How Does an Employee Handbook Interact With an Employment Contract?

In Short

• Employment contracts set out the specific terms of a job, while employee handbooks explain general workplace rules and policies.
• Employers can update handbooks as needed, but changes to contracts require agreement from both sides.
• Avoid attaching the handbook to the contract to keep things flexible and avoid extra legal obligations.

Tips for Businesses

Keep contracts and handbooks separate. Contracts should cover job-specific terms, while handbooks explain workplace rules. Update the handbook as needed, but do not link it to the contract to keep things simple and flexible. This helps avoid legal issues down the track.

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Table of Contents

• What is the Difference Between an Employment Contract and an Employee Handbook?
• What Should I Include in my Employee Handbook, and How Should I Distribute It?
• How Can These Two Documents Operate Effectively?
• Key Takeaways
• Frequently Asked Questions

As an employer, there are a few key documents you should be aware of when managing your employees in the workplace. Namely, an employee handbook provides broad workplace policies and guidelines for how employees should conduct themselves. Also, an employment contract acts as an employment relationship that creates legal rights and obligations between you and your employee. Ultimately, your employee handbook and employment contract should complement one another to ensure everyone is on the same page in your workplace. This article outlines how an employment contract and handbook function together.

What is the Difference Between an Employment Contract and an Employee Handbook?

An employee handbook is a collection of legal and operational policies that guide employees on your business’ expectations, processes, and procedures. A well-drafted handbook can mitigate the risk of employees or others bringing legal claims against your business, particularly if it contains policies that guide employees on risks and expectations regarding work, health and safety, discrimination, bullying, and harassment. It can also streamline management processes and provide senior or managerial staff with a helpful guide.

In addition to company policies, your employee handbook might also include your company’s:

• mission statement; 
• vision and values; and 
• conditions of employment for your employees. 

Unlike an employee handbook, an employment contract creates legally binding obligations on each party to the employment relationship. This includes greater details about your employee’s role, pay rate and work hours. As a result, it can form the basis of a breach of contract claim where its terms are not complied with. 

So, it is important that you do not incorporate an employee handbook or any policies into an employment contract. This will ensure that if you do not strictly comply with the employee handbook or policies, an employee cannot successfully bring a breach of contract claim on this basis. 

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What Should I Include in my Employee Handbook, and How Should I Distribute It?

When drafting your employee handbook, you should include sections on:

• information technology use;
• compensation and benefits;
• code of conduct;
• workplace safety; and 
• disciplinary procedures.

Additionally, it is advisable to incorporate information on leave entitlements, anti-discrimination policies, and grievance-handling mechanisms. 

Once the handbook is finalised, you can distribute it electronically to all employees via email or an internal portal. Alternatively, you may provide physical copies during the onboarding process. However, it is important to avoid providing new employees with the handbook when issuing their employment agreement. In some instances, it may be construed that the handbook is part of the employment agreement.

Regular reviews and updates to the handbook are recommended to ensure compliance with changing laws and regulations.

How Can These Two Documents Operate Effectively?

To ensure your employee handbook effectively operates alongside your employment contracts, clearly defining the relationship between the two documents is essential. Make it explicit in the handbook that it does not replace or modify the terms of any individual employment contract. Instead, position the handbook as a supplementary resource that provides general information and guidance on company policies and procedures. It should state that it is a guideline and does not constitute a binding contract. This will ensure that the handbook does not create unintended legal obligations and can be varied without an employee’s agreement.

Review the handbook and employment contracts regularly to identify and address any potential conflicts or inconsistencies. Clear communication and proper documentation can help prevent misunderstandings and maintain a harmonious relationship between these essential employment documents.

Key Takeaways

The policies and procedures in your employee handbook should not contradict the rights and obligations set out in your employment contracts. Instead, both should complement the other. Typically, employers will include a clause in their employment contracts where their employees agree to adhere to the policies in the employee handbook. 

If you need help drafting your employee handbook or employment contract, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions