You don’t need me to point out that we’re living in very turbulent times. Businesses are facing many challenges staying afloat in a downturn caused largely (if not entirely) by a global pandemic. You took on employees with the highest of hopes and the best of intentions. For some of them, you may have an Employment Agreement. If so, you probably entered into those agreements before the pandemic and resulting downturn. What happens when, after entering into the contract, things change drastically? Must you still uphold the contract? Can you change the terms? Do you need your employee’s consent to do so? That’s our topic for this week, so read on… Why might you want to change the terms of an employee’s contract? Specifically, what about these times might prompt an employer to consider changes? What if last year you entered into an Employment Agreement with an employee that specifies a term of 3 years and because of the downturn, you need to let that employee go, or at least to change the employment to an at-will relationship? (At-will means either you or the employee can terminate the employment relationship any time for any lawful reason or no reason). What if you need to reduce an employee’s hours, benefits, or pay, that is clearly specified in an Employee Agreement?
So can you change an employee’s contract without the employee’s consent? The short answer is– you guessed it– “It depends”. The key question is “What does the contract say”? Does the contract allow you (the employer) to unilaterally change any of the provisions? If so, which ones? If the contract only allows unilateral changes to certain provisions, then do the changes you are seeking fall within those categories? Next question: Does the contract indicate which State’s laws are used to interpret and/or enforce it? Do the laws of the State in question prohibit unilateral changes to an employment contract? (This is where you may need to speak with your friendly local employment counsel.) What if the contract doesn’t say which State’s laws apply? Generally, then, the laws of the State where the employees work will apply.
Most employment contracts state that a modification is only effective if it is in writing and signed by the parties (or an authorized representative). The reason for such a clause is to prevent an employee from claiming the employer agreed to more favorable terms outside the contract. If the contract has this type of provision, guess what: you probably need your employee’s consent. What if the contract doesn’t say anything at all about modifications or consent? You still probably need your employee’s consent.
OK, so now what? Now, you get to talk with your employee. Explain to your employee that you need to make changes and why. For example, maybe, due to the pandemic and downturn, business is now much slower at your company. You want to hold on to your employee, but with business being the way it is, maybe you can’t afford their full salary, or maybe you can’t afford to provide the benefits included in the contract. Maybe you are trying to avoid making your employee redundant and so you need to revise his or her duties, at least temporarily.
What if the employee won’t agree? Find out exactly what’s bothering the employee and see what you can do to address the underlying concerns. See if you can sweeten the pot in some way. In fact, you may need to make sure that the new contract is supported by new consideration (a benefit conferred upon the employee in exchange for accepting the revised terms). Wait. Isn’t continued employment sufficient consideration? In some states, yes, but not in every State. (Here again, is why you’ll want to speak with your friendly local employment counsel.
What happens if you go ahead and change or deviate from terms in a signed, enforceable Employment Agreement, without the employee’s consent? You guessed it: The employee could sue, alleging breach of contract and wrongful termination, thereby adding to any economic pressures you may already be experiencing. If the unilateral change involves a reduction of wages, it might be wage theft, and a crime, within the meaning of applicable state laws.
But what if, due to the pandemic and resulting downturn, you simply can’t honor all the terms of the contract? You may be able to argue that events beyond your control render you unable to perform. In some circumstances that may be an adequate defense. In the end, though, before you try to unilaterally modify an Employment Agreement, seek advice so that you understand your rights, if any, regarding variation, and, if you do reach an agreement with your employee, how to memorialize it with a new, enforceable written agreement, or, if you don’t have a new agreement, your risks if you decide to go ahead with a unilateral modification.
Whatever you do, be careful out there — and stay safe!
Watch the latest video clip in my series, “Ask the Employer’s Lawyer: My Employee Has Exhausted All Her FMLA Leave Time. What do I do?
Watch my television interview on Stop My Crisis with Vivian Gaspar. Contents of this post are for educational/informational purposes only, are not legal advice, and do not create an attorney-client relationship. Consult with competent employment counsel in the state(s) in which you employ people with your specific questions.
Before choosing an attorney, you should give this matter careful thought. The selection of an attorney is an important decision. If you find this communication to be inaccurate or misleading, you may report it to the Committee on Attorney Advertising Hughes Justice Complex, CN 037, Trenton, NJ