By The Book: Transforming Handbooks Into Contracts In Langenkamp V. Olson

LR-two-men-meeting-overheadA recent summary order from the United States Court of Appeals for the Second Circuit – which exercises federal appellate jurisdiction over New York, Connecticut and Vermont — serves as a reminder that an employer’s reliance upon its employee handbook can also prove its undoing. In Langenkamp v. Olson, the Second Circuit reversed the federal trial court’s dismissal of a breach-of-contract claim brought by a non-tenured faculty member of New York University [“NYU”]. The appellate court held that by expressly incorporating the Faculty Handbook into its offer of employment, NYU had transformed its provisions into contractual terms.

Before considering the Handbook issue, the Second Circuit affirmed the trial court’s determination that the plaintiff, Lucinda Langenkamp was an at-will employee. Ms. Langenkamp had claimed that because her offer-of-employment letter referenced both a “12-month per year position” and a specified “annual salary,” it created a definite, contractual employment term. Citing New York appellate precedent the Second Circuit rejected her argument, holding: “‘The mere fact that the hiring is at so much a year, without a specified duration, is not evidence that the hiring is for such a period.’”

The Faculty Handbook, however, was a different story, the court observing: “Policies in a personnel manual specifying the employer’s practices with respect to . . . the procedures or grounds for termination, may become a part of the employment contract.” The Second Circuit iterated the three prerequisites of an employee claim for the breach of an implied contract: 1) an express, written policy that limits the employer’s right to discharge; 2) notice to the employee of this policy; and 3) a showing that in accepting or continuing employment, the employee relied upon this policy to her or his detriment. The presence of the first two elements were essentially uncontested in Langenkamp, NYU instead relying upon its contention that the plaintiff had failed to establish detrimental reliance.

Ms. Langenkamp, however, claimed she had resigned from a prior position to accept NYU’s employment offer and further noted that she had signed a one-year lease for an apartment in New York City, for which she now no longer had need. As such, and given that in the limited context of determining a Motion to Dismiss, a plaintiff’s factual allegations are deemed true and all reasonable inferences are drawn in her favor, the Second Circuit reversed the trial court, holding that Ms. Langenkamp had sufficiently alleged the breach of an implied contract.

In reaching its decision, the Second Circuit cautioned that “[r]outinely issued employee manuals, handbooks and policy statements should not lightly be converted into binding employment agreements.” Consequently, the “mere existence of a written policy,” in and of itself, “does not limit an employer’s right to discharge an at-will employee or give rise to a legally enforceable claim.” In NYU’s offer of employment to Ms. Langenkamp, however, it had written: “In accepting this offer, you agree to abide by all NYU policies . . . including . . . the Faculty Handbook,” which included specific procedures that NYU was required to follow before discharging a faculty member, including the right to a disciplinary hearing and to an appeal of the hearing decision. Thus, by expressly incorporating the Faculty Handbook into the terms of employment, NYU had transformed what would typically be a shield for the employer into a sword for the employee.

Before remanding the case to the trial court for further proceedings, the Second Circuit declined to entertain what it termed NYU’s “several new arguments” because it had failed to raise them prior to oral argument. These included what one would have thought a cornerstone of NYU’s defense, that the Faculty Handbook’s disciplinary procedures did not apply to non-tenured faculty members such as Ms. Langenkamp. At the same time, the court expressly left to “the sound discretion” of the trial court the consideration of any such additional arguments, added a closing caveat that the plaintiff’s surviving contract claims were “narrow,” and declined to express any view as to whether she would ultimately be able to prove detrimental reliance.

So What Does It Mean?

Employee handbooks remain an important and strongly recommended means of delineating the nature of the employment relationship, of establishing an employer’s workplace expectations, and of protecting companies against employment-related claims. It is, however, critical that employers use care when drafting and referencing such handbooks. As the Second Circuit’s order in Langenkamp underscores, their injudicious handling – such as by incorporating them into job offers as terms of employment — can have the unhappily transformative effect of converting an employer’s guidelines into binding contractual language.