One Size Does not Fit All: Employee Handbooks May Lead to Employer Liability without Careful Review

In Peters v. Gilead Securities Inc., the 7th Circuit sent out a warning to employers using employee handbooks, that their provisions may be held legally binding due to the contract liability theory of promissory estoppel. Specifically, the court ruled that although a company may not be subject to the Family Medical Leave Act they may still be liable if their Employee Handbook states employees are eligible for such a leave.


Gilead’s Employee Handbooks discussed a “Family and Medical Care Leave” policy that would be provided to all employees. This policy set forth that employees, who had worked for Gilead for at least 12 months and 1,250 hours in the last 12 months, were entitled to take up to a 12 week leave of absence to care for ill family members or themselves in which their position at the company would be secure. The provision in the handbook tracked the language that governed the eligibility of an employee to receive a similar leave under the Family Medical Leave Act (FMLA). However, the handbook in disclosing the eligibility for the leave did not include an exception referred to as the 50/75 provision that applied to FMLA leave. Under the FMLA 50/75 provision, employees who are employed at worksites where their employer employs less than 50 employees in a 75 mile radius are not eligible for FMLA leave. 29 U.S.C. § 2611 (B)(ii).
Peters involved an employee of Gilead who suffered a shoulder injury. On December 5, 2002, Peters took what he thought was FMLA leave in order to undergo corrective surgery. The day after he left for his leave he received a letter from his employer discussing both that the Family Medical Leave Act went into effect on August 5, 1993 and how an employee was eligible to take FMLA leave. This letter, like the employee handbook, mentioned nothing regarding a 50/75 exception. The letter informed Peter that if he returned to work before “[his] FMLA” leave was expired he would get back his position. The letter stated that he would have to return to work by February 28, 2003. Peter returned to work on December 16, 2002 but had to take another leave when his medical treatment changed. Again he received a letter from his employer calculating when he would have to return to work from his FMLA leave to keep his position- this time subtracting the time he already took off during his first leave. Peters was prepared to return to work before his 12 weeks expired but was informed that his position was given to another employee. Peters was offered another position but refused it and was ultimately terminated, this suit was brought in response to his termination.
Peters argued that Gilead was “equitably stopped” from claiming FMLA’s 50/75 exception because of the representations the company made to Peters in its employee handbook and the subsequent letters to Peters regarding his entitlement to a 12 week medical leave. The District Court, focusing on Peters FMLA claim, found that all the elements of equitable estoppel were not met and granted summary judgment in favor of Gilead.
The 7th Circuit reversed and remanded the case for further consideration of Peters’ contract based liability claim of promissory estoppel- an affirmative cause of action that “steps in where a promise lacks the elements of a binding contract but has induced detrimental reliance on the part of the promisee,” in this case, the employee. Under this cause of action, the court notes, Peters’ statuary ineligibility for FMLA leave would be irrelevant since the Family and Medical Care Leave provision of Gilead’s handbook did not exclude any employee from receiving 12 weeks of leave except those that did not meet the 12 months/ 1,250 hours requirement.
Although the 7th Circuit does not encompass New York State, this case appears to be one of first impression and New York state and federal courts would likely look to it when faced with a similar issue. Moreover, even though New York law generally does not view employee handbook provisions as contractual, particularly if accompanied by a prominent disclaimer, because the facts of Peters implicated FMLA rights, a court might be swayed that equity requires that an employee not be punished for being misled by a faulty FMLA policy. This is particularly true because the FMLA requires that employees be informed of their rights through policy manuals.
The warning to employers: One size does not fit all. It is imperative that employee handbooks be geared toward the actual employment practices of the company in a specific geographical location. “Generic” policies that do not reflect the employment practices of a company can result in liability.