Alabama employers should immediately review their employee handbooks to ensure that they are not creating an employment contract with their employees. Most employers know that they need to have a disclaimer at the beginning of their handbooks. But, a recent case from the Alabama Supreme Court demonstrates that some disclaimers are not as effective as others. See Davis v. City of Montevallo, No. 1210016, 2023 WL 180252 (Ala. Jan. 13, 2023).
A quick review of Alabama employment law. In the absence of an employment contract, all employment in Alabama is “at will” — meaning that the employment relationship can be terminated by the employer or employee at any time for no reason whatsoever. But, an employee handbook can create an employment contract if it offers specific promises that are accepted by the employee. Employers can avoid accidentally creating an employment contract by including a provision in their handbook that essentially says: “This handbook is not a contract.”
In Davis, the City of Montevallo distributed an employee handbook with a disclaimer, but the handbook also contained a promise that specific procedures would be followed in the event of termination (including notice and a hearing). Even though Mr. Davis was an “at will” employee, he argued that the City was still required to follow the termination procedures before he could be fired. The language of the disclaimer was crucial to the Court’s decision:
I acknowledge having been given a City of Montevallo Personnel Handbook and have been asked to carefully read it. I have been informed that I may ask my supervisor any questions that I do not understand. I understand that nothing in this Handbook can be interpreted to be a contract for employment for any specified period of time or to place a limitation on my freedom or the City’s freedom to terminate the employment relationship at any time. I also understand that the City retains the freedom to change the Policies and Procedures with the approval of the Mayor and City Council.
The Supreme Court distinguished between the reason for terminating an employment relationship and the means used to terminate the relationship. The Court found that Montevallo’s disclaimer permitted the city to terminate for no reason, but that the procedural language in the handbook also provided a promise regarding the means by which Mr. Davis would be terminated. The Court reversed dismissal of Mr. Davis’s lawsuit. Presumably, he will be reinstated and given notice and a termination hearing.
Fortunately, the Court also provided clear guidance on how to avoid Montevallo’s fate by noting that a different result would occur if different handbook language was used:
“This Handbook and the policies contained herein do not in any way constitute, and should not be construed as a contract of employment between the employer and the employee, or a promise of employment.”
“The policies in this booklet are not an expressed or implied contract of employment.”
The key lesson from Davis is that some disclaimers are better than others at preventing the creation of an employment contract. Therefore, Alabama employers should immediately review their handbooks to make sure that their disclaimer language unequivocally says: “This handbook is not a contract.”