Handbook, Incorporated – Are terms in your employee handbook limiting your freedom to amend policies?

09 / 05 / 2016

A recent Court of Appeal decision serves as a reminder to employers that if provisions or policies in an employee handbook or other document become incorporated into employees’ contractual terms and conditions of employment, then employers will not normally be free to amend those terms unilaterally. Variation will require employees’ agreement, as with any other contractual term.

Many employers prefer to keep their handbooks (or the vast majority of the handbook) non-contractual, and to make that explicitly clear both in the handbook itself and in the contract if it contains a cross-reference to the policy.  This should make it easier for an employer to implement changes as business needs evolve.

But what about those policies that employers wish to enforce against employees, like taking action where an employee fails to comply with sickness absence reporting requirements?  Employers may opt to incorporate certain sections of a policy into the employment contract, but care needs to be taken not to restrict flexibility to amend policies in the future.

In Department for Transport v Sparks and others the Court of Appeal upheld a High Court declaration that the Department for Transport (DfT) could not unilaterally amend sickness absence policies in its various handbooks.  Those policies had been incorporated into employees’ contracts of employment, and while the DfT had reserved a general right to amend policies unilaterally if agreement to change them could not be reached, this was subject to the changes not being to employees’ detriment.  In this case, the planned changes would have left employees worse off and the Court of Appeal declared that the amendments could not be freely made. The DfT’s argument that the contents of the policy meant it was not capable of being contractually incorporated was rejected.

Key Points

Some key points to take away from this case on contractual incorporation generally:

  • Don’t assume that a general declaration that a handbook section is contractual or non-contractual will suffice to make every single element of the document contractual or non-contractual (as appropriate).
  • Be as specific as possible as to what effect each policy (or part of a policy) should have, both in the handbook and when cross-referring to policies in the employment contract.
  • It is a good idea to split policies into different sections of the handbook – put those which contain guidance in one section, and others which contain rules to follow in another.  Mark the sections apart clearly.
  • A policy or part of a policy will likely only be deemed contractually incorporated if it is ‘apt for incorporation’, i.e. the contents of the policy are capable of amounting to contractual terms.  What is written in the policy?  If it is guidance or explains good practice, it is unlikely to be capable of being contractual (even if it claims to be).   If, on the other hand, the policy sets out clear, unambiguous rules that should be followed (perhaps with consequences if the employee fails to do so) then it is likely to be capable of being a contractual term and require agreement to vary.  So does the policy impose requirements on employees or merely set expectations or aspirations for them?
  • It is still possible to reserve the right to amend a contractual policy as long as this is made very clear and the parameters are set out.  One of the DfT’s problems in the Court of Appeal case was that they had only reserved the right to amend contractual policies if the changes wouldn’t disadvantage employees.  Note, however, that very significant or severely detrimental changes by an employer to an employee’s more important terms and conditions may be deemed unfair by a court even if there is a contractual right to make unilateral amendments – that clause should not be relied upon excessively.
  • Keep policies vague or high-level if you do not want them to be contractual. Policies must set clear obligations to be contractual.
  • Consider what is best for each particular policy: a policy on reporting sickness absence may be better served being contractual so as to be able to take action against those who fail to comply; a policy on where to seek first aid if an employee feels unwell at work could be non-contractual.  A policy that explains how to operate the office telephone systems is guidance and is unlikely to need to be contractual, whereas specific instructions on the language employees should and should not use to customers on the telephone may be more apt for incorporation.