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Let's say you signed an "At will" employment contract. And then lets say the company you work for has a 30% reduction in revenue. Can the company just reduce everyone in the company's salary by 30%? Or do they have to terminate and then rehire each individual? Or is this handled similarly to how a raise is handled?

This is hypothetically in the United States and In New Jersey

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    Very few people in the US actually sign an employment contract. They are just "at-will" by virtue of not being part of a collective bargaining agreement (union contract)
    – Tiger Guy
    Nov 15, 2023 at 20:22
  • Do you have an employment contract? See At will employment in New Jersey
    – CGCampbell
    Nov 16, 2023 at 11:21
  • Where this could get interesting is if more than 33% or 500 of the employees (whichever is less) refused the reduction, triggering the WARN laws. Would the employer then be required to pay them (at the original rate), for at least 60 more days? Nov 17, 2023 at 16:56
  • Sure. I've had (temporary) pay cuts when my employer went through bad times. (The pay cut was reverted at the beginning of the next year.)
    – RonJohn
    Nov 18, 2023 at 6:09

3 Answers 3

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Can the company just reduce everyone in the companies salary by 30%?

Employers with at will employees can reduce the salaries of all at will employees prospectively, simply by telling employees that this is what they are going to do starting in the next pay period. Salaries can't be reduced retroactively, because the employee has already earned the wages paid at the higher rate for work previously done (although salaries can be increased retroactively, effectively providing employees who worked in the period of retroactive increased salaries with a bonus).

Of course, everyone must still be paid minimum wage plus legally required overtime pay. And, a 30% salary reduction is likely to cause some employees who previously were exempt from the legal obligation of the employer to pay them overtime pay to be subject to overtime pay laws. In some states, this pay cut may also invalidate non-competition agreements that were previously valid because state law does not allow non-competition agreements there for low salary employees.

As a practical matter, in terms of business management, this is a horrible idea that will probably cause a substantial share of your employees to quit, will lead to behavior that secretly undermines the company by people who remain with the company, and will make a unionization drive much more likely. Economists call this reality "sticky wages". But it is legal to do so.

Firms that want to share a lot of their profits with the employees, but don't want to receive such a negative reaction when their profits are thin, often structure their employee compensation more like a typical Japanese big business, large American law firms, and senior executives in private U.S. businesses. In these employment relationships, a fairly modest share of total compensation paid is paid in the form of a regular salary that employees rely upon when establishing family budgets, but a big annual bonus or retirement plan contribution is paid to employees when and to the extent that the company is profitable enough to make those payments.

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    – Pat W.
    Nov 18, 2023 at 18:08
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The company must pay you the agreed-upon contractual rate for any hours that you already worked, but they are not obligated to continue to pay you the same salary going forward. The company can inform your of your wage reduction, and if you don't like it, you can quit. They of course cannot pay you an illegally low wage, but the minimum wage has nothing to do with what you've been paid previously.

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With the provision that a labor contract might specify a particular minimum salary, and there are local, state and federal minimum wage levels which you can't go below, an employer can reduce salaries for employees for future work, but not retroactively for work already done. So this is mostly like a wage-increase.

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    a wage increase can be retroactive though.
    – Trish
    Nov 15, 2023 at 20:01
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    @Trish If it were illegal, the company could just pay you a bonus instead of increasing past wages.
    – Barmar
    Nov 16, 2023 at 15:11

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