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Can I demote an employee?


Can I demote an employee?

Employee underperforming or misbehaving? Promoted an employee too soon? Needing to restructure your business? If you have experienced any of these circumstances, you may have considered demoting an employee as a way of retaining an otherwise valued employee but in a role which the employee may be better suited.

While demoting an employee may seem like a favorable and cost effective option , it does not come without risks, particularly where it it is not carried out correctly.

Employers who do not comply with the processes described in law and without the employee’s consent to the change in role, can expose themselves to risks of:

  • discrimination claims
  • unfair dismissal proceedings
  • general protections contravention; or
  • redundancy payouts.

Dismissal or demotion

Under s.386 of the Fair Work Act (2009) Cth (the Act), a demotion will only amount to a dismissal if it significantly reduces the employee’s duties or remuneration.

A change in an employee’s duties or remuneration may come about due to a change in their employment type (for example permanent to casual), position, responsibilities, or reporting structure. If the change is significant, the demotion may be deemed a termination of employment. However, as there is no definition within the Act of what is considered significant the interpretation of the word would be taken into consideration alongside the circumstances of each individual case.

Further failure to consult with the employee on the proposed changes and obtaining their consent and acceptance prior to the demotion occurringmay also be considered a breach of the employment contract, or worst case, termination of employment.

If the employee remains employed and agrees and accepts the demotion based on the written offer and consultation with the employer, then it may be that no termination has occurred, and the demotion may likely be considered legal.

There is no doubt demoting an employee is a risky and complicated process. It is strongly advised that you seek advice before you commence the process and consultation with the potentially affected employees. The Workplace Relations and Legal team are here to help and provide advice to you. The team can be contacted on (02) 6175 5900.