My Company is Trying to Get Me to Quit So They Don't Have to Pay Severance

My question involves labor and employment law for the state of: California

I'm friends with my company's finance director and he warned me that my boss is about to tell me she has to lower my salary drastically in order to keep me on. The company is having financial trouble and he is going to be laid off soon too, so he doesn't care if the company has to shell out a massive payment to me. He'll no longer be the finance director and won't have to deal with the financial blow to the company.

I've been with the company for over eight years and my severance would be high. He says my boss really doesn't want to pay it to me. I'm an at will employee so they can legally lay me off or lower my salary at any time for no reason and I've never heard that severance is legally required in the case of a layoff, but he's convinced that it is, and he knows more about these things than I do.

If my boss says she can only pay me some ridiculously low salary from now on, and I refuse the pay cut, then would she have to lay me off? Or would I have to accept the pay cut and quit if I don't like it? It seems like the company is the "moving party" in this case. I won't be taking any action to change my relationship to the company. They are taking it against me. Have I misunderstood? And does anyone know why the company would have to pay me severance if they lay me off? I haven't signed any agreement that guarantees me severance in the event of a layoff.

I am a non-exempt employee. Perhaps there is some rule in California that severance must be paid to non-exempt employees in the event of a layoff?

Is the WARN Act implicated?

I don't think so. I'm the only one they're wanting to eliminate at this point. But my finance director friend knows his is coming up soon after. There aren't any mass layoffs planned, so I don't think the company needs to follow WARN laws.

There are only three states where severance is ever required by law; California is not one of the three; even in the three states where it sometimes is, it's only in certain circumstances and in at least two (I can't recall the requirements of the third) it would not be required in the circumstances you describe. So I suspect your finance director is mistaken.

You do not have the option of refusing the pay cut, if by that you mean that you can refuse it and they would have to continue paying you the higher wage. They certainly can lay you off if you "refuse" but they don't have to, and they can go ahead and pay you the lower wage and you'd have nothing to say about it. Your "refusal" is not binding on them.

Depending on how much the cut is, you MIGHT be able to resign and receive UI, but think very carefully before you do that. First, depending on the degree of the cut, you might still be making more than you would receive in UI benefits, since unemployment generally pays only a fraction of what you've been earning. Secondly, if you continue working at the lower wage, there is a very good chance that you would be entitled to collect partial UI to make up some of the difference. And third, you won't know until after you quit if you are approved for UI, and if you aren't, there you are with no job and no unemployment.

But if you do decided to quit, make sure you do so before you work any hours at the reduced rate. If you work any time at all at the lower rate, that's considered acceptance of the new rate and would sharply reduce, if not eliminate altogether, the change that you would be able to quit later and get any benefits.

Thank you all for your answers! Now it looks like they may go ahead and lay me off and give me severance. I recently changed my W-4 to a higher number of allowances so I'll have more cash in hand which will be earning interest (though its a sad piddling amount) in my savings account or a 6-month CD. Because I listed 8 allowances, I'll have to pay a huge amount in taxes in April of next year. If they pay me severance, it will also look like a very large payment because of the high number of allowances, but I'll have to pay almost half of it to the government at tax time.

I live in California where they state on the EDD website:

"How does severance pay affect my eligibility to receive unemployment insurance benefits?

Severance pay is not deducted from unemployment insurance benefits and does not affect your eligibility to receive benefits. The method of payment, such as a lump sum payment or payments paid to you at regular pay period intervals does not change the nature of the payment. However, you must report severance pay at the time you file your unemployment insurance claim."

Even though they state that severance doesn't affect eligibility for benefits, I wonder if it will look really bad to list maybe $14,000 in severance. Of course, I would only be able to keep $8,000 of that; the rest would need to be paid to the government at tax time. Should I change back my W-4 to the lower number of allowances so my severance doesn't look so huge?

You report your gross wages so how much you receive (net) is irrelevant.