Illinois Appellate Court Invalidates Handbook Disclaimers

In 1987, the Illinois Supreme Court ruled in Duldulao v. St. Mary of Nazareth Hospital Center that under certain circumstances, promises contained in employee handbooks, manuals, or policies could be enforceable "implied employment contracts." Prudent Illinois employers, many with the help of legal counsel, rushed to include in their employee handbooks and manuals so-called "disclaimer" language, which stated that the hand books were not contracts and did not alter the employees' status as employees "at will" who could be fired for any lawful reason. Most human resource professionals and employment attorneys hoped that by adding the disclaimer language, employers were ensuring that the handbooks later would not be found to be implied employment contracts.

However, in Doyle v. Holy Cross Hospital, the Illinois Appellate Court's First District recently found such a disclaimer invalid for lack of consideration, at least to the extent the disclaimer supposedly applied to employees already employed at the time the disclaimers were first added to the handbook. The Doyle case clearly calls into question the effectiveness of these added disclaimers, and is all the more remarkable because it conflicts directly with a 1991 decision of the Appellate Court's Second District.

Doyle involved four nurses Holy Cross had hired before 1973. As of 1973, Holy Cross maintained and had distributed to its employees, including the four nurses, an employee handbook that set forth with particularity a layoff provision. The 1973 handbook contained no disclaimer language.

In 1983, Holy Cross added to the handbook disclaimer language which reserved to the hospital the ability to terminate "any employee . . . at any time." Holy Cross distributed the new handbook, with the disclaimer language, to its employees.

In November 1991, Holy Cross terminated the four nurses during a reduction in force. The nurses sued, claiming, among other things, that Holy Cross had breached its implied employment contract with them by not following the handbook's layoff provision when it fired them. Holy Cross moved to dismiss, arguing that the layoff policy was no longer an enforceable contractual right because the hospital had added the disclaimer language in 1983. The trial court agreed and dismissed the nurses' implied contract claim.

The Appellate Court reversed and reinstated the contract claim. The court first found that the pre-1983 handbook, and specifically the layoff provision, met the Duldulao criteria for an implied contract. The court also noted that Holy Cross really did not dispute that the pre- 1983 layoff policy could be interpreted as a binding agreement.

The court next found that the 1983 disclaimer did not modify the existing implied employment contract because Holy Cross offered no additional consideration for the nurses to give up their rights under the contract. The court could not understand "how it is possible, under traditional contract principles, for an employee to revert to at will status through the unilateral act of the employer."

Holy Cross, relying on the Second District's 1991 decision in Condon v. American Telephone & Telegraph Co., argued that the four nurses' continued employment at the hospital following the inclusion of the 1983 disclaimer was new consideration sufficient to abrogate the pre-1983 layoff protection. The court disagreed and expressly criticized Condon, noting: "If . . . plaintiffs' continued work amounts to acceptance and consideration for the 'loss' of their right under the Economic Separation policy, then the only way plaintiffs could preserve and enforce their contractual rights would have been to quit working after Holy Cross unilaterally issued the disclaimer ... The illusion (and the irony) is apparent: to preserve their right under the Economic Separation policy the plaintiffs would be forced to quit."

Given the split between the Doyle and Condon courts, it is likely that this issue someday will be resolved by the Illinois Supreme Court. In the meantime, employers must be wary that disclaimers unilaterally inserted into existing handbooks or policies, without additional compensation or consideration to the affected employees, may not offer the hoped-for protection from breach of implied employment contract lawsuits.

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