20% salary reduction retroactively. Legal?

UPDATED: Jun 17, 2009

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20% salary reduction retroactively. Legal?

Due to the economic downtown, our firm’s owner is planning to do an across-the-board 20% pay cut. He plans to notify people on 6/18 that their paychecks on July 1 (for work performed in June) will be at the reduced level. Is that legal? Thanks.

Asked on June 17, 2009 under Employment Labor Law, Oregon


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 13 years ago | Contributor

No, he cannnot unilaterally reduce your salaries for work done prior to the announcement of reduction. Therefore, if he announces a reduction on June 18, he can reduce salaries from that moment forward, but not for work performed already from June 1 to 17.

That's not to say that he might not have leverage to get you and other employees to agree--if for example, he says (and you believe) that the firm's cash flow is inadequate and it simply *can't* pay full salaries, or that paying the full salaries would make it insolvent, well, then you'd have to decide whether believe it and if so, whether you will agree to the reduction. However, that's the key point--unless the company actually goes bankrupt, it needs the agreement of any creditor (including workers waiting for a paycheck already earned) before it can reduce the amount owed. (In bankruptcy, the bankrupctcy court would adjust what is owed to various parties based on what the firm can pay.)

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