Does an employee have to commit to contract if their employer demotes them?

UPDATED: Sep 30, 2022

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Does an employee have to commit to contract if their employer demotes them?

My husband is a quality engineer. I was hired as a manager for a large corporation. After 6 months, my husband was demoted. This resulted in loss of nearly $1000/month in pay. His demotion is into a different position and non-manager. The corporation is claiming that he would still be required to pay the corporation back for the sign-on bonus and relocation provided in contract for the managerial position if he was to find another job/since he was not fired. Is this legal? Wouldn’t his demotion break the original contract on the employer’s part?

Asked on May 25, 2017 under Employment Labor Law, Indiana


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 5 years ago | Contributor

For a definitive answer, you have to bring the contract to an attorney to review with you in detail, since the specific wording of a contract controls its effect and meaning. (Also, the specific context of the demotion matters, too: there is a large difference between a $120,000/year employee losing $12,000/year, and a $48,000/year employee losing $12,000.) You want the lawyer to review the exact language of the contract against the specific facts of your husband's employment. 
That said, as a general matter, you would be correct: a demotion and  loss of thousands of dollars pay would generally be considered a "material," or important, breach of contract by the employer, since they have effectively taken away the job for which he agreed to these terms (i.e. they have taken away the "consideration," or thing fo value, he received in exchange for agreeing to those terms). That material breach would generally allow your husband to treat the contract as terminated and escape its terms.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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