Is a demotion a dismissal?

Under the Fair Work Act 2009 (Cth) (FW Act), some employees are entitled to lodge an unfair dismissal claim but, such an application depends on the employee having been dismissed.

Section 386 of the FW Act states that an employee has been dismissed if their employment has been terminated on the initiative of the employer. However, this section clarifies that a person has not been dismissed if they were demoted in employment and the demotion does not involve a significant reduction in their remuneration or duties and, they remain employed with the employer that carried out the demotion.

The recent decision of NSW Trains v James [2022] FWCFB 55 dealt with the question of whether an employee’s demotion amounts to their dismissal for purposes of the FW Act.

In this case, the employee was demoted following an investigation into allegations of misconduct. The employee’s salary was reduced by almost 10% but he remained employed by the employer and neither his duties nor his work location changed. 

The employee’s unfair dismissal claim came before the Full Bench of the Fair Work Commission who clarified that generally, demoted employees who remain employed after their demotion could access unfair dismissal provisions if:

  • the employer had repudiated the employee’s contract of employment by demoting the employee and the demotion involved a significant reduction in their remuneration or duties; and
  • the employee had accepted the employer’s repudiation of the contract, thereby terminating the employment contract.

Where an employee continues to be employed, allegedly acquiescing in a reduction in salary, difficult questions arise as to whether it involves a continuation of the original contract, with the employer breaching a term, or whether it was a consensual variation. 

If the employee continues to work in the demoted position, the employer may argue that the employee has not accepted the repudiation constituted by the demotion. However, the Commission stated that, as a general proposition, this will not be the case if the employee makes clear their objection to the demotion.

Furthermore, “The existence of a power to demote in a contract or an instrument is not necessarily determinative in all cases.” the Full Bench said. The critical question is whether the instrument provides that a demotion authorised by it, does not constitute termination. This may vary from case to case. 

In the NSW Trains case, the Full Bench ruled that on a proper construction of the agreement, the employee’s demotion did not constitute dismissal because the Enterprise Agreement covering the employee’s employment authorised the demotion and, did not amount to a termination. The unfair dismissal application was dismissed.

Disclaimer: This summary is a guide only and is not legal advice. For further information on legal obligations, call ECA Legal Pty Ltd on (08) 6241 6129 or email ecalegal@ecawa.org.au.