Due to the sudden economic turbulence resulting from the COVID-19 pandemic, employers have been exploring ways to temporarily reduce operating costs. Many employers are seeking alternatives to layoffs. Such alternatives may include reductions in pay and hours of work, furloughs and shutdowns of operations, and work share programs. The following identifies the legal and practical considerations associated with the alternatives available to employers.
Reductions in Pay and Hours
An employer is generally free to prospectively change an employee’s rate of pay and scheduled hours. This can be accomplished by reducing employees’ hours and pay by a proportionate amount. Employers should consider the following issues and risks before altering work hours and compensation:
Employment Agreements. Employers must determine whether any employment contracts or offer letters guarantee a level of compensation or set schedule to the affected employees. Employees with contracts setting forth their level of compensation and work schedule should be notified in writing of the proposed changes. Employers should be prepared to engage in negotiation on the changes terms in order to minimize the risk of breach of contract disputes.
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