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View Full Version : Can an employer legally cut your pay without your consent?


Typo Negative
12-30-2004, 09:07 PM
spooje's stupid question of the day

I had a pay cut once. But that was where a company wide pay cut was put in to place (5%) and even affected the CEO's. This was done to avoid layoffs after a major customer went bankrupt. This kind of situation is NOT what I'm asking about.

Can an employer come up to you and say "I no longer feel your position is worth what we are paying for it, so I'm cutting your pay 15%." Is this legal and possible in a non-union place of business?

Finagle
12-30-2004, 09:22 PM
Unless you have a contract or unless you're already at minimum wage, sure, your employer can do whatever they want. It would be pretty uncommon, though.

Gassy Man
12-30-2004, 10:35 PM
Public employees may be more vulnerable to pay cuts than private sector ones, too. My first full-time job out of college was in local government, and the folks in charge decided to bring in consultants to determine whether our pay scales were in line with those of similar organizations. While most people got a raise--some substantial, including mine--some employees actually saw their pay cut. In most cases, it was because employees lacked the appropriate degree or training for their actual position but were being paid higher wages anyway. A little later, welfare reform resulted in the agency with the bulk of these employees thinning its ranks by about a third.

Otto
12-30-2004, 10:42 PM
Unless you have a contract You do have a contract. Everyone who's employed has an employment contract with the employer. Just because it's not in writing doesn't mean it's not a legally binding contract. The basic components of a contract are offer, acceptance and consideration. An employer offers an employee a job and the employee accepts. That's offer and acceptance. The consideration from the employer is the wage and the consideration from the employee is the labor. Generally, one party to a contract may not unilaterally change the terms without the consent of the other party. If an employer reduces an employee's salary unilaterally, the employer is in breach of the employment contract.

So, unless someone can show me a cite, I'm gonna say no, an employer may not unilaterally reduce an employee's wage.

IANAL, etc.

Kel Varnsen - Latex Division
12-30-2004, 10:47 PM
You do have a contract. Everyone who's employed has an employment contract with the employer. Just because it's not in writing doesn't mean it's not a legally binding contract. The basic components of a contract are offer, acceptance and consideration. An employer offers an employee a job and the employee accepts. That's offer and acceptance. The consideration from the employer is the wage and the consideration from the employee is the labor. Generally, one party to a contract may not unilaterally change the terms without the consent of the other party. If an employer reduces an employee's salary unilaterally, the employer is in breach of the employment contract.

So, unless someone can show me a cite, I'm gonna say no, an employer may not unilaterally reduce an employee's wage.

IANAL, etc.


The employer is going to say your pay will be cut as of certain day (such as tomorrow). If you continue to work you have accepted the new pay scale. If not, you can look for a new job.

Telemark
12-30-2004, 10:52 PM
So, unless someone can show me a cite, I'm gonna say no, an employer may not unilaterally reduce an employee's wage.
I disagree completely. Reading the various web sites about "employment at will" makes clear that in the US, nearly all employers can terminate any employee at any time for any reason, with some notable exceptions. This would imply that if an employer wants to lower your wages he can do so at any time, your only choice is to accept it or be let go.

The whole point of "employment-at-will" is that employers can dictate the terms of employment, workers can choose to accept them or move on. Regardless of the ethical implications, it seems pretty clear cut which side the law is on.

IANAL, nor have I ever had my wages unilaterally cut.

Random
12-30-2004, 10:59 PM
Otto, you're a regular contributor to legal threads, and as best as I can remember, I've agreed with what you've said. You often give practical, accurate information. But not this time.

You're correct to a point. Every employment relationship, even one that is at-will, is a contract. And one cannot unilaterally change a contract.

But certain contracts may be unilaterally terminated. One example is an at-will employment contract. So an employer can one day tell his $25/hour at-will employee that he's terminating the existing contract and simultaneously offering to enter into a new $20/hour arrangement. It's then up to the employee to accept the pay cut, or walk.

Even if there is a written contract, pay cuts can sometimes happen. Written employment contracts typically have a term (e.g. one year) or may be terminated after a notice period. I've never seen a perpetual employment contract. So at some point, even with a written contract, the employer can end the existing arrangement, and offer a lower pay rate in the future.

Shagnasty
12-30-2004, 11:02 PM
You do have a contract. Everyone who's employed has an employment contract with the employer. Just because it's not in writing doesn't mean it's not a legally binding contract. The basic components of a contract are offer, acceptance and consideration. An employer offers an employee a job and the employee accepts. That's offer and acceptance. The consideration from the employer is the wage and the consideration from the employee is the labor. Generally, one party to a contract may not unilaterally change the terms without the consent of the other party. If an employer reduces an employee's salary unilaterally, the employer is in breach of the employment contract.

So, unless someone can show me a cite, I'm gonna say no, an employer may not unilaterally reduce an employee's wage.

IANAL, etc.

That's complete crap. Even if you argue that "at will employment" doesn't cover wages (which it does) the employer could just say "OK then, you are fired because, mmmm, we don't like your voice."

Haven't you ever heard of a demotion with a wage decrease? An employer could "demote" you and change your wage without actually affecting your job responsibilities.

They don't have to do any of that though. Without a written contract, it is just a take it or leave it thing once the wage is above the minimum wage.

Random
12-30-2004, 11:09 PM
The whole point of "employment-at-will" is that employers can dictate the terms of employment, workers can choose to accept them or move on. Regardless of the ethical implications, it seems pretty clear cut which side the law is on.



From my previous reply, it's obvious that I agree with most of what you said, but I disagree with this editorial comment. At-will means that the relationship continues at the will of both parties. Neither side can compel the other to continue the arrangement. An employer cannot prevent the employee from quitting, either outright, or because the employer refuses a demand for a raise. Maybe that means that the employer is out thousands in training expenses, and the employee plans to use his new training at a competitor. Doesn't matter. The employee has the right to do so.

On the flip side, the employee cannot compel the employer to employ him forever at the present rate of pay. I see no unfairness or legal favoritism

electronbee
12-30-2004, 11:10 PM
Almost ALL of any contract I have signed relating to employement have included one or both of two things (roughly):

1) You're employment can be terminated at any time for any reason.

2) You're contract can be changed via the CEO at any time for any reason.

In fact, I was subjected to #2 and then shortly followed by #1 at a dot com I used to work at. I have met a variety of others who have been subjected to both.

So, if your contract included #2 and you signed it, then, yes. the CEO can change your contarct inlcuding salary and benefits.

eb

Random
12-30-2004, 11:17 PM
Almost ALL of any contract I have signed relating to employement have included one or both of two things (roughly):

1) You're employment can be terminated at any time for any reason.

2) You're contract can be changed via the CEO at any time for any reason.

In fact, I was subjected to #2 and then shortly followed by #1 at a dot com I used to work at. I have met a variety of others who have been subjected to both.

So, if your contract included #2 and you signed it, then, yes. the CEO can change your contarct inlcuding salary and benefits.

eb

#1 is common. I've never seen #2. In fact, there's a pretty good argument that the inclusion of such a clause means that the "contract" isn't. To be enforceable, a contract must have mutually enforceable obligations.

Mr. Slant
12-31-2004, 07:42 AM
The ONLY thing I can imagine that would be illegal would be if they dropped your wages BEFORE telling you, and then you worked, and they paid you based on the new lower wage without giving you a chance to quit first.

Adoptamom_II
12-31-2004, 09:30 AM
Jonathan Woodall The ONLY thing I can imagine that would be illegal would be if they dropped your wages BEFORE telling you, and then you worked, and they paid you based on the new lower wage without giving you a chance to quit first.

Happened to me when I worked very part time for a local bookstore. I changed my hours, they approved the schedule, I worked it, they paid me, and my wages were cut by $1 per hour without notice. When I asked why, they said I wasn't as valuable of an employee anymore, so I took my invaluable self off to another job paying four times as much per hour. No biggie, their loss.

Otto
12-31-2004, 10:07 AM
I don't disagree that an employer can terminate an at-will employee and then offer that employee a new at-will contract at a lower wage. I was drawing a distinction between "you're fired, would you like a new job doing the same thing for less money" and "starting today your pay is cut." Maybe it's a distinction without a difference; I'll certainly defer to someone with greater knowledge of employment law.

Gfactor
12-31-2004, 10:31 AM
I don't disagree that an employer can terminate an at-will employee and then offer that employee a new at-will contract at a lower wage. I was drawing a distinction between "you're fired, would you like a new job doing the same thing for less money" and "starting today your pay is cut." Maybe it's a distinction without a difference; I'll certainly defer to someone with greater knowledge of employment law.

It is a distinction without a difference. In fact, an employer can be held to have constructively terminated an employee simply by cutting the employee's pay.

See generally,

http://www.fairmeasures.com/asklawyer/questions/ask220.html



The ONLY thing I can imagine that would be illegal would be if they dropped your wages BEFORE telling you, and then you worked, and they paid you based on the new lower wage without giving you a chance to quit first.

This is an interesting issue.

Gary "Wombat" Robson
12-31-2004, 11:01 AM
Yes.

Been there. Done that. Got the t-shirt.

The president calls a company meeting and announces that the company is having trouble. He and the VPs are taking a 50% pay cut, and all other employees are taking a 20% pay cut, effective in the next pay period. He's sorry, but it's either that or shut down the company because there just isn't enough cash to pay the bills. When things get better, salaries will be restored (they did, and they were, a couple of months later).

Some people quit. Most stuck it, and were rewarded when things recovered.

Gfactor
12-31-2004, 11:02 AM
I don't disagree that an employer can terminate an at-will employee and then offer that employee a new at-will contract at a lower wage. I was drawing a distinction between "you're fired, would you like a new job doing the same thing for less money" and "starting today your pay is cut." Maybe it's a distinction without a difference; I'll certainly defer to someone with greater knowledge of employment law.

Breach of Contracts of Hire

1. Reduction in Hours or Wages. The courts have generally held that an unjustified, substantial reduction in wages by the employer constitutes just cause for an employee to quit employment. See, e.g., Richards v. Giles (Aug. 18, 1980), Mahoning App. No. 79 C.A. 78, unreported (reduction of nearly half of wages); Bortz v. Lakewood Food Services (May 22, 1980), Cuyahoga App. No. 964474, unreported (wages).

2. An employer's breach of the contract of hire constitutes just cause for an employee to quit employment IF the issue was of such significance that it was essential to the employee's continued employment. Tolan v. Board of Review (Sept. 1, 1983), Lake CP No. 82CIV1446, unreported (holding that an employee has just cause to quit employment if the employer fails to reinstate medical insurance required by the employment contract).

From cached version of the Ohio Unemployment Compensation Review Commission Abstract

http://64.233.167.104/search?q=cache:hGnChXrNAjoJ:www.web.ucrc.state.oh.us/abstract/chap8.htm+ohio+unemployment+compensation+abstract+chapter+8&hl=en&client=firefox-a

Link to live version (currently not working) (http://www.web.ucrc.state.oh.us/abstract/chap8.htm)

And here is a link to a thread about employment-at-will.

http://boards.straightdope.com/sdmb/showthread.php?t=231967

And another quote

An employee may be constructively dismissed if the employer makes changes to the employee's terms and conditions of employment that result in a significant reduction in salary or a significant change in such things as the employee's:

* work location
* hours of work
* authority or position


from

http://www.gov.on.ca/LAB/english/es/factsheets/fs_termination.html

None of this constructive termination stuff means that the employee can sue the employer for violating the employment contract. What it means is that the employee had just cause to quit, and can claim unemployment benefits. Employees who sue for a reduction in pay usually lose.

http://www.fairmeasures.com/whatsnew/archive/fall95/new21.html

And this is a good article from an employer perspective. Page two talks about constructive discharge by reduction in pay a little.

http://www.entrepreneur.com/article/0,4621,231443-1,00.html

Harriet the Spry
12-31-2004, 11:05 AM
Wasn't able to find a cite spelling this out specifically, but from the DOL's e-law's advisor

"The Fair Labor Standards Act's (FLSA) basic requirements are:

Payment of the minimum wage;
Overtime pay for time worked over 40 hours in a workweek;
Restrictions on the employment of children; and
Recordkeeping. "

Nothing in there about preventing pay cuts. There might be state laws with different requirements, such as specific notice of a pay cut.

Constructive dismissal would mean that if you quit due to the pay cut, you would be eligible for unemployment, which you would not ordinarily be after voluntarily resigning.

In the case of working 2 weeks then finding you were paid less than expected with no notice, your state's wage and hour office could probably straighten that out for you, possibly even with double damages. However, if the employer feels the part-time position is worth $6 and you feel it is still worth $7, you will be parting ways. Wage & Hour would only be able to go to bat for your retroactive pay.

Needless to say, if the pay cut were for an illegal discriminatory reason--all women getting paid less starting next week, say--the EEOC would have reason to step in.

Typo Negative
12-31-2004, 08:47 PM
You're correct to a point. Every employment relationship, even one that is at-will, is a contract. And one cannot unilaterally change a contract.

But certain contracts may be unilaterally terminated. One example is an at-will employment contract. So an employer can one day tell his $25/hour at-will employee that he's terminating the existing contract and simultaneously offering to enter into a new $20/hour arrangement. It's then up to the employee to accept the pay cut, or walk.
I agree that the pay cut amounts to termination and a new job offer.

But if a company has a stated policy about termination benefits (layoff, severance packages...not including being fired for cause), wouldn't the company be obligated to pay the benfits if the employee chooses to decline the new 'contract'?

Martin Hyde
01-01-2005, 01:21 AM
I should point out that even in an "at will" state an employer you really don't work at will. The employer can and is able to in like 99% of the cases fire you for virtually any reason, but the employer can be penalized for such firings under certain specific circumstances.

Like, if an employer says "have sex with me or you're fired" then that employer *does* have the ability to fire the worker but the employer himself will be punished harshly for the affair.

C K Dexter Haven
01-01-2005, 08:24 AM
Please note that this discussion is focused entirely on the U.S. In most of the rest of the world, employment is, in fact, contractual and an employer cannot reduce wages unilaterally. If an employer does so, it would be viewed as constructive dismissal, and the consequences would be spelled out in the contract -- commonly, the payment of a large termination benefit. (Quick example: in most of Latin America, you're talking about a lump sum payment of one to two months' pay times years of service.)

In the U.S., employment is "at will" unless there is some contractual agreement (like a union agreement) to the contrary. Lawyers will cringe at my oversimplification, but employment at will basically means the employer can do anything he jolly well pleases, so long as it's not a violation of some other law. For example, you couldn't be fired on account of race, religion, national origin, ethnicity, gender, etc. You couldn't fire someone for insubordination if they refuse an order to perform some illegal act. And so forth. In the U.S., there's a small number of such restrictions on "at will" employment. But otherwise, you can be fired for any or no reason.

The cites provdied by Gfactor are related to the fired employee's ability to collect unemployment insurance, basically. If a person is fired for cause -- for example, stealing from the company -- they are not entitled to unemployment insurance. Note The courts have generally held that an unjustified, substantial reduction in wages by the employer constitutes just cause for an employee to quit employment. It's not a reason for the employer to pay any sort of damages, it's a justified reason for the employee to quit.

So, rest assured, that if your U.S. employer cuts your wages, your recourse is that you can quit.

Random
01-01-2005, 09:26 AM
I agree that the pay cut amounts to termination and a new job offer.

But if a company has a stated policy about termination benefits (layoff, severance packages...not including being fired for cause), wouldn't the company be obligated to pay the benfits if the employee chooses to decline the new 'contract'?

It would depend on whether the stated policy rises to the level of a contractual obligation. Most such policies are found in some sort of employee manual, and nearly all such manuals contain a big, bold disclaimer on page 1 that states that nothing in the manual creates a contractual obligation.

If the policy does rise to the level of a contractual obligation, then I agree that the employee has a fairly good claim for the benefits.

Oh, and I agree with the last two replies that there are certain limits on an employer's ability to terminate an at-will employee. These limits vary from state to state, but Dex summarized the main points.

And speaking of disclaimers... Although IAAL, I'm not your lawyer and am probably not licensed in your state. This is general information and not meant to be legal advice. See a lawyer licensed in your state for that.

Gfactor
01-02-2005, 10:10 AM
The cites provdied by Gfactor are related to the fired employee's ability to collect unemployment insurance, basically. If a person is fired for cause -- for example, stealing from the company -- they are not entitled to unemployment insurance. Note It's not a reason for the employer to pay any sort of damages, it's a justified reason for the employee to quit.



Here's the deal. If you are going to sue your employer for wrongful termination, you must prove a few things. Two of the most salient are:

1. That you were terminated.
2. That you had a right not to be.

There are more (for instance you must show damages--if your employer fired you and you found a higher-paying job the next day, your damages would be speculative, at best), but for our purposes, these two are the relevant ones.

Normally, if you quit your job, you can't complain about it. But the courts recognize that in some cases, an employer can make a job so intolerable that the employer was really the cause of the termination, even though the employee quit. Imagine, for example, that your employer cut your salary in half, or took your desk job away and gave you janitorial duties instead. Under those circumstances, a court might find that the employee had been "constructively terminated."

But that is half the battle. As has already been pointed out, an employer can terminate any employee for any reason or no reason, as long as it is not a bad reason. So even if you were to sue your employer for constructively terminating you, you would probably lose because the employer had a right to do so.

Employers do this all the time. When I worked at a self-serve gas station, the company used to get rid of assistant managers that had fallen out of favor by transferring them to a station that was 40 miles from their home station. With the same pay, they couldn't afford the transfer and quit. I have seen the same happen to lawyers at small firms.

Bottom line: You can't sue unless you could have sued had they fired you under the same circumstances. For example, you are 45 and they wanted to hire a younger employee, you are two years into a three year contract, you notified the authorities of a crime that your employer committed.