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What if you have a manager who isn't performing satisfactorily in their role? You've counselled the manager about their performance, however, there seems to be a competency issue that prevents them from meeting the minimum requirements of the position.
Another position is available that is more suited tor their skills and experience, albeit at a lower pay rate. Can you demote an employee for unsatisfactory performance?
While demotion may be viewed by an employer as preferable to dismissal there are a number of implications employers should be aware of. The Fair Work Act (s386(c)), in explaining the meaning of dismissal for the purpose of unfair dismissal, states that a person has not been dismissed if the person was demoted in employment but the demotion does not involve a significant reduction in the person’s remuneration or duties, and the person remains employed with the employer that effected the demotion.
What amount represents a ‘significant reduction’ in remuneration, or reduction in duties, can be difficult to assess and would be determined by the individual circumstances of each case. Also, in this case, it is not known whether the employee will consent to the demotion.
Demotion generally involves the termination of an employee’s existing contract of employment and the offer of a new contract. This is because the terms of the new contract are usually significantly different in at least one important aspect (job status, work duties, responsibilities, remuneration, career prospects, etc).
Because termination of the contract is involved, it raises the possibility that the employee has actually been dismissed rather than demoted. The employment contract could be repudiated when an employee is demoted, without their consent, and suffers a significant reduction in duties or remuneration. The employer must also be careful in avoiding any hint of duress or influence in the employee’s decision to accept a demotion.
Because demotion and dismissal are alternate options, the employer should follow the same procedures leading up to the decision to either demote or dismiss.
These are likely to include objective performance reviews and discussions, performance counselling, warnings, opportunities to improve, training, etc. If a demotion turns into a claim for unfair dismissal, the employer will need to prove that he or she acted with procedural fairness before making the decision and whether there was a valid reason.
AWARD OR AGREEMENT
If an employee’s contract of employment, or the applicable modern award or enterprise agreement, contains a term allowing a demotion without termination then any demotion will not be regarded as a termination. The Fair Work Commission has determined in a number of matters that such a term in an enterprise agreement is lawful.
THE BOTTOM LINE
A demotion that involves a significant reduction in an employee’s remuneration or duties may be deemed by the Fair Work Commission as unfair dismissal unless permitted under the contract of employment, or applicable modern award or enterprise agreement.
