Businesses, particularly small ones, have always had to make difficult, cost-saving decisions. Considerations such as whether to reduce compensation, furlough employees or lay them off altogether have become especially far reaching and critical during the pandemic. Though at-will employees often have little to no protections when corporate restructuring is occurring, changing the terms of employment for employees hired under contract or governed by unions and collective bargaining agreements can be a much stickier situation. Employers should carefully analyze the language of all of their employment agreements before taking any action so as to avoid exposing themselves to potential breach of contract claims. When reviewing your agreements, you should take into account the current landscape of business profitability, unemployment and state-specific guidelines.
Employment agreements are legally binding contracts that govern the relationships between employees (from entry-level to executives) and their employers. Generally, drafted during pre-employment negotiations, these agreements define material terms of employment, including duration, position scope, and compensation (including salary, benefits, and bonuses).
Managing Pre-COVID Employment Agreements
Even before COVID-19, there were three main ways an employer could choose to impact an employee’s existing contract. They could propose a change through mutual agreement, they could unilaterally present new terms to the employee if the agreement allowed, or they could terminate the agreement all together. Below we discuss each of these options in detail.
The easiest way to change an employment contract is by mutual agreement. The changes can be temporary, especially in light of COVID, or permanent. Any modifications should thoroughly delineate new terms and address whether the original terms will revert in the future. The tactics used to negotiate an existing employment agreement, are no different from a standard contract negotiation. You can use the follow steps as a guideline:
- Look at the current employment contract. Determine which part you would like to amend and be able to articulate your reasoning should the employee ask.
- Think of the new term you want to add. A modification is only mutual if both parties feel like they have a say in the change. While the change does not have to be completely even between the parties, it should attempt to get as close to mutual satisfaction as possible to avoid future issues.
- Propose the change to the employee. Before you can legally amend the contract, you must have the other party’s buy in. If they do not readily agree consider additional adds to sweeten the deal.
- Have your attorney draft a new agreement or an amendment to the original contract once an agreement is reached.
- Execute the agreement. Both parties should sign the agreement indicating the effective date of the new terms.
When parties cannot agree to modify an employment agreement, the original terms of a contract will remain in effect. However, it is important to keep in mind that unilateral changes are often not binding making these changes can result in a breach of contract claim. If an employer furloughs an employee without pay, reduces their pay, or terminate employment all together during a time when their contract guaranteed either employment or a minimum salary, this would be considered a breach of the terms. The degree of specificity contained in the originally drafted agreement will be the determining factor on your ability to change duties, assignments, or compensation without your employee’s consent.
In “at-will” states, like Florida, employers can terminate employees at will, without cause, and for any reason (this does not apply to discrimination of a protected class). Similarly, employees also maintain the right to quit their jobs at any time for any reason.
Since employment contracts are governed by the principles of contract law, like a standard contract, performance can be delayed, halted, or terminated if the contract expressly allows for such action. In the absence of such provisions, employers should exercise caution and document, for their own records, the reason behind a termination.
Another option is to terminate an employee “for cause.” Terminating without cause requires that the employee be given 60-90 days’ notice. The parties often take advantage of this time to negotiation contractual changes or a termination settlement depending on the circumstances surrounding the end of employment.
Beware that you are more likely to encounter a wrongful termination action if you terminate for cause. This is because both sides will have seen the other sides reasoning and justifications and will feel better equipped to argue their case in court.
Post-COVID Contract Negotiation
Given what the pandemic has taught business owners about the risk businesses absorb through employment agreements, coupled with the potential for another “wave” of the pandemic, you should approach new employment agreements by paying close attention to provisions that are most likely to be in question. Avoid using generic language and try to tailor agreements to the employee’s job type, keeping “essentialness” of their job function in mind.
Things include in new agreements include employee leave/paid time off when mandated by a government entity, telework provisions, and changes in compensation based on work or customer load. See our considerations below:
- Telework: For positions where telework is possible, make sure to include language stating that telework may be required, as needed, should in office work not be possible. You should also outline requirements for video conferencing, home work station setups (including data privacy protection), and reimbursement for at-home work equipment.
- Sick Leave: Provisions regarding sickness policies may need to be included to address situations where self-isolation or quarantining is mandatory.
- Layoffs: You may wish to consider adding the right to lay off employees if work diminishes as well as what benefits will be available to them and for what period of time following the layoff.
- Other provisions: Unilateral alterations to work hours, the place of work, or workload coverage for fellow employees.
Modifying employment agreements can be tricky, especially when you want to maintain a good working relationship with your employee. As such, you should always consult with your lawyer before making any changes to an employee’s work or contract. Breaching your agreement or upsetting your employee, even if accidentally, is easy to do and can result in substantial exposure to your business should your employee bring a claim. Contact Capital Law Partners today for assistance.
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This article is for informational purposes only. It does not create an attorney-client relationship with any reader nor should it be construed as legal advice. If you need legal advice, please contact our firm.