Thinking About Cutting Your Employee’s Salary? Make Sure the Employment Agreement Lets You Increase and Decrease Employee Salaries.

Thinking about slashing salaries? Make sure that your employment agreements allow you to increase and decrease employee salaries. The Town of Straford, CT found this out the hard way. The Town required each employee to sign an employment agreement which stated: “[A]t the [m]ayor’s sole discretion and recommendation, [an employee’s] base salary may be increased on July 1 of each fiscal year.”

After the Town attempted to decrease an employee’s salary, the employee sued, claiming that the employment agreement forbid the town from doing this. The court agreed. It noted that by specifically mentioning salary increases and not mentioning decreases, the employment agreement forbade the employer from reducing salaries.

This reasoning illustrates a principle that courts use to interpret contracts: the inclusion of one thing implies the exclusion of others. The more specific a grant of discretion, the more limited courts interpret that discretion to be—otherwise, it would be pointless to be so specific. Here, the court assumed that the employer would not have taken the trouble to specifically grant the mayor authority to increase pay, and say nothing about his authority to decrease it, unless it did not intend to give him the power to decrease salaries.

While the Town learned a valuable, if painful, lesson, all of this could have been avoided had it used general, somewhat vague language in place of specific, definite language. Had the employment agreement said: “The Town has the right to adjust employee salaries at will,” it would have given itself greater discretion and made it possible to decrease employee salaries. Instead, it inadvertently gave itself less discretion by specifically stating that “base salary may be increased.” Employers should delete these kinds of specific guarantees from employment agreements, and instead choose terms that give them as much discretion possible.

This case also illustrates the importance of consulting with an attorney to first determine whether an employment agreement is appropriate and if so, to draft the employment agreements. The one-size-fits-all employment agreement found online often is not tailored to the unique circumstances of each workplace. Also, the quality of many of these documents is suspect. Had the Town made the modest initial investment of hiring an attorney to draft a proper employment agreement, it would have saved itself many thousands of dollars in litigation down the road.