How to Handle Employer Breaching Employment Contract

Question

I work as a W2 employee for a medium size company. The contract specifies my salary for each year of the term, along with many provisions to protect the company such as a 1 year non-compete, IP clauses, and a non-disparagement agreement. The contract also specifies I am to be paid for a number of months if I am terminated without cause.

My industry has been hit hard by the Covid-19 crisis, and HR recently sent an email that for 6 weeks everyone will be taking a temporary pay cut. For me it will amount to losing about $2000. On one hand I am thankful to still have a job, on the other handle I am deeply disturbed that the company seems to view honoring my contract as optional. There is no provision for reducing my pay (and I believe most of my coworkers have a similar contract).

Can doing nothing, for now, amount to implicitly agreeing to the pay cut? How can I put myself in a legal position to pursue damages if this becomes a bigger issue, while avoiding making a big stink with management and HR in the short run?

Answer 1

Can doing nothing, for now, amount to implicitly agreeing to the pay cut?

Most likely, yes. In line with the answer by Greendrake, your continued performance under the new terms (i.e., the pay cut) permits an inference of agreement.

The parties' subsequent conduct serves to evidence their decision to replace and supersede a prior or contemporaneous agreement. Similarly, see Restatement (Second) of Contracts at § 202(1) ("Rules in Aid of Interpretation. Words and other conduct are interpreted in light of all the circumstances, and if the principal purpose of the parties is ascertainable it is given great weight.") and § 203(1) (emphasis added). In your situation, your continued performance allows a fact-finder to clearly ascertain the principal purpose of your new agreement: same workload in exchange for lower compensation.

Apropos of your follow-up question, the Restatement (Second) of Contracts is very frequently cited in US case law to justify how contract disputes are decided.

Exceptions where silence would not amount to consent are unlikely and would have to be premised on the language of your original contract. In this regard, see Restatement at § 311(a):

modification of a duty to an intended beneficiary by conduct of the promisee or by a subsequent agreement between promisor and promisee is ineffective if a term of the promise creating the duty so provides.

(emphasis added).

I would add that consent may also be inferred from your acquiescence, since it constitutes willful and conscious acceptance even if made reluctantly. This means that a protest embedded in your acceptance does not alter the binding character of the pay cut insofar as it still is an acceptance. Also, acceptance would be considered willful because an employer's greater bargaining power hardly ever amounts to coercion.

It is noteworthy that the employer's notice of pay cut also seems to affect severance in the event of termination without cause (note: the employer's retaliation for you pointing out its breach of contract would not be a cognizable cause, even in an at-will jurisdiction). That is because severance purportedly is defined in terms of "a number of months", and nothing in your description reflects that the employer is explicitly preserving the amount of money to be paid in the event of severance.

Before your original post was profusely mutilated by someone else, it read that you have been "putting in the same hours and just as productive as [you] would be at the office". Your remark is relevant because it suggests that the employer is taking advantage of you by implementing a pay cut and not coupling it with a proportional reduction of your workload. Although the Covid-19 crisis is frustrating the purpose of many contracts, it does not entitle a party to essentially indulge in unjust enrichment. Thus your legal position has full merit, but your consent --regardless of its form-- might forfeit the rights you currently have.

How can I put myself in a legal position to pursue damages if this becomes a bigger issue, while avoiding making a big stink with management and HR in the short run?

You might not have it both ways. A breaching party usually dislikes being placed on a spot. Depending on how honest your employer is, chances are you will need to decide between enforcing your original contract, or submitting to this & subsequent pay cuts.

Answer 2

HR recently sent an email that for 6 weeks everyone will be taking a temporary pay cut

Sounds like the pay cut takes effect immediately. This is crucial to the question on whether silence constitutes acceptance: "Where a new term has an immediate effect on the employee, it may be reasonable to conclude that continued working implies acceptance."

Can doing nothing for now amount to implicitly agreeing to the pay cut?

Precisely because the pay cut is effective immediately, doing nothing will amount to your implied acceptance of the proposed variation of contract (if the pay cut was scheduled to start say in a month, your explicit acceptance would be required).

How can I put myself in a legal position to pursue damages if this becomes a bigger issue, while avoiding making a big stink with management and HR in the short run.

You are the cat that would eat fish, but would not wet her feet. Things don't work that way. Make up your mind and either agree to pay cut, or raise your voice and stand your ground (potentially risking termination — depending on a number of factors such as how important employee you are, how badly the company is affected by the crisis etc.).