Tech industry pay cuts portend a trend with some risks

By Jessica Mach

The technology industry may be setting an employment trend by introducing pay cuts for workers who left the Bay Area during the pandemic. But while California employers technically have the discretion to cut many workers' pay, employment attorneys say these cuts can be complex to navigate -- and could expose businesses to litigation if executed poorly.

As tech workers continue to leave the pricey Bay Area while they are able to work remotely, either to live closer to family or cut down on living costs, many employers have started to consider lowering those workers' pay to account for their reduced expenses.

"Many employers ... offer price compensation packages based on regions," said Pankit J. Doshi, who represents tech employers and is office managing partner at McDermott Will & Emery LLP. "The compensation package in the Bay Area might be more expensive or a higher value than, let's say, a compensation package somewhere else in the country."

"There has been a lot of thought and consideration if ... employees move to regions where there are lower costs of living do we make compensation package adjustments to account for that difference," Doshi said. "The COVID-19 pandemic has hit many employers very hard, and they're looking across the board at: How do they stay afloat? How do they keep their business running? Can they do salary or compensation adjustments for some or all aspects of the workforce?"

Unless a worker has an employment contract that prohibits pay cuts, California employers can reduce the pay of at-will workers without negotiations, said Wendy Musell, a plaintiffs' attorney in the Bay Area who recently launched her own firm and is of counsel with Levy Vinick Burrell Hyams LLP. But Musell said employers need to make sure while they are making these cuts that they are not violating other laws like the Equal Pay Act and the Fair Employment and Housing Act.

Doshi agreed, and said employers need to pay special attention to the discrimination protections offered through these laws. If an employer's pay cuts disproportionately impact women, racial or ethnic minorities, people with disabilities, or other protected classes, they could potentially be hit with discrimination claims, Doshi said. In cases where workers have left California altogether, the employment laws of these other states could apply -- meaning employers will need to make sure they are complying with local payroll, sick pay, and minimum wage requirements, Doshi said.

"We've already started to see litigation get filed regarding pay cuts," Doshi said. At the start of the pandemic, he explained, "Some employers made decisions very quickly because time was of the essence and ... many lawsuits have been filed where employees are accusing employers of not following proper protocol or violating the law."

"I think there will be continued uptick in litigation," he said.

But the decision to leave has not always been easy for tech workers, said Musell. "Because of the pandemic, with everything being virtual, a lot of the positive factors for being geographically located in the Silicon Valley or in San Francisco ... are not as evident," she said. "At the same time nobody wants a pay cut. ... People are torn, I think, to leave this area that has historically been one of opportunity.

"I've seen some companies consider pay cuts as large as 30%," she added. "I think that's going to be a hit to maintaining talent and bringing forward talent."

Still, Doshi predicted the pay cut trend will likely continue -- and even stretch to other industries as remote work becomes more of a long-term option. "The tech industry tends to be the forefront of deciding these issues. ... It wouldn't surprise me if more and more industries as a whole -- as opposed to one-off companies within industries -- start to go in the direction of pay cuts for remote employees."