At will employees can be terminated at will, and also may be demoted or given pay reductions with our without cause.
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Does At Will Status Include
Demotions and Salary Reductions?
By Christopher W. Olmsted
You know that at will employees can be terminated for any legal reason, or no reason at all. But what about decisions short of termination—demotions, salary decreases, bonus determinations—are those decisions “at will” too? A recent California court addressed that question in a case titled Singh v. Southland Stone.
Southland Stone hired Gurpreet Singh as a manager for internet sales at a rate of $10,000 per month. In order to take the job, he moved with his family from India. The company informed him that he was hired as an at will employee with no contract rights to ongoing employment.
The company was not satisfied with Mr. Singh’s performance. About nine months after hire, the company reduced his salary to $5,000 per month. Mr. Singh’s performance did not improve, according to the company, and approximately eight months later, he resigned.
Mr. Singh sued, alleging, among other claims, that the company had breached an employment contract. He won the case in a trial, with an award of nearly $1 million.
On appeal, the court considered a number of issues, including the question of whether at will status covers a demotion or salary decrease.
At Will Employment
The court reviewed the law regarding at will employment. Under California Labor Code section 2922, an employment agreement having no specified term is terminable at will by either party. An at-will employment may be terminated at any time, with or without cause, for any lawful reason or no reason at all (assuming, of course, that there was no violation of public policy involved). There is no requirement that the party terminating an at-will employment act in good faith or with good cause. If the parties agree that the employment is for a specified term or can be terminated only for good cause, however, the employment is not at will and the agreed condition must be satisfied before the termination of employment.
The court reiterated that Labor Code section 2922 creates a presumption that employment is at will. But the presumption can be overcome by an express contract or an implied conduct (based on conduct and statements of the parties). that the employment is for a specified term or can be terminated only for good cause.
At Will Applies To Demotions And Salary Reductions Too
In this case, Mr. Singh challenged the company’s decision to reduce his salary from $10,000 to $5,000. The court determined that employers have the right to demote or adjust the salaries of at will employees. Citing legal precedent, the court wrote: “Just as an at-will employment may be terminated at any time, an at-will employee may be demoted at any time.” The court continued: “Since it is presumed that an employee may be discharged at will (Lab. Code, § 2922), the at-will presumption would surely apply to lesser quantums of discipline as well. This same principle extends to an employer's unilateral change in the terms of employment, such as a salary reduction.”
“The at-will presumption authorizing an employer to discharge or demote an employee similarly and necessarily authorizes an employer to unilaterally alter the terms of employment, provided that the alteration does not violate a statute or breach an implied or express contractual agreement. An employee who continues in the employ of the employer after the employer has given notice of changed terms or conditions of employment has accepted the changed terms and conditions.”
The court concluded that because Mr. Singh was an at will employee, the company had the right to unilaterally reduce his salary. The court determined that the employer was entitled to judgment in its favor.
Practical Tips:
Got At Will? Make sure that all employees have signed an at will acknowledgment. Check with your counsel to ensure that you have the right form.
Make No Promises. Managers and supervisors should be trained to refrain from making any unintended promises regarding the terms and conditions of employment, including the length of employment or causes needed to terminate an employee.
Have Good Reasons Anyway. Although an employer can technically terminate an at will employee for any reason, good or bad (except illegal reasons), it is best to nevertheless take adverse action based on well documented, objective business justification. This will reduce the risk of discrimination and retaliation claims.
Related Article:
At Will Agreement Defeats Termination Claim
Download entire July 2010 Legal Update in PDF format.
This article is intended as a brief overview of the law and are not intended to substitute as legal advice. Any questions or concerns regarding any statute or case law should be addressed to a licensed attorney. Copyright © 2010 by Barker Olmsted & Barnier, APLC. San Diego, California. All rights reserved.
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