Pay Cuts for Flexible Work Deals Test Employers’ Legal Limits

Employers willing to trade salary reductions for remote or flexible work arrangements risk creating a fertile ground for overlapping wage-and-hour and anti-discrimination compliance challenges.

As companies revert to pre-pandemic policies requiring in-person, full-time attendance, they are exploring ways to meet increasing demand for flexibility, particularly from workers and job seekers who argue that strict in-office structures affect their health or productivity, management-side attorneys said.

New research indicates that these workers are in many cases willing to quit or accept a salary cut as a tradeoff for flexibility, which also allows them to avoid commuting costs and rising childcare expenses.

At the same time, the arrangement helps employers manage overhead costs, widen their hiring pool nationwide, and retain top talent, attorneys said. But there can be legal risks if those deals result in overtime-exempt salaries falling below mandatory requirements, or change the role enough to jeopardize classification altogether.

The slope is even more slippery if the application of a seemingly neutral policy results in protected groups like women, caregivers, and workers with disabilities—who are more likely to seek flexible schedules—being paid less for the same work, they said.

“I am telling employers that they have to look at this holistically. It’s not just whether someone takes a pay cut or not,” said Tracy Billows, a partner at management-side firm Seyfarth LLP. “You have to be able to justify paying people differently for doing the same work” because remote status isn’t automatically accepted to establish a legitimate business reason to avoid legal trouble under equal pay laws, she said.

While there’s no dominant line of cases challenging pay cuts for flexible work arrangements head-on, the liability risks closely mirror what already emerged in litigation filed under the Americans with Disabilities Act, as more courts scrutinize whether remote work is a reasonable accommodation and how it may affect essential job functions, Billows added.

The ADA cases could create a road map for claims in the wage-and-hour and anti-bias law contexts.

“Plaintiffs’ attorneys are creative, and they know that working remotely and requests to return to work are issues we’re seeing a lot,” said Margo Wolf O’Donnell, a partner and co-chair of Benesch’s labor and employment practice group.

Some factors that companies can use to defend different pay between remote and in-office work include compensation based on geography, seniority, and measurable performance metrics.

By the Numbers

In the wake of the Covid-19 pandemic, flexible work arrangements became a major flashpoint amid heightened resistance from employees and job seekers over restrictive return-to-work mandates at companies like Amazon.com Inc., JPMorgan Chase & Co., and Bank of America Corp.

A recent study from researchers at Harvard, Brown, the University of California, Los Angeles, and the National Bureau of Economic Research found that tech workers who accepted remote or hybrid positions took a salary cut of about 25% compared to similar in-person roles.

The study involved nearly 1,400 tech workers—mainly software engineers, product managers, and data scientists—who received at least two job offers between May 2023 and December 2024, with average annual salaries of about $239,000. The study also included employer ratings from Glassdoor.

Other research has also found that women are more likely than men to forego a portion of their pay for flexibility or turn down jobs requiring in-person work, at least in part due to caregiving responsibilities.

Workers seeking flexibility may have legitimate reasons, but must consider possible “practical consequences that might flow from” it, including visibility in the workplace and access to leadership, said Matthew LaGarde, a partner at plaintiff-side firm Katz Banks Kumin LLP.

If a work arrangement “does not flow from a disability or some other protected responsibility, but rather is simply a preference, your employer can discriminate against you for working remotely,” he said.

A disparate treatment, or intentional discrimination, claim arises when an employer treats an employee or job applicant differently because of a protected characteristic, requiring a worker to prove that the trait caused the adverse employment action.

That’s a heavy burden because many workers would lack such evidence, according to attorneys.

However, there can be a disparate impact liability claim if the policy at issue is neutral on its face, but has a discriminatory effect.

Murky Compliance Landscape

Flexible work arrangements introduced a range of wage-and-hour legal issues since the pandemic, including when a remote employee’s workday starts and ends and what expenses are reimbursable.

The worker or company’s location is also a critical issue being evaluated by courts, as it affects where a lawsuit can be filed and which employment laws are applicable.

These cases can be fact-specific, but offer compliance lessons for employers considering pay cuts for flexibility, attorneys said.

Courts have stressed the need for companies to assess job functions individually, and engage in an interactive process to determine if remote work is a reasonable accommodation without reducing pay or benefits, they said.

Policies should be applied consistently and align with a legitimate business need, Billows said.

Companies should also consider whether they can effectively manage workers and ensure they’re advanced professionally regardless of work arrangements, she added.

In addition to US Labor Department guidance on the federal Fair Labor Standard Act’s coverage of teleworking employees, O’Donnell advised that companies considering flexible arrangements review state and local laws for unique regulatory requirements for remote work and changes in compensation.

“If job descriptions are reviewed and well-written up front” and also clarify “if a particular position does require in-person employment, then it would be easier to make a change to compensation for someone who’s asking” for a partial or full-remote work status, she said.