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Give employees advance notice of pay changes

by on
in Human Resources

Issue: Should you provide notice about commission-formula changes that could alter employees' pay?

Risk: If you rework pay formulas behind employees' backs, you could bump up against state wage laws.

Action: Always provide advance notice to employees when making changes that affect their compensation.

Virtually every state has a wage-payment law requiring employers to pay their employees in a timely way. Even at-will employees, whose employment terms are typically subject to change at any time without notice, must be told in advance of changes affecting their pay.

Bottom line: Learn from the following employer's mistake: Always notify employees well in advance of any moves that could alter their pay.

Recent case: Sales rep Gerald Winslow was paid solely on a commission basis, based on his employer's gross profits. Without notice, his employer changed the gross-profits calculation by incorporating overhead costs. Winslow discovered the change when receiving his first commission check under the new formula, which reduced his pay significantly.

He sued, alleging a violation of state wage-payment law, breach of contract and fraud. A state appeals court sided with Winslow.

Reason: The law requires employers to "notify employees of any changes in the pay rates ... prior to the time of such changes." Plus, the fraud claim stuck because the organization's sales managers knowingly withheld information about the pay change from sales reps. (Winslow v. Corporate Express, No. A-6309-01, New Jersey App Div., 2003)

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