Global HR Hot Topic - November 2013: How to Cut (or “Restructure”) Employment Terms, Work Hours, Benefits and Pay Outside the United States


Employment-at-will offers American employers broad freedom to cut their staff’s terms and conditions of employment, work hours, employee benefits—even compensation, bonuses, commissions and base pay. Indeed, American bosses exercise this freedom regularly. When recession hit in 2008, countless news articles reported on US employers rushing to cut employment terms, hours and pay. According to one article, rather than “slashing their work force[s]” with layoffs, US employers were “nipping and tucking [them] instead” with cuts to benefits and pay. (Matt Richtel, “More Companies Are Cutting Labor Costs Without Layoffs,” New York Times, 21 Dec. 2008) Another article spotlighted the “3.7 million Americans who have seen their full-time jobs chopped to part time.” (Peter Goodman, “A Hidden Toll on Employment: Cut to Part Time,” New York Times, 31 July 2008) Yet another article told of an American law firm imposing “across-the-board salary reductions for its associates, counsel, staff members, nonequity partners and equity partners.” (Erin Marie Daly, “Sweeping Pay Cuts,” Law 360, 29 June 2009).

News stories like these proliferate when the US economy slows, but even in healthier economic times American employers routinely tighten work rules, restructure workforces, downgrade job titles, transfer staff, discontinue benefit programs — and cut work hours, bonuses, commissions and pay. These cuts are perfectly legal as long as they comply with applicable employment contracts and ERISA, because—outside the 6 percent non-government unionized sector — US law, even in California, imposes no doctrine of vested employment rights. Outside the United States, by contrast, laws impose vested (sometimes called implied or “acquired”) rights that constrain employers from unilaterally cutting employment terms, conditions, work hours, benefits and pay. Vested rights restrict all sorts of workplace reductions, such as (as random examples), discontinuing a special bonus in Caracas, dropping a supplementary medical plan in London, taking back a company car in Frankfurt, imposing new sales quotas in Buenos Aires or transferring an engineer from Tokyo to Osaka.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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