demoting employees, workplace lawyers, constructive dismissal

What Are the Risks of Employee Demotions?

A demotion occurs when an employee is reassigned by their employer 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 any employee in the same way that they could promote an employee as they wish. 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 an employee depends largely on the terms of the employment agreement. If the employee agrees in the contract they could be demoted and have their pay reduced in certain circumstances, a court could find that contract to be binding. 

If there are no terms and conditions in the agreement, the demotion of an employee would more likely be treated as a constructive dismissal, especially if the demotion is a fundamental and unilateral change to the employment agreement. Employers may consider demoting an employee in a number of 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 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 contract includes express and clear provisions for a demotion that the employee will face changes to their title or role if they do not complete certain training requirements, their demotion would not be a constructive dismissal. Further, if an employee has been promoted but the contract has a probationary period then returning the employee to their original role for failure to meet certain requirements set out in the contract may not be considered a constructive dismissal. A demotion may also not be constructive dismissal if the employer is choosing to demote an employee where they have just cause for dismissal.

The Risk of Constructive Dismissal When Demoting Employees

A constructive dismissal is effectively a deemed termination without cause through the employer’s unilateral changes to the fundamental terms of an employment agreement. If an employer is held to have constructively dismissed an employee, they would have to provide the employee their 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 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 employee demotions, employers who demote 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  who is 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.

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