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Demote Employees: What Are The Risks?

A demotion occurs when an employee is reassigned to a job title or role within an employer’s business that carries lesser responsibility, status or remuneration than their current position. Many employers presume they may legally demote employees in the same way they could promote employees. While this may be true in some cases, employers risk significant legal liability and costs if the demotion is illegal.

When Can Employers Legally Demote Employees? 

Whether an employer can demote employees depends mainly on employment agreements. If employees agree they can be demoted in the contract and have their pay reduced in certain circumstances, a court could find that contract binding. 

If there are no terms and conditions in employment agreements, employees cannot face demotions without it likely to be treated as constructive dismissals, especially if demotions are fundamental and unilateral changes to employment agreements. Employers may decide to demote an employee in several circumstances:

  1. Work performance: If an employee is underperforming in their job role, an employer may look to demote an employee as an alternative to dismissal following a performance management procedure.
  2. Disciplinary action: Where an employee has committed an act of misconduct, demotion can act as a reasonable alternative to dismissal. 
  3. Corporate restructuring: As a part of a restructuring programme or in response to economic changes and market forces requiring reorganization, demotion can act as an alternative to terminating the contract of employment. 

If the employment contracts include express and explicit provisions, an employee can face demotion for roles if they do not complete specific training requirements without being considered a constructive dismissal. Further, if employees are promoted but the contract has a probationary period, returning employees to original roles for failing to meet specific requirements set out in contracts may not be considered constructive dismissal. A demotion may also not be constructive dismissal if the employer demotes employees where there is just cause for dismissal.

Employers should also be sure not to make changes to employee duties that may be found to be discriminatory and contravene Ontario’s Human Rights Code.

The Risk of Constructive Dismissal When Businesses Demote Employees

Constructive dismissal is effectively a deemed termination without cause through the employer’s unilateral changes to the fundamental terms of the employment agreements, which may define whether an employer can demote employees. If an employer is held to have constructively dismissed employees, they would have to provide employees with severance entitlements and potentially other damages in addition to legal fees. 

Non-exhaustive factors a court may consider when determining if a demotion is a constructive dismissal include:

  • If there have been changes to significant parts of the employee’s position;
  • If the demotion position would be embarrassing or humiliating;
  • If another person is assigned the employee’s duties;
  • If there is a corresponding change to the compensation;
  • Whether the employee is now lower in the company hierarch or reporting chain; or 
  • If the employer acted in bad faith.

Takeaways

When it comes to whether an employer can demote employees without the contractual right to do so, they may open themselves up to significant liability, damages and costs for constructive dismissal. Employers seeking to demote an employee and employees that were recently demoted should consult an employment lawyer to determine their legal obligations and entitlements as every case turns on their unique facts. 

Contact Us

If you are an employer facing a constructive dismissal claim or an employee who was recently demoted, our team of experienced workplace lawyers at Achkar Law can help. Contact us by phone toll-free at  +1 (866) 508-2548  or email us at [email protected], and we would be happy to assist.

If you are a small or medium-sized company looking for full-service support with a same-day response, visit our CLO Program page for our strategic solutions.

Disclaimer: This blog is not intended to serve as or should be construed as legal advice and is only to provide general information. It is in no way particular to your case and should not be relied on in any way. No portion or use of this blog will establish a lawyer-client relationship with the author or any related party. Should you require legal advice for your particular situation, fill out the contact form, call (800) 771-7882 or email [email protected]