comments...made by officers and executives and by the supervisor, to the employee.

Anything in writing that describes any terms, benefits or conditions of employment. (Possibly, even, something in your employee application form!) These can be notes in an employee's personnel file, memos posted on the bulletin board, ambiguous language in an employee handbook, a letter to the employee.

One example of the dangers involved in creating a contract, when you don't intend to: The American Colloid Co. in a memo said firings would occur for good reason...but the firm would make every effort to avoid layoffs. One terminated employee sued, claiming the memo changed his employment-at-will status...that the company could fire him only for good reason. The U.S. Court of Appeals (8th Circuit) ruled for the employee, saying the firm 's memo created a termination-for-cause employment agreement!

Another type of example, the job offer letter. Note the promises in a typical job offer letter: Confirmation of a job. Confirmation of a start date. Confirmation of a wage or salary amount. Defining a probationary period. Promise of benefits after completion of a probationary period.

The most common example, your employee handbook. It may not be a contract of employment, if it includes a prominently placed and clearly-worded statement that it is NOT A CONTRACT OF EMPLOYMENT. However, certain statements and policies in the handbook may well be contractual promises that become part of the employee's employment contract. Examples: