From the CEA Mailbag: Pay Cuts OK?

I was recently hired as the director of our organization. This
organization has never set pay ranges or pay scales for our employees,
and we are currently paying some employees well above market rates. The
Board of Directors would like to set a new pay scale for all employees,
which will result in varying pay cuts for some employees, but not
others. Can we do this?

400+ pages of state-specific, easy-read reference materials at your fingertips—fully updated! Check out the Guide to Employment Law for California Employers and get up to speed on everything you need to know.

 Whenever you’re considering pay cuts or pay range reorganizations, you should ask yourself the following questions before taking any action:

1. Do any of the affected employees have written contracts that specify what they will earn? (This would include collective bargaining agreements.) If so, then the written contract will need to be renegotiated on an individual basis, taking into consideration the other terms of the contract;
2. Do any of the affected employees currently have outstanding complaints related to bias, harassment, or retaliation, or have any of them complained to a government official or agency about improper conduct on the part of the organization? If so, make sure to fully investigate and resolve those complaints before implementing any pay changes, and;
3. Are any of the affected employees disabled or pregnant? If so, care should be taken to make sure that any pay adjustments made for these individuals relate to their jobs in a neutral way, and do not take the disability or pregnancy status into account.

Assuming that none of the affected employees have individual written contracts, are pregnant or disabled, and have no unresolved complaints, then an employer is free to modify pay ranges as needed or desired, provided that the new pay rate terms are presented to the employee before any time is worked to which the new pay rate applies. The employee is then free to accept the new terms and continue with the company, or reject the new terms and seek employment elsewhere.

To guard against the possibility that an unhappy employee will claim that the pay reductions were biased or retaliatory, employers are wise to carefully and clearly document the reasons underlying any changes to pay rates or pay ranges. This is particularly true if your pay cuts have a disparate impact on any protected group, such as older workers.