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Demotion can sometimes be an appropriate outcome for an employee when dealing with a problem.
But before changing someone’s role, responsibilities or pay, there are a few things employers should check first.
Why? Because a demotion can, in some circumstances, amount to a dismissal if it involves a significant reduction in an employee’s duties or remuneration.
So, if you’re considering demotion, where should you start?
1. Check the employment contract
Start with the employee’s contract.
Does it give the business the right to change the employee’s role, duties, classification or level of responsibility?
Don’t assume that a general flexibility clause means you can move someone into any role you choose.
A significant change to the nature of the employee’s position may raise different issues, particularly if the employee doesn’t agree to the change.
2. Check the award or enterprise agreement
If the employee is covered by an award or enterprise agreement, check it before making a decision.
There may be provisions dealing with classifications, disciplinary outcomes, changes to duties or demotion.
If you’re relying on an enterprise agreement to support a demotion, make sure the process and outcome are consistent with what the agreement actually allows.
This was an important issue in the recent Taylor decision, where the Full Bench considered whether the employer had acted within the powers provided by the applicable enterprise agreement.
3. Look at what is actually changing
It’s easy to focus on the job title, but the title isn’t the whole story.
Consider what the employee will actually be losing.
For example:
- Will their pay decrease?
- Will they have fewer responsibilities?
- Will they lose management or supervisory duties?
- Will their award classification change?
- Will they have less decision-making authority?
- Will they lose access to benefits or other entitlements?
- Will they move into a substantially different role?
A demotion involving a significant reduction in duties or remuneration may be treated as a dismissal under the Fair Work Act 2009, even where the employee continues working for the business.
There isn’t a simple percentage or one-size-fits-all test. The significance of the change needs to be considered in the circumstances.
4. Consider why you’re doing it
What’s the reason for the demotion?
If it’s related to misconduct, performance or behaviour, make sure the proposed outcome actually fits the issue you’re trying to address.
For example, if an employee has ongoing performance concerns, demotion shouldn’t simply be used as a shortcut around performance management.
The employee should generally be told what the concerns are and given a reasonable opportunity to respond and/or improve before a decision is made.
The same applies where the proposed demotion is being considered as a disciplinary outcome.
5. Don’t make the change before you’ve sought advice
Once a decision has been announced, it can be much harder to unwind.
Before telling an employee that they are being demoted, check:
- What does the contract say?
- What does the applicable award or enterprise agreement say?
- What exactly is changing?
- Is the change significant?
- Has the employee had a fair opportunity to respond?
- Is the proposed outcome reasonable and appropriate in the circumstances?
If you’re not sure, get advice before making the change rather than trying to fix the problem afterwards.
Demotion isn’t always straightforward
There are circumstances where an employer can legitimately change an employee’s role or demote them.
But the fact that an employee remains at work doesn’t necessarily mean there is no risk.
The Fair Work Commission specifically recognises that a demotion involving a significant reduction in duties or remuneration can amount to a dismissal.
The safest approach is to look at the whole picture before making the decision.
Need help working through an employee issue?
Whether you’re dealing with performance, conduct, disciplinary action or a proposed change to an employee’s role, Edwards HR can help you work through the process and understand what needs to be considered.
