Does Your Startup Need an Employee Handbook?

For what seemed like an eternity, it was just you and maybe a co-founder or two, long days, no health benefits and probably no salaries. Then, one day, you scored a customer … then another … and you got funded … so you hired another sales manager … and some support people … and an accounting person … and you wake up one morning and realize you’re running a real company. Oh, (insert favorite expletive here)!

At some point not long after this realization occurs, I get a call asking for help writing an employee handbook. That’s what all real companies have, right? When you started out, you and the management team were like family. But you’re growing now and adding new people every week it seems. Naturally, you need a central document that sets out policies and procedures on how new employees should conduct themselves, right? Besides, isn’t having a handbook a legal requirement?

The short answer is “no.” There is no legal requirement for your company to have an employee handbook. Moreover, if you need to spell out detailed rules and procedures on how your employees should act in various contexts, you don’t need a handbook—you need new employees. Having a handbook doesn’t excuse you from hiring employees that use good judgment and can be trusted to conduct themselves as if they were owners of the company. Successful startups require as much. When Netflix famously eliminated their vacation policy (another topic for another day), outsiders scoffed that people would abuse the no-limits policy. To that, Netflix Chief Talent Officer, Patty McCord, responded, “There is also no clothing policy at Netflix, but no one has come to work naked lately.”

Though not required, every attorney (and most HR leaders) will tell you that it’s a good idea to have one anyway. Pat Perry, President of ERC and HR expert, says, “Even though it is not a legal requirement to have an employee handbook, good business practice would suggest that you have an up-to-date, legally compliant handbook. Equally important is to emphasize company polices that support the attraction and retention of top performing employees.” Moreover, if your business is one in which employees are exposed to physical risks (like construction or chemical manufacturing), there are health and safety regulations and procedures that absolutely need to be well communicated and understood.

Many will tell you that, without an employee handbook, you have an increased chance of getting sued when an employee misbehaves and/or you have to fire one. The thinking goes, when you terminate someone (somehow, “terminate” is viewed as a nicer way of saying “fire”), you can point to a list of pre-ordained reasons for termination and the process that was followed, thereby heading off any wrongful termination or discriminatory treatment claims. However, companies don’t get sued for wrongful termination because they don’t have an employee handbook. Usually it’s because they do have one but didn’t follow the prescribed rules or applied them inconsistently across the organization.

So that you can sleep at night, I’ve provided some tips below that can help you write a sensible employee handbook.

Don’t have your attorney write your handbook. Would you ask a lawyer to design your company’s culture or even your corporate logo? So why would you have one write your handbook, arguably the embodiment of your company’s culture? In fact, the handbook is a great place to reinforce your company’s core values. Have fun with it and let the language reflect who you are. Then, to be safe, get counsel to review it after you’ve written it the way you want.

Make it readable and human. Some handbooks are longer than War and Peace and are just as fun to read. Ford Motor Company’s Code of Conduct Handbook is 60 pages (versus seven pages for Zappos). Again, if you need to spell out every situation and dictate how your employees should behave, you really need to think about who you are hiring. Ford’s even has an entire section dedicated to why employees should refrain from money laundering. Unless committing felonies is an essential function of the job, you can cover most situations with a general statement requiring that all employees use good judgment and treat fellow employees with respect and that failing to do so can lead to termination. This is what HR Pro Kris Dunn coined as the “George Costanza Policy.” See the video to hear what he’s talking about.

Non-Compete, Non-Disclosure and Assignment of IP agreements – gotta have them. However, these are documents that your employees can sign separately from an employee handbook. In fact, I suggest that they are included as attachments with an offer letter along with acknowledgement of employment at-will.

Lose the “corrective action” section. This is the section in which you outline the four-step process that must be followed in order to terminate an employee. The silly truth is that “corrective action” policies are not meant to be corrective at all. They are usually followed as a formality when a manager has already decided to fire an employee. If an employee isn’t performing to the level expected, real-time feedback and coaching (read: good management practices) should be used to improve performance. And if performance doesn’t improve after a reasonable period of time, it’s not likely to be a surprise to the employee (or anyone else for that matter) when it’s time to separate. Besides, if a now-former employee is angry enough, chances are s/he will find a way to sue you regardless of what a handbook says. Better to leave this out altogether.

If you write it, live it – and apply its policies consistently in all situations, across all employees. As I mentioned earlier, companies don’t get in trouble because their policies are deficient. They get into trouble when they don’t follow their own rules. If you create a culture around a set of shared values that is reinforced daily with action, your employees won’t need a handbook to know how to act. This is a startup, after all, and everyone should act as if they are the owner (because they are!).