Worker suggested demotion... but was it a dismissal?

Cases

Worker suggested demotion... but was it a dismissal?

An employee who was demoted as a disciplinary measure – and as an alternative to dismissal – was in fact dismissed. The demotion had amounted to a significant reduction in his work duties and remuneration.

An employee who was demoted as a disciplinary measure – and as an alternative to dismissal – was in fact dismissed. The demotion had amounted to a significant reduction in his work duties and remuneration.

The fact that the employee himself has suggested demotion as one of the alternatives to dismissing him did not matter – the demotion had occurred at the employer’s initiative and reducing his remuneration was not discussed with the employee.

The decision reviewed the history of provisions in federal legislation that addressed the issue of whether demotion could amount to dismissal.

Facts of case


Scott Harrison was demoted from the position of service supervisor to mechanical service technician. He continued employment in the latter role, taking a reduction in remuneration of 9.3% plus reduced superannuation contributions. The reduction in his duties included removal of supervision of eight other employees, removal of direct contact with clients, and loss of his own office.

The demotion followed a work incident that involved him being intoxicated. The employer asked him to show cause why he should not be dismissed. He suggested several other options, including demotion. The employer decided to demote him, but did not discuss the new position or its terms and conditions with him. Mr Harrison argued that he was dismissed because the demotion amounted to a “significant reduction” in both his work duties and remuneration.
 
The Fair Work Commission (FWC) analysed the provisions of the Fair Work Act 2009 and its predecessor Acts and concluded that a demotion that resulted in a significant reduction in work duties and remuneration could be a dismissal, even if the employee continued to work in the demoted position.

If eligible, such employees would have access to the Act’s unfair dismissal provisions. It was not necessary to determine whether or not the inferior (demoted) employment conditions were authorised by the employment contract, or by the issue of a new one. 

The employer argued that the changes to Mr Harrison’s work duties and remuneration were authorised by his employment contract, and therefore he was not dismissed. His contract provided that he could be required to work in other work locations, perform other duties, assume other responsibilities, and/or work in other roles. However, there was also the qualification that it could only be done “to meet the company’s business opportunities from time to time”.  The latter was different from demoting an employee as a disciplinary action, which occurred in Harrison’s case.
 
Mr Harrison’s employment contract did not entitle the employer to unilaterally reduce his remuneration. The provisions in the previous paragraph could only apply if he received the same remuneration. 

The employer also argued that the contract gave it the right to demote Mr Harrison without it being a termination at the employer’s initiative. The term was established by custom and practice, and the employer submitted examples of two other employees, one whose pay was frozen until other employees caught up, and the other who had no pay reduction. However, the FWC said that no such representation was ever made to Mr Harrison. A custom had to be so well-known and acquiesced to that others could reasonably presume the term would be imported into every contract. The FWC said that this was not the case here. 

Decision


Mr Harrison was dismissed at the employer’s initiative. It was irrelevant that he had made the initial suggestion of demotion. Reduction in his remuneration was not discussed. As he only referred in general terms to being demoted, he did not make a specific offer of demotion.

Therefore it occurred at the employer’s initiative because it was not open to the employer to simply accept a vague “offer”. It decided to demote him and issue a written warning after he responded to its “show cause” ultimatum. 

Mr Harrison was therefore entitled to lodge a claim of unfair dismissal.

The bottom line: A demotion that results in a significant reduction in an employee’s duties and remuneration can be a termination at the employer’s initiative and therefore a dismissal, even if the employee “accepts” it and continues working under the new conditions. It does not matter if the suggestion of a demotion originated from the employee. If it does, an employer should discuss all terms and conditions and reach agreement with the employee before implementing the demotion.

Read the judgment


Harrison v FL Smidth Pty Limited t/a FL Smidth Pty Limited, [2018] FWC 6695, 29 October 2018 
 
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