Demotion can be constructive dismissal

Cases

Demotion can be constructive dismissal

A Full Federal Court has confirmed that a demotion can constitute a constructive dismissal and an employer can be held liable for the monetary consequences arising from the demotion.

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A Full Federal Court has confirmed a demotion can constitute a constructive dismissal and an employer can be held liable for the monetary consequences arising from the demotion.
 
 
Forcing demotion on employee – wrongful act
 
A worker who resigned after he was demoted claimed his employer still owed him entitlements.
 
Justice Rares noted a number of points in relation to demotion and constructive dismissal and commented on the situation where the employer insisted the employee accept the demotion:
"A demotion that involved a significant reduction in the remuneration or duties of an employee amounted to a dismissal … as the majority noted in Giudice 239 CLR 2009 at 374 [37].
 
"Mr V… was not bound to, and did not, accept a subordinate position … even at the same salary…

"Teekay continued to employ him to perform the functions of chief officer and paid him the remuneration appropriate to that position until he left Broadwater on 3 March 2004."
 
Resignation and refusal to accept demotion
"Teekay’s insistence that Mr V resign, if he refused to accept its purported demotion, was not capable of creating a reasonable dispute as to liability for his wages in the position of chief officer. That refusal was a wrongful act or default of Teekay as owner of the Broadwater.
 
"In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 … [the High Court] held that the question of whether a contract had been made is determined objectively. Accordingly, once Mr V had accepted Teekay’s promotion of 7 September 2001, it had to identify an objective basis entitling it to argue that there was a “reasonable” dispute as to its liability to pay his wages after his discharge from Broadwater on 3 March 2004. Teekay chose to insist that it could demote him and to say that he was unreasonable to reject that insistence."
 
Taking advantage of its own wrong 
"…Teekay sought to take advantage of its own wrong. It had created the situation late in September 2001 when it claimed to be entitled to demote Mr V. It then said that the impasse, created by his refusal to accept that demotion and treating it for what it was (i.e. his constructive dismissal when Teekay reasserted that the demotion was effectual in February 2004) somehow gave rise to a “reasonable dispute” as to its liability to pay him his wages on his discharge that was co-terminus with the time on 3 March 2004 at which he accepted that dismissal. That was not a basis on which to found the defence of reasonable dispute…

"Accordingly, Teekay became liable to Mr V… because it did not pay him his wages after he obtained his discharge on 3 March 2004…."

Message: Employers should be aware that forcing any material change to an employee’s contract of employment may be viewed as an effective dismissal.
 
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