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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.
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