Illinois is an at-will employment state, meaning that an employment relationship of unspecified duration is presumed terminable at will by either party. There are some exceptions to this general at-will employment standard. Employees cannot be terminated in violation of Federal or State employment discrimination laws. Nor may employers legally fire an employee because of that employee’s efforts to organize a union, or in violation of any applicable civil service laws. Moreover, a series of judicial decisions prohibit employers from discharging an employee in retaliation for the employee’s violation of a clearly mandated public policy. For example, an employee cannot be fired for reporting criminal conduct to the police, Palmateer v. International Harvester Co., 85 Ill.2d 124, 132, 421 N.E.2d 876, 879, 52 Ill. Dec. 15, 16 (1981), nor for filing workmen’s compensation claims. Kelsay v. Motorola, Inc., 84 Ill.2d 172, 181, 384 N.E.2d 353, 357, 23 Ill. Dec. 559, 563 (1978). The presumption of employment terminable at will may also be overcome by the existence of an employment contract, or, in certain situations, by the language included within an employee handbook.
An employee handbook may be called a variety of names. They might be called personnel manuals, employment objectives, employee manuals, policy manuals or employee rules and regulations. Regardless of its title, the handbook is an important tool for management to utilize in establishing company policy. Employee handbooks often contain job descriptions, functions and hours of work, employee benefits, sick leave, holiday and vacation policies, and other general employment policies. An employee handbook also may serve to protect an employer from liability by establishing policies dealing with sexual harassment, anti-violence and equal employment in the workplace. Employers and employees alike benefit from having a written set of rules and procedures that govern important aspects of the employment relationship in plain terms.
Some employers have included language in a handbook that provides employees with protection from the harshness of the employment at-will doctrine. In these cases, the employer will commonly insert language into the handbook that provides for termination only upon "just cause." Other employers have established seniority systems for layoffs and callbacks. Still other employers have provided employees with hearing rights prior to termination, internal appeals processes for employment discipline or termination, or even a quasi-tenure system. From time to time, an employer that has provided its employees with these additional protections from the employment at-will doctrine later attempts to retract the policy or fails to follow it. These are the sorts of incidents that most commonly lead to litigation concerning an employer’s breach of contract based upon language included within an employee handbook.
Duldulao and the Recognition of the Employee Handbook as a Contract
In 1981, Nora Duldulao was employed by St. Mary of Nazareth Hospital as a human resources development coordinator, when she was discharged by the hospital for what the hospital termed to be "unsatisfactory performance." She then brought suit against the hospital based upon an implied contract found in an employee handbook distributed by the hospital to its personnel. This particular handbook contained a policy requiring "three warning notices within a twelve-month period" before an employee may be dismissed, except in cases "where a grave or valid reason existed." Duldulao v. St. Mary of Nazareth Hospital Center, 115 Ill.2d at 487, 505 N.E.2d 314, 106 Ill. Dec. 8 (1987). The introduction to the handbook contained a statement that the policies in the handbook "were designed to clarify your rights and duties as employees." Duldulao, 115 Ill.2d 491.
The dispute eventually was heard by the Illinois Supreme Court, which in an opinion of first impression, held that employee handbooks could constitute a contract if the traditional requirements for contract formation are present. The Duldulao court found that the concept of employment at-will was a presumption that could be overcome by demonstrating that the employer and employee contracted otherwise. In Duldulao, the Illinois Supreme Court set forth three factors that are determinative as to whether the traditional requirements for contract formation are present in an employee handbook:
First, the language of the policy statement must contain a promise clear enough that an employee would reasonably believe that an offer has been made. Second, the statement must be disseminated to the employee in such a manner that the employee is aware of its contents and reasonably believes it to be an offer. Third, the employee must accept the offer by commencing or continuing to work after learning of the policy statement. When these conditions are present, then the employee’s continued work constitutes consideration for the promises contained in this statement, and under traditional principles a valid contract is formed. Id., 115 Ill.2d at 496.
The Court took notice of the absence of disclaimers, and placed great weight on the phrase included in the handbook that stated that the handbook was a clarification of the rights and duties of employees. Accordingly, the Court held that the employer was bound to the provisions contained within the handbook.
Employee Handbook Modification Case Law Takes Shape
Subsequent to the Duldulao decision, the Illinois Appellate Court for the Second District decided Condon v. American Tel. & Tel. Co., 210 Ill.App.3d 701, 569 N.E.2d 518, 155 Ill. Dec. 337 (2nd Dist. 1991). In Condon, the employer added a disclaimer to an existing employee handbook that purported to disclaim all contractual liability to its employees for any of the policies contained in the handbook. Plaintiff advanced the argument that the employer was forbidden from unilaterally altering its employee manual to disclaim contractual rights previously granted in the handbook. The Illinois Appellate Court for the Second District disagreed, basing its decision on the fact that the employee continued to work for the employer after the disclaimers were inserted into the employee manual. The Condon court ruled that the employee’s continued work constituted ample consideration for the promises contained in the handbook. Condon, 210 Ill.App.3d at 709. The recently added disclaimer language was then found by the Court to have prevented the handbook from being treated as a contract.
Meanwhile, the United States District Court for the Northern District of Illinois independently addressed the issue of unilateral modification of an employee handbook. In Pankow v. Westamerica Mortgage Co., 740 F. Supp. 1309 (N.D. Ill. 1990), the plaintiff alleged that his former employer breached the terms of a valid oral contract by discharging him for other than "cause" and without any prior written or oral warnings. The employer countered that a subsequently distributed employee handbook that stated that employment was at-will prevails over any oral statements that might have been made by the employer’s agent. Pankow, 740 F. Supp at 1312. Further, the handbook was accompanied by a disclaimer, which the employee signed. The District Court concluded that assuming that the employer had an enforceable oral contract, a subsequent disclaimer could not transform Pankow into an at-will employee. The Court found that Pankow’s continuing to work following the modification does not constitute consideration for the unilateral modification of the handbook. Because the employee had not gained any benefit and the employer suffered no detriment from the modification, no consideration was found by the Court. As a result, the employer was denied summary judgment on the breach of contract claim. Pankow, 740 F. Supp. at 1314.
The United States Court of Appeals for the Seventh Circuit then decided Robinson v. Ada S. McKinley Community Services, Inc., 19 F.3d 359 (7th Cir. 1994). The Robinson case concerned the validity of a modification to an employee manual that disclaimed any liability for the terms contained therein. The employee manual in question provided its employees with protection from being terminated solely at the employer’s will. The employee relied on the Condon case as support for its contention that an employer may unilaterally alter existing policies by disclaiming the policies to prevent contractual obligations from arising under the Duldulao decision. The Seventh Circuit expressly refused to follow Condon, invoking the Court’s ability to refuse to follow an Illinois Appellate Court’s interpretation of state law when convinced that the Illinois Supreme Court would decide the issue differently. Robinson, 19 F.3d at 363. The Seventh Circuit held that it did not "believe that the Illinois Supreme Court would recognize a ruling so contrary to basic contract principles and notions of fairness." Id. at 363.
From Robinson, a basic outline for handling the modifications of employee handbooks emerged. Acceptance and consideration of an offer cannot be inferred from an employee’s continued work for an employer. Otherwise, the only way that an employee could preserve his or her original contract rights created by the handbook would be to quit working once a modification is proposed. Further, while courts generally do not concern themselves with the adequacy of consideration, some benefit to the employee, detriment to the employer, or a mutual bargained-for exchange must accompany a proposed modification of an employee handbook in order for the modification to be valid.
The Seventh Circuit later distinguished the Robinson decision in Curtis 1000, Inc. v. Suess, 24 F.3d 941 (7th Cir. 1994). The Curtis 1000 case was a lawsuit brought by an employer against its former employee for a breach of a written covenant not to compete. In this case, the covenant not to compete was supported by consideration; namely, eight more years of employment. Suess was an at-will employee at all times relevant to this discussion. The Seventh Circuit reasoned that when at-will employees are involved, continued employment for a substantial period of time is good enough consideration for a covenant not to compete. Curtis 1000, 24 F.3d at 947. While this article is not meant to serve as an analysis of the contractual nature of employment restrictive covenants, it is interesting to note that courts have taken a more liberal view towards finding the existence of consideration in restrictive covenant cases than in employee handbook cases.
Doyle v. Holy Cross Hospital
Mary Doyle and three other former employees of Holy Cross Hospital were terminated by the hospital in November 1991. The plaintiffs brought suit against the hospital alleging that their terminations were in violation of the hospital’s employee handbook. Initially, the hospital’s handbook set forth an "economic separation" policy, which set forth concrete procedures that the hospital would follow in eliminating jobs. In 1983, after all four employees had begun working at the hospital, the hospital added a disclaimer to the handbook. The hospital relied on Condon as support for its modification of the handbook and it argued that the continued employment of the plaintiffs constituted consideration for the handbook modification.
The Illinois Supreme Court held that an employee handbook may not be modified unilaterally by an employer to an employee’s detriment in the absence of a reservation of the right by an employer to make unilateral changes. Doyle v. Holy Cross Hospital, Ill.2d. , 1999 Ill. Lexis 15 (Ill. 1999). The employer’s unilateral modification to the employee handbook lacked consideration and was therefore not binding upon the parties. When it added the disclaimer to the employee handbook, the employees were disadvantaged and only the hospital was benefited. Due to the lack of consideration, the modification failed and a breach of contract was found.
The Doyle decision, authored by Justice Benjamin Miller, confirmed the Seventh Circuit’s prognostication in the Robinson case that the Illinois Supreme Court would refuse to recognize the Condon case as good law. Doyle stands for the proposition that a modification is not supported by consideration just because the employee continues to remain in the employ of his or her employer. Rather, the "consideration must be found elsewhere, whether in the form of a new benefit to the employee or a new detriment to the employer, or as the product of mutual agreement." Doyle,___Ill.2d ___, 1999 Ill. Lexis 15 at 14.
The Doyle court recognized concerns raised by the hospital and in amicus briefs concerning the difficulties inherent in subjecting different employees to different terms of employment under an employment handbook, depending on when the individual was hired and what version of the handbook was in effect at the time of hiring. Nevertheless, the Court deferred this responsibility to employers as a matter of contract, stating that once employers provide certain contractual protections to an employee, the protections cannot be unilaterally disregarded without consideration.
In his dissent of the majority decision, Justice James Heiple criticizes the majority for "making bad public policy" in its decision that an employee handbook may not be amended without new consideration. Justice Heiple points out that at the time that the handbook was promulgated, the Duldulao decision had not yet been rendered. Accordingly, the hospital could not have known that it was creating a binding contract with its employees in its handbook. Justice Heiple then states that the "majority creates new chaos in the workplace by expanding Duldulao to handbook modification." Doyle, 1999 Ill. Lexis at 35.
Doyle’s Implications on Employee Handbooks
While the reader will likely agree that the term "chaos" is perhaps too strong a description of the state of the law, it is undeniable that the modification of employee handbooks is a more complicated matter post-Doyle. Some generalities may be readily identified from Doyle. It appears that employee handbooks that initially reserve the employer’s right to unilaterally modify the handbook safely protect the employer’s right to make modifications provided that the clause is clearly drafted and located in a conspicuous place in the handbook. Moreover, disclaimers from contractual liability are generally suitable to prevent the initial formation of a contract if they are clearly worded and conspicuously located within the employee handbook as long as the clauses are included in the handbook from the start.
Perhaps the simplest way for an employer to avoid contractual liability through an employer handbook is to avoid promulgating policy on topics to which the employer does not want to be bound. However, most large employers have already provided their employees with some sort of handbook, and many employers did so prior to the Duldulao decision. Thus, special attention needs to be paid on how and when after the fact disclaimers and rights to amend were promulgated. Employers might consider pairing a disclaimer along with a new employee benefit or bonus. This additional consideration should be integrated with the disclaimer through office memoranda or some other written memorialization. Because courts are reticent to determine the adequacy of consideration, any consideration beyond mere nominal consideration notably strengthens an employer’s defense if an employee challenges the handbook modification.
The Doyle case is most dangerous to those employers who were tardy in implementing a handbook disclaimer or reservation of a right to unilateral modification. If an employer has already disseminated a disclaimer that was not issued contemporaneously with the remainder of the employee handbook, the Doyle case may lead an employer to consider wholesale revisions of its handbook, while providing some additional consideration to the employee that will offset any loss of employment rights. Even this action may not completely shield the employer from contractual liability in certain cases. There will be some employers who will have to enforce two or more different sets of rules depending upon the version of a handbook that was in effect at the date of the employee’s hiring. Finally, there are some instances when an employer should take any necessary precautions to terminate a problem employee. Following the steps detailed in an employee handbook for terminating an employee is normally a more affordable, if not less contentious, means of accomplishing a termination then trying to enforce a unilateral modification of an employee handbook through the courts. Employers should also be on guard that members of a protected class are not singled out unfairly in this process.
Terminating an employee, even an at-will employee, is not a task that most employers relish. Corporate counsel should be instrumental in making sure that all terminations are in accordance with the terms of an employee handbook, if any, and that no applicable employment laws are violated. Pairing a disclaimer with some form of consideration to an employee will lessen an employer’s potential exposure to breach of contract claims brought pursuant to employee manuals. Employers should be urged to review each proposed employment termination on a case-by-case basis, and corporate counsel should be diligent in pursuing the terms of an employee handbook that were in effect for the employee at the date of hiring along with any proper modifications thereto before a final decision to terminate the employee is made.
Robert P. Trevarthen is a Principal of Ottosen Trevarthen Britz Dooley & Kelly, Ltd., Elburn. His practice is concentrated in Employment and Labor Law. He received his Undergraduate Degree in 1973 from the University of Illinois and his Law Degree in 1987 from Loyola University. He may be reached at firstname.lastname@example.org.
Shawn P. Flaherty is an Associate at Ottosen Trevarthen Britz Dooley & Kelly, Ltd., Elburn. He received his Undergraduate Degree in 1993 from Illinois State Univeristy and his Law Degree in 1996 from Northern Illinois University. He may be reached at email@example.com.