A sure-fire way to cause employee distrust is to give her a raise and then rescind it. In most cases, employers hold the cards when it comes to job offers, employment status and compensation rules. An employer can increase an employee's pay and then take back the increase, but communication can help ease the frustration and soften the blow that an employee's paycheck is going to return to its old rate.
Employment At Will
Most employers embrace the employment-at-will doctrine that says the employer or the employee have the right to end the working relationship at any time, for any reason or for no reason, with or without advance notice. Without an employment agreement or labor union contract that sets out the terms and conditions of employment, employees accept at-will terms when they sign the application form that contains this important disclaimer. Employment-at-will terms also apply to pay, demotions and scheduling.
Salary increases usually occur when the employee's tenure increases or when her performance is such that the employer rewards her with a bump in pay. These aspects of employment and the effect they can have on pay may be valid points an employee raises if the employer decides to take back the salary increase. If it was a merit increase, the employee could argue that her tenure didn't reverse and somehow justify taking back the raise. And if the employer bases a salary increase on a performance appraisal for the preceding 12 months, taking back the raise can't nullify the employee's performance during the past year. Nevertheless, it's well within the employer's rights to take back an increase in pay.
Clear communication can prevent the disruption to the employer-employee relationship that rescinding a pay raise creates. Although there might not be a proactive solution, such as warning an employee ahead of time that the raise could be taken back, it's wise to tell the employee why the company is taking back the raise and when. Avoid having the employee discover for the first time that her raise has been taken back when she looks at her pay stub. Employers who find themselves in this predicament might offer an alternative. Additional time off might compensate for losing the raise or giving the employee the option to telecommute can result in more money in the employee's pocket because she can cut back on commuting costs.
Like most practices and rules, there are exceptions. An employer can't take back an employee's raise if there's an existing employment agreement that sets out compensation and the amounts and terms of salary increases. Also, many labor union contracts contain wage rates and increases to which both the labor union and the employer mutually agreed to during the contract negotiation process. Taking back a union member's increase would be in violation of the collective bargaining agreement.