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Handbooks that Bind: Indiana Employers May be Legally Bound by Handbook Policies

Recently, in Peters v. Gilead Sciences, Inc., a federal court for the state of Indiana ruled that employers can be bound by the representations they make in their employee handbooks. This decision has potentially far-reaching effects and provides a warning to Indiana employers that what you say, and what you fail to say in employee handbooks, can and will be used against you.

In Peters, the court determined that Family and Medical Leave Act (“FMLA”) eligibility language in an employee handbook may be sufficient to create an enforceable contract under Indiana law. The handbook provision at issue stated that an employee would be eligible for FMLA leave if he worked at least 1,250 hours during the previous twelve (12) month period. However, the handbook failed to mention the additional statutory FMLA requirement that the employer employ at least fifty (50) employees working within seventy-five (75) miles of the worksite. The employer was based in California, while the employee worked from his home in Indianapolis. Because the 50/75 requirement was not met, under the Act itself, the employee was not eligible for FMLA leave. The employer’s handbook, however, failed to note this exception and the employee took a period of medical leave after relying on the handbook policy. While on leave the employee was replaced.

Given the employer’s failure to state the 50/75 exception in its handbook, the court ultimately found that the employee had been given reason to believe that he was eligible for FMLA leave. Because the employee took advantage of the leave time to which he reasonably believed he was entitled and because he suffered damages upon his termination, the court found that the remedy known as promissory estoppel was available to the employee. Under promissory estoppel in the employment context, an employee can sue even though a binding contract has not been formed when the employer makes a promise (such as through a handbook) that it expects the employee to rely upon and the employee does rely on the promise to his detriment.

The court found that employees are entitled to rely on the representations made to them in their handbooks without worrying about the security of their jobs. In short, the handbook’s omission of the 50/75 language eliminated the employer’s ability to later assert the 50/75 exclusion to disqualify the employee from coverage, regardless of the requirements set forth in the FMLA.

As a result, employers should have the FMLA language in employee handbooks reviewed to ensure that its language is not more generous than required.



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