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Library - Employment Law
Employee Rights
WHEN EMPLOYEES TAKE A PAY CUT
(When Is it Illegal?)
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Q:
My employer is proposing
to reduce my hourly pay supposedly because of the bad
economy. If our company is really losing money and I
have to agree to a pay cut to keep my job, then I will.
My problem, however, is that out of the more than the 10
employees who have the same job duties as me, it seems I
am the only one being asked to take a pay cut. Is this
fair? What are my rights when it comes to taking pay
cuts? |
A:
Employers may routinely change the terms
or amount of an employee’s compensation. The change may be favorable
(e.g., employees get a pay raise) or unfavorable (e.g., employees
get a pay cut). The employer’s ability to change an employee’s
compensation will partly depend on the employment relationship and
the parties’ agreements.
The employment relationship may be based on a written contract
or a collective bargaining agreement (CBA) in the case of union
members. Or it may be an “at-will” employment.
Contract-based Employment: If the employment is based
on a contract, then the terms and conditions, including
compensation, is governed by the contract. The terms of a contract
may be changed during the term of the contract only if both
parties agree to the change. Therefore, employee compensation cannot
be changed during the term of the contract unless the employee
agrees to the change. If, for example, the contract employee does
not agree to the pay cut, but the employer cuts the employee’s pay
anyway, the employer has violated the contract and may become liable
for damages. Changes in the contract usually have to be in writing
and signed by both parties.
At-will Employment: If there is no employment contract
or CBA, the employment relationship is considered “at-will.” This
means that the employment relationship may be terminated by either
party without liability. In at-will employment, employers may reduce
an employee’s compensation without the employee’s express consent.
The employer may notify the employee about the pay cut in as little
as a week. An employee may be deemed to have accepted the pay cut if
the employee continues to work for the employer after receiving
notice of the pay cut. If the employee does not like the pay cut,
the employee may quit and look for a job elsewhere and the employer
will not be liable for damages.
However, an at-will employment relationship does not give
employers permission to discriminate or retaliate against employees
by way of compensation. A decrease in compensation must not
have an unlawful reason behind it. Employers may not decrease
employee compensation based on the employee’s gender, age, religion,
race/ethnicity, disability, marital status, or pregnancy. Employers
may also not decrease employee compensation in order to retaliate
against employees who have asserted their legal rights, or against
“whistleblowers.”
When employers ask their employees to take a pay cut,
employees will necessarily ask why. Some reasons will appear obvious
and reasonable. For example, the company may be unable to stay
afloat in this bad economy. It may start to lay off people or ask
some employees to take a pay cut instead.
Some reasons may not be so obvious. An employee who just
turned 65 might be asked to take a pay cut. The same thing may
happen to a pregnant employee or one who wanted to collect unpaid
overtime. In these scenarios, where only specific employees are
targeted but other employees are not affected, the implementation of
a pay cut should be investigated to determine if the employer is
engaged in unlawful discrimination or retaliation. Under these
circumstances, it might be wise for the employee to consult with an
experienced employment attorney to discuss how he or she may protect
his or her rights.
©
Law Offices C. Joe Sayas, Jr.
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