I have been demoted, is this an unfair dismissal?
We receive numerous calls weekly, regarding demotions, restructures, etc. In many cases this may be to the employees determent, and they feel aggrieved and feel like leaving. However what do the laws say and the various decisions reflect. The unfair dismissal provisions of the Fair Work Act 2009 (Cth) (FW Act) can only be accessed by a person who has been dismissed. I have been demoted, is this an unfair dismissal? is well worth taking some time and reading. Not sure how it all applies to you, give us a call.
Demotion of an employee may arise when there is a change in the operational requirements of a role or as a disciplinary consequence following an employee’s unsatisfactory performance or conduct. A demotion is not a dismissal, rather it may include a reduction in one or more of an employee’s title, duties, rank, status or pay. The Fair Work Act 2009 (Cth) (FW Act) – Section 386 clarifies the distinction between a dismissal and a demotion.
Considering a demotion
In James v NSW Trains, the Fair Work Commission (FWC) considered when a demoted employee can access these laws. The Fair Work Act 2009 (Cth) (FW Act) provides that where a demotion constitutes termination of employment on the employer’s initiative then it amounts to dismissal for the purposes of the unfair dismissal scheme.
A demotion can amount to termination of employment if the employee is entitled to treat the demotion as a repudiation of the employment contract and leaves the employment. This is difficult where the employment contract or relevant law authorities the demotion. However, the FW Act also provides that there is no dismissal if the demotion does not involve a significant reduction in the employee’s remuneration. Or the duties and the employee remains employed. The key word considered by the courts and commission is the word significant. Yo have to think how this applies to you.
I have been demoted, have you? What is a demotion?
The ordinary meaning of the word “demote” is “to reduce to a lower grade or class (opposed to promote)”. Having regard to the context and purpose of s 386(2)(c), Deputy President Saunders considered that this ordinary meaning of “demote” is the legal meaning of the word in s 386 of the FW Act.
In James v NSW Trains, following an investigation into allegations of misconduct, NSW Trains took disciplinary action against Mr James. He was a Shift Manager who has been employed by NSW Trains and its predecessors for over 30 years, by reducing his grade from Rail Classification (RC) 6 Level E to RC6 Level A. Further reduced his gross pay from $141,442 to $127,569. NSW Trains thereby demoted Mr James. Although Mr James does not agree with the unilateral decision by NSW Trains to reduce his grade and pay, he remains employed by NSW Trains in the position of Shift Manager. Neither his duties nor his location of work has changed. The employment relationship is ongoing.
Disciplinary action such as demotion
Whether a particular type of disciplinary action such as demotion is permitted by the terms of an employment contract, enterprise agreement, award or applicable legislation is irrelevant to the question of whether a demoted employee who remains employed by their employer has been dismissed within the meaning of s 386 of the FW Act. Instead, Deputy President Saunders had regard to two appellate court authorities.
Reduction in remuneration
First, the decision of the High Court in Visscher v The Honourable President Justice Giudice, where the majority (Heydon, Crennan, Kiefel and Bell JJ) held that “Section 170CD(1B), by implication, treated a demotion as a termination of employment where it involved a significant reduction in remuneration or duties of the employee”. In the context of a demotion, there is no material difference between s 170CD(1B) of the Workplace Relations Act 1996 (Cth) (WR Act) and s 386 of the FW Act.
Secondly, a recent decision of the Federal Court of Australia in Broadlex Services Pty Ltd v United Workers’ Union, where Justice Katzmann observed that “para 386(2)(c) necessarily implies that a demotion in employment which involved a significant reduction in the employee’s remuneration. Or duties is a dismissal although the employee remains in the employer’s employment”.
What is a significant reduction in remuneration?
Aforementioned, a demotion must involve a “significant reduction in …. remuneration or duties” for it to constitute a dismissal within the meaning of s 386 of the FW Act.
A significant reduction in remuneration or duties is one which is important, or notable, or of consequence. This is having regard to its context and intensity. As a word of limitation, the purpose of the adjective “significant” is to exclude impacts that are properly seen as minor or unlikely. All relevant circumstances must be considered to determine whether a reduction in remuneration or duties is significant. The test is objective and it is not determined by the subjective views of the employee who has had their remuneration or duties reduced.
As to Mr James’s relevant circumstances, his gross annual remuneration (including industry allowance) as a Shift Manager has been reduced by $13,873 from $141,442 to $127,569. Deputy President Saunders held the reduction in Mr James’s gross annual remuneration by $13,873 from $141,442 to $127,569 is significant. Expressed as a percentage, the gross reduction is 9.8%. Although no evidence was adduced as to the precise amount by which Mr James’s net income will be reduced by reason of the reduction in his gross annual remuneration by $13,873, Deputy President Saunders found it would plainly be significant.
Reduction in pay not considered minor
Deputy President Saunders stated that even putting to one side the flow-on impact of a reduction in Mr James’s gross annual remuneration. To his annual leave entitlements, long service leave entitlements, and likely superannuation benefits and redundancy entitlements if his employment with NSW Trains does come to an end on the grounds of redundancy, which is likely, the reduction in remuneration for Mr James, a Shift Manager paid at the RC6 classification under the Enterprise Agreement, is plainly important and of consequence for him; the reduction could not seriously be viewed as minor.
What is the relevance of a demotion in accordance with a contract, industrial instrument or legislation?
NSW Trains argued that it has not dismissed Mr James because disciplinary action taken in accordance with a contract of employment, enterprise agreement or legislation. It does not amount to dismissal for the purposes of s 386 of the FW Act. Clause 32.14 of the NSW Trains’ Enterprise Agreement, dictates that disciplinary measures that may be taken after an investigation concludes in a finding of fault including: (a) caution or reprimand; (b) a fine; (c) reduction in position, rank or grade and pay; (d) suspension from duty without pay; or (e) dismissal.
Similarly, regulation 20(1) of the Transport Administration Regulation provides that A transport corporation may impose any one or more of the following punishments in disciplinary proceedings against a transport corporation officer. (a) a caution or reprimand, (b) a fine of an amount not exceeding $100, (c) reduction in position, rank or grade and pay, (d) suspension from duty without pay, (e) dismissal.
Demotion can be allowed
Although the demotion appears to be allowed under the Enterprise Agreement and the Transport Administration Regulation. Deputy President Saunders held that the idea that a demotion involving a substantial reduction in remuneration or duties but which is authorized by a contract, industrial instrument or other legislation is not a dismissal within the meaning of the FW Act. It is inconsistent with the fact that, according to High Court and Federal Court authority, s 386(2)(c) necessarily implies that a demotion involving a significant reduction in remuneration or duties is a dismissal within the meaning of the FW Act.
The existence of a right under a contract, industrial instrument or legislation to demote an employee cannot defeat or trump the way in which s 386 of the FW Act, properly construed, operates. In order to determine when a dismissal occurs within the meaning of the FW Act.
Is a demotion a dismissal?
Ultimately, Deputy President Saunders held that the decrease in Mr James’s gross remuneration by $13,873 per annum involved a “significant reduction in his remuneration” within the meaning of s 386(2)(c)(i) of the Fair Work Act 2009 (Cth). Consequently, Deputy President Saunders concluded that Mr James has been demoted in employment. That his demotion has involved a significant reduction in his remuneration, he has been dismissed within the meaning of s 386 of the FW Act, notwithstanding that his employment relationship with NSW Trains is ongoing and has not been terminated and replaced by a new employment relationship.
The decision by Deputy President Saunders has been appealed to the Full Bench of the Fair Work Commission. On 13 December 2021, the Full Bench of the Fair Work Commission conducted an appeal hearing before President Justice Ross, Vice President Catanzariti, Deputy President Asbury, Deputy President Easton and Commissioner Ryan. The appeal decision has not yet been published.
Conclusion: I have been demoted, is this an unfair dismissal?
I hope you enjoyed the article “I have been demoted, is this an unfair dismissal?”, It does raise important legal points and considerations. In my personal view too many employees are not flexible in the workplace and resign without thinking all matters through. How quickly can I get another job?, What salary can I get elsewhere if I leave? Have I got enough monies in the bank to get by on until I get another job?. I should have packaged myself out instead of just quitting. Get advice, consider your options, don’t just focus on I have been demoted and its not fair
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