Can an Employer Legally Decrease Your Salary If It Is Stated in Your Contract?

Written by James Hirby and Fact Checked by The Law Dictionary Staff  

The rules that govern employment law may exhibit tremendous variation between jurisdictions. Although there are multiple federal agencies that administer various employment-related regulations, many of the laws that relate to the day-to-day decisions of employees and employers are enacted and enforced on the state level. Relative to states with strong traditions of labor union membership, the laws are substantially different in "right-to-work" states that provide fewer protections for unions and their members. Although the "right-to-work" movement has been gaining steam in recent years, many aspects of the legal framework remain unsettled. In fact, several states remain mired in legal fights over the terms and implications of these policies.

Of course, employment law isn't completely dominated by fights between union members and their employers. If you don't belong to a union, any right-to-work laws in your state probably won't affect your employment choices or outlook. Rather, your direct interactions with your employer will prove decisive in this regard. If you work in a high-demand industry or have special qualifications that suit you to a particular role within your organization, you may be required to agree to the terms of a fixed-term employment contract. If this is the case, your employment contract will determine the outcome of most of the disputes that arise between you and your employer.

In most cases, your employment contract will spell out the length of time that you'll be required to work as well as the compensation that you'll receive for your work. Typical employment contracts last for one to three years. Longer-term contracts may come with built-in pay raises that reflect living-cost increases or performance incentives.

Unless you violate the conditions of your contract, your employment is generally guaranteed for the length of its term. In many cases, employment contracts are renewed on an ongoing basis. However, "permanent" employment contracts or tenured positions are rare outside of the education industry. This increases the leverage of employers and ensures that workers maintain their initial level of performance.

If your employer is bound by an employment contract, it's unlikely that you'll be demoted or subjected to a salary reduction without "just cause." However, your contract may include a provision that provides for "emergency" salary reductions due to restructuring activities. In many cases, employers will choose to issue company-wide salary reductions in place of layoffs. This is perfectly legal and occurs with some frequency. If you're not working on a contractual basis, your employer can reduce your salary with or without cause at any time.

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