Can an employer legally replace highly paid employees with lower wage workers?
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UPDATED: Jul 16, 2021
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Is it fair or right for an employer to fire highly compensated staff and replace them with less-well-paid employees? No, it is not fair at all. Is it legal for an employer to fire highly compensated staff and replace them with less-well-paid employees? Unfortunately yes, as long as the action did not involve illegal discrimination.
In the absence of employment contracts, including union or collective bargaining agreements, employees are employees at will. That means that either the employer or employee can end the employment relationship at any time, for any reason. An important aspect of employment at will is that an employer can decide for itself who to hire or employ. So an employer can elect to fire more highly compensated staff and replace them with less highly compensated workers. It’s legal, and unfortunately, it’s often good business — staff costs are the main expenses for most businesses, so reducing payroll is one of the best ways to save money and boost profits.
However, there are some limits to employment at will, and the main restriction is that employers cannot discriminate against members of protected categories or classes. For example, one group of protected people are those over the age of 40—an employer cannot refuse to hire or fire anyone because he or she is older than 40. Employers also can’t indulge in practices that have the effect of discriminating, even if the ostensible reason is otherwise. Although an employer may fire its highly compensated employees, it might run into trouble because many of them are likely to be older—they have the experience, the seniority, and the time in service. If an employer disproportionately fires workers over 40 years old, it’s possible that the employer will be found to be engaging in illegal discrimination.
So generally, an employer can fire the better-paid workers and replace them with those with lower wages. However, in doing so, the employer must be careful to not discriminate against those over the age of 40.