Question: About ten days ago, without notice, my employer sent out an email to all employees telling us that, effective immediately, our health insurance will cost us more, our 401k contributions will be cut in half, and if we are laid off, our severance will be eliminated – entirely. These benefits were part of the reason I took this job. Is there any limit on this?
Toms River, New Jersey
Answer: Dear Stanley: In the employment relation – just like in many other relations – there are few legal rules that limit the freedom of the parties to set their own terms and conditions in the relation. Regarding employers and employees, and employment benefits, this is how it goes:
1. In the past, employers provided benefits primarily to attract and retain valuable employees; more recently, benefits are being reduced nearly everywhere. Historically, employers did not provide anything to employees other than their weekly (or biweekly) salaries. What we know as “benefits,” such as (a) paid vacation, (b) health insurance, (c) life insurance, (d) contributions toward retirement, and the like, were first seen after World War II, when this country’s economy was growing by leaps and bounds, which resulted in a shortage of labor. To attract and retain workers, employers had to compete with each other by offering such things as “side benefits.”
Much more recently, with the newer technologies available to many employers, as well as increasingly large “internet-and-sharing-economies,” many employers, worldwide, are finding they don’t have to offer anything to find and hire qualified employees who are eager to get a job. Thus, to save money, employers are limiting and reducing benefits, pretty much in every industry, unless a particular industry is facing a labor shortage.
2. The law requires that employers provide their employees with only certain, limited benefits. Some “benefits” are required by laws, which differ from state to state and country to country. One common mandated benefit is workers compensation insurance, which provides employees injured on the job with wages, benefits and medical reimbursements. Another required benefit in many states is short-term disability insurance, which provides some continued salary for those temporarily “disabled.”
3. If you have a contract – including a union contract – that requires your employer to provide certain benefits, then your employer cannot change, reduce or eliminate those benefits without breaching its contract with you. Union contracts commonly specify what benefits union-protected employees must receive. Likewise, many executives have personal employment contracts that do the same. But the percentage of people covered by union contracts or personal employment contracts is quite small. What is in a contract must be honored, or else a legal claim can be raised.
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4. All other benefits, that is those not required by the law, or by a contract, can be changed, reduced or eliminated by employers at any time. So, if a benefit is required by law, or a contract, it cannot be changed, reduced, or eliminated without violating that law or that contract. But, all other benefits – and that means almost all benefits – can be changed, reduced or eliminated at any time.
The way the law sees it is this: if an employee is not happy with the terms of his or her employment, and by “terms of employment” we mean salary, benefits and conditions, then he or she is free to request better salary, benefits or conditions from the employer. Is it easy? Of course, not. But, if the employee has made himself or herself valuable enough to the employer, then the employer is much more likely to grant that request. And, too, the employee is always free to go to work for another employer (of course within the limits of any non-compete agreement he or she may have signed.)
5. But “the world is round”: you are always free to ask your employer for a (a) new benefit, (b) a restored benefit, or (c) a greater benefit. Ever notice how much money star athletes get paid? That’s because they have great value to attract fans. If you have enough “perceived value” to your own employer, you can ask for anything, including a (a) new benefit, (b) a restored benefit, or (c) a greater benefit of any kind.
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6. One limitation does exist as to all employment benefits: they cannot be changed, reduced or eliminated retroactively. One thing that employers cannot do is to change, reduce or eliminate benefits (or salary, for that matter) retroactively, that is, effective a day, a week or a month ago. Benefits can be changed, reduced or eliminated immediately, or prospectively (that is, effective tomorrow, next week or next month).
This is the reasoning: Imagine that you go into a restaurant, and the menu says “Roast Chicken – $15.95.” You order the roast chicken, you eat the roast chicken, and after dessert, the waitress gives you the bill that says “Roast Chicken – $21.95.” You say to the waitress, “But the menu said $15.95,” and she says, “Sorry, but after you ate the roast chicken, when you were eating your apple pie, we increased the price – retroactively, effective yesterday.” No, the law does not permit restaurants to do that, and it is the same thing with employers: they cannot “change the price” after you have given them your time, loyalty and efforts.
Stanley, I hope this helps in your understanding of whether, when and how employers can make changes to benefits. Thanks for submitting your question.
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