Employers: Be Cautious with Pay Cuts
Reduction of an employee’s salary is often a consequence of the employer’s decision to demote the employee for some reason. However, the employer should refrain from meting out a pay cut arbitrarily. Usually, lawful pay cuts occur in two circumstances – when both employer and employee agree on it, or when the employer enforces it by law. As with an employee’s incompetence, determination of “reasonable ranges” of demotions and pay cuts rests with arbitrators and judges in a labor dispute. As there are numerous legal restraints on the reduction of an employee’s salary, the employer must exercise caution when it considers pay cuts for its employees. This article deals with pay cut, including pay cut agreement between employer and employee and employer’s unilateral pay-cut decision.