When is a demotion a dismissal?


If an employer sets out to demote an employee through a reduction in remuneration and responsibilities, it can be considered a dismissal. This is because it may involve the termination of one contract in lieu of a new contract. If this is the case, employers may be required to pay redundancy pay.

In the case of Johnson v Zehut Pty Ltd, a clothing company sought to demote an employee which would result in a pay reduction of over $30,000 per year. When the employee refused the demotion, the company considered this as her resignation. The Fair Work Commission found this to be an unfair dismissal as it was harsh, unjust or unreasonable.

In the case of James v NSW Trains, a Shift Manager was disciplined in relation to misconduct allegations and subsequently had his pay grade dropped which reduced his remuneration by almost 10%. The reduction in pay and grade was permitted under the enterprise agreement, however, the Fair Work Commission ruled that this amounted to a dismissal. The ruling was appealed to a Full Bench of the Fair Work Commission (FWC) who overturned the decision.

They found that given the enterprise agreement allowed for demotion, the action did not constitute a dismissal. However, they also emphasised that demoted employees who remain employed can access unfair dismissal provisions if the employer repudiated the employee’s contract of employment, the employee accepted the employer’s repudiation of the contract and the employee continued to be employed by the employer under a new employment contract.

How can employers get away with a demotion?

In some cases emotion is allowed, such as if a business’s financial circumstances change or disciplinary action is taken against the employee.

In other cases, employees may actually request a demotion if they want to work less in order to spend more time with family, care for an elderly parent or semi-retire.

What can an employee do if they believe a demotion is in reality a dismissal?

In order for a demotion to be considered a dismissal, there must be a significant reduction in pay or duties. This is determined on a case-by-case basis. If the employee consents to the demotion, it is not considered a dismissal. For employees seeking legal recourse in this situation, the best course of action is to put concerns in writing to the employer and seek legal advice.