Employment Law Questions? Ask an Employment Lawyer.
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Legally speaking, hourly pay schemes are considered the most equitable and fair. Only salaried positions really have limitations on being established. On that basis, any job can be hourly. There is absolutely no limitations on jobs being created or changed to hourly positions.
Now, in terms of your specific situation, changing your obligations should require notice to you. That being said, unless you had a contract of employment stating that your employment could not be altered without your consent or termination without cause, they could change your terms or terminate your position at any time. This is called "at will" employment.
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Unless you can present some evidence suggesting that the actual basis for this treatment is your race, religion, gender, age, disability or recent FMLA use, then yes that is correct.
You can legally be terminated without cause at any time, so they didn't really need a basis for termination.
Setting a position to hire a friend, not illegal. So that doesn't really help here either.