The contract of employment governs the relationship between the parties, as well as laws implied by statute. It’s vital to speak to a specialised lawyer as the specific contract and legislation determines the rights and obligations between the business and the worker, and the correct procedure needs to be followed. If a person is hired for a particular position with a stipulated amount of compensation, neither party can unilaterally alter or modify the contract without violating rights and breaching obligations. A demotion, then, is a mode of altering or modifying a contract of employment.
A demotion has two aspects: it can result in the reduction or diminution of pay, rank, seniority or an alteration in the duties and responsibilities of the worker. The demotion can then be viewed as a repudiation or abrogation of the contract and is tantamount to a dismissal.
In these days of uncertainty and volatility of the global economy, the economic viability of a company may suffer wide fluctuations. When a company suffers financial losses, it may be forced to lessen the number of hours or shifts worked because of lack of orders. When companies are forced to close down or merge departments, thereby reducing the number of workers necessary to run those departments, the duties and responsibilities of the workers may also be reduced. The diminution in duties may result in a diminution of compensation. Thus, demotions are common realities. How can businesses ensure that they can reduce the remuneration or duties and responsibilities of their staff to accommodate the fluctuating economic status of the company without fear of being brought to court for unfair dismissal?
To insulate against a claim for adverse action or unfair dismissal, and to protect the worker from outright dismissal for redundancy by allowing reduced hours or reduced duties, demotion can be mutually agreed upon in the job contract. Specific grounds can be provided where demotion may be a lawful recourse that will mutually benefit the parties.
The contract can also provide a grievance procedure so that staff can question the demotion or the manner in which the demotion was implemented. The contract can also provide the giving of notice to the workers prior to the date a demotion takes effect. The contract can also provide that workers have the choice to contest the demotion, to accept it under a new contract, or to resign with payment of entitlements. These provisions remove arbitrariness or whim in the demotion.
Despite these safeguards, a demotion may still be regarded as an adverse action or as an unfair dismissal. This occurs, for example, when someone is hired for a specific task or project. Any change in the duties and responsibilities or in the remuneration as provided for the contract for the specific task or project will be considered as an unfair dismissal. Union officials or members who may be demoted to pressure, coerce or victimize them will also be considered as unfair dismissal.
There are also instances when demotion assumes the role of a penalty or disciplinary measure. When a worker, for instance, violates industrial safety standards which endangers other employees and renders the business vulnerable to legal liability, demotion can be an option of the company instead of an outright dismissal. The change in the duties and responsibilities which affects the amount of compensation may be the penalty instead of outright dismissal. Whether a demotion is an adverse action or an unfair dismissal would depend upon the factual circumstances availing in each case. Consulting an employment lawyer will ensure the correct procedure is followed.