Can my employer lower my rate of pay?
A question many people have called to ask us at Gold Star Law is whether an employer can lower an employee’s rate of pay. Sometimes the potential pay cut is tied to a demotion or change in job duties, sometimes it is for disciplinary reasons, and sometimes it’s just to save the employer money. Depending on the circumstances, it may or may not be legal for you employer to lower your rate of pay.
First, let’s discuss the parameters for the question. There is a big difference between an employee’s “rate” of pay, which typically refers to how much an employee is paid based on the time or work performed, and total pay, which refers to the amount an employee makes in a period of time. It’s completely possible for one of these two things to change and not the other. For example, you could have an hourly rate of pay of $15 per hour and typically work 40 hours per week. If your employer reduces the number of hours you work in a week to 30, but keeps you at $15 per hour or maybe even gives you a small bump in your hourly rate, your total pay for each week has gone down but your rate of pay has not. As an alternative, pretend you make $15 per hour and typically work 30 hours per week. If your employer reduces your hourly rate to $13 per hour but changes your schedule to 40 hours per week, your rate of pay has gone down by $2 per hour but your total pay for each week has gone up by $70.
Employers are generally free to set employees’ hours of work. This includes adjusting the number of hours employees are expected to work in a week to meet business needs. There are certain circumstances that would make it illegal for an employer to reduce an employee’s number of hours of work in a week, the most likely scenario being some form of illegal discrimination or retaliation. There could also be employment contracts or union agreements that set parameters for how many hours employees should be assigned to work in a week. For today, let’s focus on when an employer may or may not lower an employee’s rate of pay rather than reducing total pay by changing the number of hours worked.
The first question we have to ask in deciding whether an employer may lower an employee’s rate of pay is why. Why this pay decrease? Why this employee? Discrimination based on a protected trait, such as race, sex, religion, age, or national origin is illegal in the workplace. This means an employer may not lower an employee’s rate of pay based on any sort of protected trait. Retaliation for having engaged in “protected activity” is also illegal. Protected activities can include making complaints about illegal discrimination or harassment, complaining about failure to pay overtime, and reporting an employer’s illegal activity to a government agency. It is illegal for an employer to lower an employee’s pay for a discriminatory or retaliatory reason.
Just like with the number of hours an employee works, an employer may have contracts in place that limit its ability to change an employee’s pay. The most common example would be a union agreement, called a collective bargaining agreement. Collective bargaining agreements often control employee rates of pay based on job classification and seniority, and employers could violate these agreements by adjusting pay downwards. Some employees also have employment contracts directly with their employers. These contracts often set forth an employee’s rate of pay and state how, if at all, that rate of pay can be changed.
There are also rules about how an employer may lower an employee’s rate of pay. Michigan is an at-will state, meaning employees are considered to be “at-will” employees by default unless there are circumstances (such as an employment contract) that change that at-will designation. Typically, when we talk about at-will employment, we are discussing the fact that an employer can fire an employee for any reason that is not an illegal reason. At-will status also covers an employee’s rate of pay, meaning an employer has the freedom to lower an employee’s rate of pay for reasons that are not illegal reasons. However, at-will employment is a two-way street. Employees are free to end an employment relationship just like employers are, and employees can decide whether or not to work for a certain rate of pay or under certain work conditions. This means an employee is entitled to know about a change in pay before doing any work at that new rate, so that the employee can decide whether or not to work for the new rate. An employer cannot tell an employee that work that has already been done will be paid at a rate lower than the employee thought it would be. However, an employer can tell an employee that work going forward will be at a lower rate, which gives the employee the option to accept or reject the new rate before actually doing the work.
There are a few exceptions to these guidelines. The first is that an employer can have a rule that employees’ last week of pay will be paid at a lower rate, no less than minimum wage, if the employees leave without having given notice. As long as this is a written agreement signed by the employees (or including in a handbook that the employees have acknowledged receiving), this is considered enough notice for the decrease in pay because the decision to leave without giving notice is in the employees’ control. Another important exception to all of the guidelines above is that most employees are entitled to at least minimum wage (as long as they are not exempt from the minimum wage requirements.) So, even if a situation is one where it would otherwise be legal for an employer to reduce an employee’s rate of pay, that rate cannot be reduced to less than the minimum amount the employer is required to pay under Michigan and federal law.
If you believe you are the victim of illegal pay practices, call Gold Star Law for help.
