When a law firm demoted a practice manager to a lesser role and reduced her salary by $16,000, the Fair Work Commission ruled that this amounted to dismissal. Whether the dismissal was a breach of general protection provisions is yet to be decided.

Facts of case

The employer’s actions followed an investigation that concluded that misconduct had occurred (the nature of it was not revealed in this judgment). It demoted the employee from practice manager to a social worker/counsellor role and reduced her salary. The demotion was to apply for six months, after which the employee could “potentially progress to a senior practitioner role”.

When the employee lodged a general protections claim, the employer lodged a jurisdictional objection, claiming that the employee had agreed to the demotion.

When a letter from her solicitor arrived objecting to it, the employer claimed it was too late. It also claimed that its actions since then (placing her on leave without pay) displayed an intention to continue her employment, not dismissal. Thirdly, it claimed that under her employment contract, it could direct her to perform “other duties” that were “broadly consistent” with her role. Finally, its misconduct policy provided that demotion was an available option.

The FWC had to first determine whether the employee had been dismissed before it could deal with the matter. The relevant issues were:

  • whether the employee voluntarily consented to demotion
  • whether the employment contract authorised demotion, and
  • whether the employer repudiated the contract by demoting her, and if yes, whether she accepted the repudiation.

It found that the employee did not voluntarily consent to it. She had said in her response to the investigation findings that she welcomed any suggestions for training and development “regardless of my role going forward”. This statement merely confirmed the terms of her employment contract. There was evidence she was reluctant to accept the findings of the investigation, and no evidence that she agreed to the pay reduction.

Neither the employment contract nor the misconduct policy authorised pay reductions. The contract required employees’ written agreement to it.

Therefore, the employer had repudiated her employment contract, and by objecting in writing to the demotion, claiming she was dismissed, and remaining absent from work since then, she accepted the repudiation and was therefore dismissed.

Decision

The FWC rejected the employer’s objection to the claim and listed the matter for conference.

What this means for employers

While this case is yet to be determined, demoting an employee as a disciplinary measure is a risky option that requires great care to implement properly.

The employer must be able to point to a source (eg in an employment contract, enterprise agreement, or award) that explicitly allows it to occur. The employee must also clearly consent to the demotion and any pay reduction it may involve.

An employee wishing to claim they were dismissed needs to have evidence that they clearly objected to the demotion at the time it occurred.

Read the judgment

Rory Maloney v Knowmore Legal Service Limited [2023] FWC 1780 (20 July 2023)