New York State’s Highest Court Gives Blessing to Handbook Disclaimers

The New York Court of Appeals in a recent case of first impression held that a statement in an employee handbook making clear that the handbook does not give a worker contractual rights will be upheld, and will trump other handbook provisions that arguably provide job security guarantees. The decision puts New York in line with other jurisdictions that have ruled this way.

The Facts of the Case

In Lobosco vs. NYNEX, NYNEX hired the plaintiff, Lobosco, in 1968 and made him product manager in 1987. In 1995, the company issued a 50-page Code of Business Conduct containing various legal and ethical rules, including a policy urging the reporting of unethical or fraudulent acts committed within NYNEX, as well as “assuring protection against any form of reprisal for reporting actual or suspected violations of our Code of Business Conduct.”

In 1996, Lobosco became a witness for NYNEX in a litigation between NYNEX and some of its contractors. Lobosco claimed that NYNEX attorneys instructed him to testify untruthfully about certain matters. He also asserted that he informed NYNEX counsel that a fellow employee had concealed documents relevant to the litigation. NYNEX fired Lobosco, supposedly for engaging in direct communications with NYNEX’s adversaries. Lobosco alleged, however, that he was discharged for having refused to testify falsely and for having ‘blown the whistle’ on his co-worker’s wrongdoing.

Lobosco brought an action asserting several claims against NYNEX, which the company moved to dismiss. The Supreme Court upheld Lobosco’s breach of contract claim on the basis of the provision in the NYNEX Code of Business Conduct that promised no reprisals for reporting code violations. The Appellate Division reversed and dismissed Lobosco’s claim in its entirety, holding that Lobosco failed sufficiently to plead his reliance on the provisions of the handbook.

The Court of Appeals affirmed the Appellate Division’s order, but on different grounds. The Court of Appeals based its decision on a “disclaimer” contained in NYNEX’s business conduct code. The disclaimer specified that the code did not create a contract of employment or change employees’ at-will employment status. The court held that Lobosco’s case did not fall within the exception to the at-will doctrine that the court created in the 1982 case of Weiner vs. McGraw-Hill.

In Weiner, the Court of Appeals recognized a breach of contract claim brought by an employee who alleged that he had relied on a provision in McGraw-Hill’s employee handbook that discharge would be for just cause only, where the handbook was referred to in the employment application, where he turned down other offers of employment in reliance on the just-cause provision, and where he had been required to abide by the just-cause standard with respect to the employees he supervised.

The Court of Appeals distinguished the promise of just-cause-only discharge in Weiner from the “more nebulous no reprisal clause” in NYNEX’s business code, and based its decision on the effectiveness of the handbook’s disclaimer of contractual rights, stating that “routinely issued employee manuals, handbooks and policy statements should not lightly be converted into binding employment agreements.”

The Import of the Case

The Court of Appeals’ approval of a handbook disclaimer is a significant, although not unexpected, legal development. The lesson for employers, of course, is to include an effective disclaimer not only in employee handbooks but in every separate manual of rules or policies the employer issues. The following is suggested language for a disclaimer:

This handbook is not a contract of employment, nor does it, or any of the policies herein, create any contractual rights between [employer] and its employees. Because employment at [employer] is not for a fixed term, employment is at-will, and may be terminated by [employer] at any time for any reason, just as you are free to resign at any time. Employees’ at-will status may be varied only by a written employment agreement signed by the president of [employer]. [Employer] reserves its right to modify or amend the policies contained herein at any time at its sole discretion.

It is also a good idea to include disclaimer language in the employment application to preclude any claim by an applicant or employee that he or she relied on any of the employer’s policies in accepting employment.