Was salary reduction a “constructive termination” or did employee resign? (2013)

https://fkks.com/news/was-70000-salary-reduction-a-constructive-termination-or-did-employee-resig

by mooreds • 4 years ago

45 79 4 years ago

dchftcs• 4 years ago

The trial court noted that a $150,000 salary compared favorably with the current salaries of US District Court Judges, US Senators and Members of the House of Representatives ($174,000 per year); US Magistrate Judges ($160,080 per year); and military personnel below two-star generals with 15 years of service (all of whom earn less than $150,000 per year in base pay) (citations omitted).

This kind of judgement is incredibly unprofessional.

alasdair_• 4 years ago

This kind of judgement is incredibly unprofessional

The judge that wrote the opinion deserves to be paid less than $150,000 a year.

Retric4• 4 years ago

It was also reversed on appeal, which is one reason why the appeal process exists.

duxup• 4 years ago

Seriously that reads like some Facebook meme about someone getting paid “to much” and so on.

llanowarelves2• 4 years ago

It's also not reflective of their true compensation. The main way you get paid as a senator or house rep isn't salary.

They're not going in with nothing and ending up with tens of millions of dollars on salary through savings.

llanowarelves2• 4 years ago

Downvoted by bleeding-heart [lobbyist/revolving door/kickback/insider trading] sympathizers. Will someone think of the poor conglomerates and the suffering decamillionaires in congress?

chomp2• 4 years ago

It's less outrageous than it sounds, just a face reading and one judge's interpretation of the law - the linked article does a poor job of providing context.

An employee is constructively discharged when his employer, rather than discharging him directly, inten-tionally creates a work atmosphere so intolerable that he is forced to quit involuntarily. Kirsch v. Fleet St., Ltd., 148 F.3d 149, 161 (2d Cir. 1998); Chertkovav. Connecticut Gen. Life Ins. Co., 92 F.3d 81, 89 (2d Cir. 1996). We have explained that working conditions are intolerable when, viewed as a whole, they are "so difficult or unpleasant that a reasonable person in the employee's shoes would have felt compelled to resign." Chertkova, 92 F.3d at 89 (quotations omitted).

Using the above framework, the judge determined that a reasonable person would not find a 150k/yr salary "to be sufficiently severe or pervasive to alter the conditions of the victim's employment and create an abusive work environment." when 150k/yr is a really good salary. Reasonable person tests are always a judgment call. I disagree with this judgment call, but I don't think it's an unprofessional one.

anonymouskimmer2• 4 years ago

Any "reasonable" "professional" judgement needs to take into account the financial situation of the individual, not the financial situation of others. If my salary was reduced by a little less than 1/3rd, I'd have a couple of hundred dollars left over each month after mandatory deductions, rent, and utilities. I'd effectively starve. And yet my salary would still be slightly above the national average salary.

This sort of reasonableness standard is why the spouses and children of very rich people get millions of dollars a year in alimony and child support.

AmericanChopper6• 4 years ago

I don’t see how that is relevant at all. Isn’t the central aspect of the controversy that one party modified the terms of the contact without the consent of the other party? The linked article doesn’t have much detail, but it just seems like a simple contract violation to me…

rootusrootus4• 4 years ago

It's terrible. Even executives deserve to be treated with respect.

messe8• 4 years ago

It's the kind of thing employment laws should really cover. The US is an extreme outlier in the developed world in how few rights employees have compared to employers.

AmericanChopper6• 4 years ago

What rights do employers have that employees don’t?

AYBABTME3• 4 years ago

It's also the most vibrant economy of the developed world by miles. I feel the two are related in a way (although I'm a salaried employee as well). I think a lot of cut-throat oddities in the US employment sphere have a lot to do with its success. That along with how laws also support the ~treacheries that give birth to the Intel-from-Fairchild types of business.

dragonwriter4• 4 years ago

“Constructive termination” is a thing employment law covers.

taeric3• 4 years ago

I'm sympathetic, but more for the implications to everyone else. Most people aren't in a position to get a severance package negotiated. Now we will also not be in a position to negotiate based on a salary reduction. :(

rootusrootus4• 4 years ago

implications to everyone else

What are the implications? He's an executive. He negotiated an employment contract with early termination provisions, as is pretty common at the executive level. I don't see that this particular situation has much implication for regular non-executive employees.

Retric4• 4 years ago

Contracts can’t cover every single possible action by either party. They need to assume context of existing case law to avoid being tens of thousands of pages long. This edge case is already covered under such case law which is why the decision was reversed on appeal.

rootusrootus4• 4 years ago

The guy was an executive, FFS. Negotiating a golden parachute is an expected part of his job. How he did not forsee a salary reduction as a real possibility, I can't say.

neonate• 4 years ago

http://web.archive.org/web/20220705103358/https://fkks.com/n...

dragonwriter4• 4 years ago

Kind of weird to post a 2013 article about an appellate decision that simply ruled that the question in the title was a justiciable question of fact that should be tried here. (Especially given the fact that neither constructive termination nor the idea that a large salary reduction could constitute it were novel concepts at the time, the only interesting part is the existence of a specific negotiated contract which didn't explicitly set salary terms.)

Side note: its annoying to try to research via typical web tools to find if there is any information about what happened after the appellate decision because of the name collision with Scott v. Harris, a Supreme Court qualified immunity case, which has... quite a lot written about it.

justusw2• 4 years ago

I was unlawfully demoted once at a job and that was the defense my employer used as well:

1) what we are paying you now is still great money

2) by keeping coming to work you agree to being OK with the demotion (same as in the article)

Too bad it didn’t hold up once lawyers got involved. Some corporations really believe they can get away with anything. To their detriment, labor laws exist.

tptacek6• 4 years ago

What was unlawful about your demotion? Most US employees can be demoted for no reason, or have their salaries docked arbitrarily.

thrwawy74• 4 years ago

I am not a lawyer. I'm imagining some legal argument where you claim you've become accustomed to the lifestyle and cost of living of a certain salary, and by reducing your pay you're being put in an unreasonable position (or certainly one you can't adjust to instantly without financial cost). It would be similar to 1 spouse divorcing another and suing for (alimony?).

Constructive termination + a reasonable payout to help you adjust to life post-job/divorce.

puffoflogic2• 4 years ago

GP commenter would appear to be using "unlawful" to mean "a scheme [to avoid paying out unemployment benefits, which absolutely does attach in the circumstances you mention] which did not actually succeed under the law".

sli3• 4 years ago

Violation of contract terms on the employer's side is one way. Breach of contract is unlawful, but not criminal (mostly, so far as I know). Or, of course, they simply might not be in the US and live in a country that has strong labor laws with real teeth. We mostly just wrist-slap in the US.

quadrifoliate• 4 years ago

What was unlawful about your demotion? Most US employees...

The commenter is probably employed in a jurisdiction that is not the US.

A quick examination of their post history yields a description [1] of employment in a jurisdiction that is not the US.

----------------------------------------

[1] https://news.ycombinator.com/item?id=34099858

justusw2• 4 years ago

Yes, I should have mentioned I have only worked in Japan and Germany so far.

Labor law supersedes the contract freedom guaranteed by the civil code here in JP. And the conditions for demotion are strict here, e.g. maximum ~40 % reduction of salary, new role must be related to previous role, etc.

The burden of evidence lies with the employer, but some try to construct a fictitious narrative. Nothing that holds up in a court of law if you remember to CYA.

It’s especially frustrating if your visa is tied to doing a certain type of job and having a certain amount of salary!

The word unlawful I am using here is 不法 (fuhō) in Japanese which I believe is used a lot in tort law.

Either way, long story short, there is no at-will employment in Japan.

puffoflogic2• 4 years ago

As a casual but high-volume observer of US legal proceedings (read: I follow IJ, FIRE, Volokh, etc.), I can confidently say that trial courts are garbage at applying the law. They mostly just do whatever feels right to them.

smcin• 4 years ago

Tech, labor, civil, criminal, all of those...?

raincom• 4 years ago

Even if you don't have a special contract with the employer, as c-level executives do, lawyers advise companies not to reduce your salary unless it is a company-wide salary cut. So, there are two ways for a company to choose: (a) plan a small layoff and get rid of all those people you want to fire across the company; (b) stop giving any raises/bonuses/RSUs (or give the least amount) and move all reports of that person to another manager, thereby showing that the said employee should find another job.

sevensor• 4 years ago

Has anyone been on the other side of this? As an employer, is termination the only option when an employee's compensation exceeds their contribution? It seems like there's no good way to demote somebody.

Kranar• 4 years ago

In Ontario, Canada, you can absolutely reduce someone's pay and/or demote them without cause, but you must do so with notice. That is you can't immediately reduce someone's pay on the spot but instead have to inform them that their pay will be reduced after X weeks (based on statute but usually 1 week per year of employment) and continue paying them their current salary for those X weeks.

Only if you have cause can you instantly demote them and/or reduce their salary, but establishing cause has a fairly high standard and is usually not worth it outside of obvious cases. It's usually just best to wait out the notice period.

As for me, my personal opinion is it's never worth it to demote someone or reduce their pay. I always prefer terminating someone over those options.

pjc50• 4 years ago

How have you got into that situation, though?

If someone's performance has gone down => performance improvement plan (PIP); gives them an opportunity to improve again, and requires you to document their performance.

Contribution gone down due to inability to assign them profitable enough work => redundancy process. This may include offering them a non-redundant position that has lower compensation.

You can't just demote people because you think you have more power over them and you want to improve your quarterly results.

TheCoelacanth• 4 years ago

It's important not to read too much into this decision.

Employers are allowed to reduce pay, just if the employee chooses to leave as a result of that, then it's legally treated as if the employer fired them.

Normally, that would just mean that the employee would qualify for unemployment benefits and the employer's unemployment insurance premiums might increase by a trifling amount. In this case, the employee had a contract guaranteeing severance pay, so the employer also was liable for that.

gbronner• 4 years ago

This is an unfortunate outcome:

under the argument offered by the company, they can lower your salary, and you can choose whether or not to take it. If you keep working, you have a new job at a new salary.

Under the employee's theory, they have the option to keep working, and then sue the company for constructive termination. From the employer's perspective, this is a disaster, as legal fees overwhelm any reduction in salary.

So given that salary reduction is off the table, the employer now has to fire all employees that are drastically overpaid, or make everyone sign a release. This is not good for the large number of employees who would prefer to keep working at a lower salary rather than be unemployed -- it produces a worse outcome.

nigamanth2• 4 years ago

Financial insecurity is one of the effects of this, everyone's so insecure about their job because they think that the employer's going to have to fire all the employees that are overpaid.

As a result all the employees who get fired have to look for jobs in which they get paid less, and other factors such as a recession or a crashed market just worsen the situation.

dathinab• 4 years ago

while I agree part of the decision was based on that in that specific cases the "reduced" salary was still more then most people do earn and it was overturned in apeals curt.

So this isn't applicable to most people.

still any form of unilateral contract change being legal is just absurd IMHO, and saying that because person didn't stop working completely it's like accepting the change is pretty absurd too. I mean if that wasn't a valid change wouldn't that mean that the person is still employed under the old contact and in turn had to come to work?

Drakim• 4 years ago

The power imbalance between the company and the worker is too great for this to practically work out. When a company loses a worker, it's a small inconvenience until they get replaced, but when a worker loses their job it might mean loss of food, shelter and medicine for them and their family.

Having logic like "If you don't instantly walk away from your job on the spot after a salary reduction then you accept it" can practically end up being blackmail: Accept the salary reduction today or go hungry tomorrow.

KevinGlass• 4 years ago

I don't think these "large number of employees" who want to keep working after having their salary slashed 70% exist.

boring_twenties• 4 years ago

At the very least they might prefer to keep working for a little while until they find something better. Especially if the job market isn't so hot at the moment.

Was salary reduction a “constructive termination” or did employee resign? (2013)

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