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EVERYDAY LAW: Company manuals and contracts

Cecil McCarthy

EVERYDAY LAW: Company manuals and contracts

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The first Everyday Law article appeared on Wednesday, March 7, 2001.  
The introductory paragraphs to that column set out the goals of the column.
I repeat those introductory words as they appeared in that first article:
“This column is the first in a series aimed at providing answers to legal problems that confront persons as they go about their daily business, or may arise from the various relationships that are formed within a society.
It will seek to cover issues relating to divorce and custody, contracts, wills, property, sale of goods and hire purchase, among others.
It will attempt to provide this information by examining hypothetical situations that give rise to legal issues and will suggest appropriate answers given the set of circumstances.  It will also respond to issues raised by readers.”  
I trust that I have been faithful to the promises that I made ten years ago.
In today’s article I will focus on an issue that has been raised with me from time to time. It relates to the company’s handbook and its contractual effect.
Company handbooks or policy and procedures manuals as they are sometimes called, contain a statement of the policies of the organisation and detail in an increasingly comprehensive manner how the organization conducts its business.  They set out company expectations as well as expectations for employees.
If a company has a handbook it is very important that it is consistent in following the policies and procedures that it has agreed upon.
The idea of having an employee handbook is to assemble in one place company rules, disciplinary procedures and other common arrangements such as holiday entitlements.
The written communication of important policies to employees gives them advance notice of what the company’s rules are and can create a culture of transparency and fairness with respect to treatment of employees.
However, on many occasions companies do not take the appropriate steps to have the handbook incorporated into the terms of employment.  Of course, if the handbook is not so incorporated the company will not be able to rely on its provisions.
In the Canadian case of Rahemtulla vs Vanfed Credit Union (1984), Justice McLachlin [currently C.J of Canada] considered the issue of whether a policy manual was binding, in a case in which a credit union had dismissed an employee, and sought to rely on the provisions of the policy manual which was handed to the employee a few days after she was hired.
The following extract from Justice McLachlin’s judgment illustrates the importance of ensuring that the policy manual has contractual force.
“20.  . . .  if the terms of the policy manual are to be binding, it must be concluded that they have contractual force.  The usual elements of a contract must be established: a concluded agreement; consideration; and a contractual intention.
21.  The agreement consists in “an outward expression of common intention and of expectation”: Anson’s Law of Contract (24th ed., 1975) p 23. Inward concurrence of intention is not enough for the formation of a contract; there must be an outward manifestation of assent by each party such as to induce a reasonable reliance in the other: S.J. Waddams, The Law of Contract (1977), p. 18. Both offer and acceptance must be communicated by one party to the other.
22. The evidence in the case at Bar does not establish that the parties expressed a common intention to be bound by the terms of the policy manual.  The usual method of indicating assent to written documents is by signature; this was not done.  Nor was assent manifested by conduct.  
It may be that the defendant’s assent can be inferred from the act of giving the manual to the plaintiff.  But, while the plaintiff may have privately accepted the terms of the manual, there is no evidence that this acceptance was ever communicated by her to the defendant.  
Communication of assent cannot be inferred from the fact that the plaintiff continued to work after being given the manual.  She had contracted to work for the defendant prior to receiving the manual.  The fact that she continued to fulfil this obligation after being given the manual cannot be taken as an assent to its terms.
23.  For similar reasons it may be questioned whether there was valid consideration for the promise the plaintiff is alleged to have made to be bound by the policy manual.  Performance of an existing duty is no consideration: Stilk vs Myrick (1809), 2 Camp. 317; Swain v. West (Butchers) Ltd., [1936] 3 All E.R. 261. The defendant’s obligation to employ having arisen before delivery of the policy manual, its performance of that obligation cannot constitute consideration for any new terms imposed on the plaintiff by the manual.  
24.  Finally, it may be doubted that whether the parties intended that the policy manual should constitute a binding legal contract between them.  
It is stated to be for the purpose of acquainting employees with aspects of the defendant’s history, policies, working conditions and employee benefits.
 Its tone, in large part, is informational. Moreover, at P.4 the manual expressly disclaims any pretension to comprehensiveness, stating that may aspects of employment are not covered.  The conduct of the parties with respect to the manual – in particular the defendant’s act of giving it to the plaintiff with the bare instruction that she read it- supports the conclusion that it was intended as an informational guide, not a binding contract.
25. For these reasons, I conclude that the policy manual is not a binding contract.
• Cecil McCarthy is a Queen’s Counsel. Send your letters to: Everyday Law, Nation House, Fontabelle, St Michael. Send your email to [email protected]