I Have Been Demoted by an Employer. Is this Legal?

Your employer engaged you to work in a particular role as a permanent employee. Out of the blue, your employer informs you that your role is to change in such a way that you would consider yourself to have been demoted.

Is this legal? It might be.

First, you will need to look at the documents that govern your employment – these include

• your employment contract, and
• any Modern Award or Enterprise Agreement that may cover your occupation or workplace.

An employment contract sets out the terms and conditions of the employment relationship between an employer and employee.

The Fair Work Act 2009 (Cth) contains certain conditions that apply to all employment contracts in Australia. One set condition is the National Employment Standards (or “NES”) which provides minimum standards of the employment relationship to which all employers must adhere. These standards include provisions relating to parental leave, requests for flexible working arrangements and redundancy pay.

Modern Awards cover some employment relationships and apply to certain types of occupations (for example the Banking, Finance and Insurance Award or Aircraft Cabin Crew Award). These set out minimum wages and conditions for workers in various industries.

An Enterprise Agreement is an agreement about minimum conditions made in one particular business or group of businesses.

Your employment contract and any Award or Enterprise Agreement that applies to you may have provisions in it relating to the ability of your employer to demote you.

 Demotion or Termination?

A demotion occurs when an employer offers, and the employee accepts, a detrimental change to an important aspect of the employee’s contract of employment (for example if there is a decrease in your remuneration and/or benefits).

Demotion may be the result of disciplinary action by the employer or for reasons unrelated to the employee such as a change in the financial circumstances of the business.

As a general rule, demotion is generally affected by the termination of an employee’s existing employment contract and the offer of a new employment contract. Because termination of a contract is involved, this may actually mean that an employee has been dismissed rather than just demoted. An employee who freely accepts a demotion to a lower paid position is not usually deemed to have been ‘dismissed’ for the purposes of unfair dismissal laws.

Under the Fair Work Act 2009 (Cth), a demotion will not constitute a dismissal if it does not involve a ‘significant’ reduction in the employee’s remuneration or duties and the person demoted remains employed with the employer. Unfortunately, the Act does not define ‘significant.’ Whether or not there has been a significant reduction in remuneration will then come down to the particular circumstances of each case.

Legally, an employee is usually entitled to reject a demotion. At the very least, you should put your concerns to your supervisor in writing and make it clear that you do not accept any demotion prior to a full review of the circumstances leading to it.

There may be reasons why you would accept a demotion – for example if the business is changing, and a demotion is an alternative to redundancy. Each case turns on the facts applying to the individual in the particular circumstance.

Additionally, some contracts of employment or an applicable Modern Award or enterprise agreement will authorise an employer to demote an employee.

It is possible, in the alternative, that your Employer may be making your role redundant, in which case you would at least be entitled to a redundancy payout under the provisions of the National Employment Standards.

Possible Unfair Dismissal

If you do not consent to the demotion and your employment is terminated, you may be eligible to apply to the Fair Work Commission within 21 days of the termination for unfair dismissal.

To be eligible to apply to the Fair Work Commission for unfair dismissal:

• you must have completed a minimum of 6 months at your place of employment (or 12 months if you work in a small business); and
• you must either:
  • be covered by a Modern Award
  • be covered by an enterprise agreement; or
  • earn less than the “high-income threshold” (at 1 July 2015 individuals who make more than $136,700 per annum are not eligible to apply)

If you are successful in claiming unfair dismissal, your Employer may be required to reinstate you to a similar position as the original role. This may include an order for the back payment of wages you had lost.

Alternatively, where a reinstatement is not practicable, your Employer may be required to pay you compensation, at a maximum of 6 months wages.

Conclusion

If you would like to chat with an experienced employment lawyer about whether you have been demoted, or ask us any questions about your employment situation, please get in touch!