Man holding a design that labels Policies and procedures in blue, what it is and how it works.

Are Company Policies Legally Binding – Or What’s in Your Contract?

When you were asked to sign an acknowledgement that you received a copy of your company’s handbook, you may have been told that you signed a legally binding contract.  You did not.

As explained below, the Texas Supreme Court held that a company handbook is not a legal contract. However, as a practical matter the company expects everyone to follow its policies. If you are uncertain about a document that you signed, feel free to give us a call.

Company Handbooks Are Not Contracts

Policies contained in company handbooks provide the standards or guidelines for employees’ conduct at work. The company expects all employees to follow these guidelines.  An employee can be viewed as insubordinate for refusing to abide by the company’s policies. However, in the legal sense, a company policy handbook is not contractual binding, according to the Texas Supreme Court.

Creating a Valid Contract

In employment law certain documents are legal contracts.  Some examples include employment agreements, non-disclosure agreements, severance agreements, and the like. Essential elements to create a binding contract are:

  1. Offer
  2. Acceptance of material terms
  3. Consideration by both parties
  4. Mutual assent (called a “meeting of the minds”).

A binding contract can be an exchange of promises. Party A says, “I’ll do this, if you’ll do that,” [the offer].  Party B agrees [acceptance].  They both agree to the terms, [mutual assent], and both parties offer and receive value [consideration]. Consideration can be either a value given by the one making the promise (the “promissor”) or a detriment that is relieved for the one receiving the promise (the “promisee”). The process is a “bargained-for exchange.”

This may sound like a lot of legalese.  Who calls someone a promisor? Only a contract lawyer. But employees sometimes get caught in a legal web, and it helps to know the basics.

No Writing Is Required

Creating a valid legal “contract” requires no writing.  Even if there is a writing, signatures are not legally required, unless signing the contract is a material term.  In other words, if the parties agree that signatures are necessary, then the contract is not binding until it is signed by both parties.  It is the mutual assent or agreement to all material terms that is critical.

Employment Contracts

Texas courts interpret employment contracts the same as any other contract.  In interpreting the meaning of the words in a contract, a court will attempt to ascertain the parties’ intentions as expressed in the document. This is called the “four corners rule.”  Evidence outside the “four corners” of the document cannot be used to show that the parties probably meant, or could have meant, something other than what their agreement states. You do not look outside the four corners of the document to determine what the parties intended at the time they made their agreement — except if the contract contains an “ambiguity.”

Examples of Policies

While a company’s policies themselves are not legally binding contracts, the policies must nevertheless be followed as a practical matter. Policies and procedures are necessary for employers to deal with the difficult but essential area of workforce management. This helps employers to handle personnel issues in a fair, consistent, and even-handed manner, according to the Texas Workforce Commission.

Company handbooks often include the employer’s mission statement, equal employment opportunity statement, contractual disclaimer, an at-will employment statement, purpose of the employee handbook, and background information on the company. Some example of policies are:

  • Ethics & Conduct Policy
  • Employment Policies
  • Nondiscrimination Policies
  • Compensation and Benefits Policies
  • Internet, Email, & Cyber-security Policy
  • Misconduct Policy

Sometimes a company may have a policy requiring employees to sign legally binding agreements. Often this is a non-disclosure agreement, which we explain in more detail in our firm’s Non-Disclosure Services page.

Policies are guidelines and expectations that an employee should follow. Company policies can be changed at any time by the employer. Policies are important in the sense that they control employees’ behavior at work, and employees can be terminated for violating company policies.  But remember:  In Texas an employer can terminate an employee at will for any reason or no reason, as long as it is not an unlawful reason.

Which Is It – Contract or Policy?

At Gardner Employment Law, we offer our expertise to clients to interpret both contracts and policies. What may seem like a contract may actually be a policy (and visa versa).  It is good to know the difference.

Give us a call if you have a question about whether what you just signed is a binding contract – or a policy.

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