Australia: The mechanics of dismissal – Could the demotion of an employee lead to an unfair dismissal claim?

A worker is demoted in their employment but remains in the employ of the employer.

Does the worker have rights to bring an unfair dismissal claim under the Fair Work Act 2009 (Cth) (Act) against their employer?

This issue was examined recently by the Fair Work Commission (Commission) in the matter of Harrison.

The Facts

The worker was demoted by the employer from the position of "Service Supervisor" to that of "Mechanical Service Technician Senior – Experienced", and remained working for the employer.

The worker later brought an unfair dismissal claim under the Act. The employer argued that the worker could not bring the claim, because they had not been dismissed.

The issue became whether the demotion in itself amounted to a dismissal by the employer.

This occurred in circumstances where the worker had been asked to show cause as to why his employment should not be terminated, after a number of allegations had been made against him. These included the consumption of alcohol by he and other workers on an evening prior to attending work.

The Decision

Commissioner Saunders of the Commission found that as a result of the wording of the relevant provisions of the Act, a demotion of an employee who still remains employed by their employer may constitute dismissal.

There will be a dismissal under the Act, if an employee is demoted in circumstances where the demotion involves a significant reduction in the employee's remuneration or duties and they remain employed by the employer who effected the demotion.

Arguments were raised about circumstances where a contract of employment might permit a change in remuneration or duties. The Commissioner found:

"If a demotion involving a significant reduction in remuneration or duties was authorised by a contract of employment, submissions could be made as to the fairness of the dismissal. However, the existence of such a contractual right is irrelevant to the question of whether an employee who has been demoted and remains employed has been "dismissed" within the meaning of the ... Act".

The Commissioner found that there was both a significant reduction in the worker's remuneration (of 9.3% per cent) and his duties (where he was no longer responsible for the supervision of employees, had no direct contact with clients, and did not have an office).

Although the employer argued that the worker's employment contract permitted changes to the worker's remuneration and duties, this was also held not to be the case.

The employer argued that a term allowing these changes had been incorporated by a course of dealing into the worker's employment contract. This was also rejected.

In this regard, although the worker was aware that another worker had been demoted by the employer, there was no evidence that he was aware of the terms of any employment contract made between the employer and any worker it had demoted.

The employer also argued that the relevant term allowing it to change the worker's remuneration and duties, came about as a matter of "custom or usage". The Commission found that the custom itself must be "uniform, notorious, reasonable, and certain" and that the question is always whether the general notoriety of the custom makes it reasonable to assume that the parties contracted with reference to the custom.

In this case, the Commission held that at its highest, the evidence showed that another employee's demotion was well known throughout the relevant part of the business. The Commission found that this was an insufficient basis however upon which to find the existence of custom and usage, and from which it might be concluded that a term of unilateral demotion could be implied into the worker's employment contract.

While evidence was noted that the worker had also offered a number of suggestions to the employer when asked to show cause, including that he could be permitted to "step down into a technician role", no discussion took place with respect to what if any reduction would be made to the worker's remuneration.

The employer therefore failed to have the matter struck out.

Comment

This decision again emphasises that care needs to be taken during a disciplinary process, particularly when it may involve a change in the worker's remuneration and duties. Just because a term of an employment contract might permit a change, this might not assist an employer in overcoming an unfair dismissal claim, in the absence of an agreement to the change by the employee. A "demotion" can also give rise to possible redundancy issues, which also need to be considered.

It is recommended that employers in similar situations consider matters carefully and seek advice before acting.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.