Costco Pays the Cost: Employment Manual Treated as Contract

Federal and state laws set the minimum standards for work environments. It is not unusual, however, for companies to maintain policies that go beyond the minimum standards required by law in order to attract and retain a competitive workforce. While such policies may be a good faith effort to ensure a desirable work environment, employers are well served to remember that there is a consequence for all promises. Costco learned this lesson the hard way in Marini v. Costco Wholesale Corp.

In Marini, a former Costco employee brought a disability discrimination lawsuit claiming that he was harassed by fellow employees because he suffered from Tourette’s syndrome. On summary judgment, the court dismissed the employee’s statutory claims because he did not file a charge of discrimination within 300 days of an act of harassment as required by federal and state law.

The court did, however, permit the employee to continue with his breach of contract theory of liability. The employee’s argument was that Costco’s personnel manual, titled “Employment Agreement,” constituted a contract between Costco and Costco employees and provided enforceable obligations. The Costco personnel manual stated that any inappropriate workplace conduct is prohibited, “not only illegal harassment.” The policy also stated that “appropriate corrective action [would] be taken, regardless of whether the inappropriate conduct rises to the level of any violation of the law.” Because Costco’s personnel manual did not contain contract disclaimer language (e.g., “this manual does not create contractual rights”), the court determined that Costco’s “super anti-harassment policy,” as the court called it, may have created an enforceable obligation to protect employees from all harassment, whether or not the harassment gave rise to a legal claim.

The former employee has merely won the first round – he won the right to argue a breach of contract, but has not yet proven that the contract promises what he thinks it promises, or that there was a breach of that contract. But the court’s ruling should remind employers to double-check that their personnel manuals include an enforceable contract disclaimer.

Author’s contact info:
Meredith S. Campbell
Co-Chair, Employment and Labor Group, Shulman Rogers
[email protected] | T 301.255.0550 | F301.230.2891