Enterprise agreement allowing for demotion as penalty for misconduct
A Shift Manager for a train transport company had been employed for over 30 years. His latest classification was RC6 Level E and his gross annual pay was $141, 442. The enterprise agreement allowed for the train company to demote a worker when the worker was found to have committed misconduct. This agreement was also aligned with the relevant Transport Administration Regulation.
When there is a finding of fault, an employee of the train company may be given a caution or reprimand, a fine, a reduction in position, rank or grade and pay, a suspension from duty without pay or a dismissal.
Finding of fault
When allegations of misconduct against the shift manager were investigated, the train company found that the shift manager had committed the misconduct as alleged. To penalise the shift manager, his railway classification was downgraded to RC6 Level A as was his gross annual salary to $127, 569. The salary reduction came to about $13, 870. The shift manager remained employed with the train company; he still fulfilled the same duties; he still kept the same hours of work; and reported for work in the same workplace location.
Notice of redundancy
The Shift Manager had been notified that as of June 2021, his position was to be made redundant. He was also informed that there will not be any suitable alternative roles available for him in the same location where he lives.
Application for unjust dismissal and motion to dismiss
The shift manager filed an application for unjust dismissal claiming that his downgraded rank and his consequent reduction in pay was, in fact, a dismissal. In response, the train company raised a jurisdictional objection.
There was no dismissal or demotion
It asserted that the penalty it imposed on the shift manager was not a reduction in position, rank or grade. The Shift Manager continued to be a Shift Manager and he was paid at the rate applicable under the Enterprise Agreement for the position of a Shift Manager. The penalty imposed was in keeping with not only the existing enterprise agreement but also the Transport Administration Regulation.
When a demotion is considered a dismissal
The question to be decided by the Fair Work Commission was whether the significant reduction in pay was in fact a demotion and whether the demotion was in fact a dismissal.
The FWC ruled that a demotion in employment that results in a significant reduction in pay constitutes a dismissal under meaning of s386 of the Fair Work Act 2009 even if the employment relationship was still ongoing. What happened was the demotion created a new employment relationship between the parties. Thus, the termination of the former employment relationship was a termination at the initiative of the employer.
When an employee is considered as “dismissed” under s386
Under s386, an employee has been dismissed if the employer terminated his employment or when the employer was forced to resign because of the conduct or course of conduct engaged in by the employer.
The same law provides that a person who has been demoted in employment can be considered as having been “dismissed” when his demotion involved a significant reduction in remuneration or duties even when the employee remains employed.
Considered “dismissed” even when employee remains employed
Ordinarily, a dismissal means both a termination of a particular contract of employment as well as the employment relationship. That is, when an employee receives a termination letter, these two things occur at the same time.
However, in this case, the employment relationship continued. What happened in the case of the shift manager was, his particular contract of employment as Shift Manager under RC6 Level E was terminated but he remained employed but at a lower rank of RC6 Level A. A new contract of employment came into existence.
Two leading cases
The FWC pointed to two leading cases involving demotions. The Visscher case held that a demotion that results in a significant reduction in remuneration or an alteration in the duties of the employee is a termination of employment. The Broadlex case went further in stating that even when the employee remains employed with his employer, a demotion that results in a significant reduction in remuneration or duties is still a dismissal.
The Shift Manager was in fact demoted
While it may be said that the Shift Manager remained in his role as Shift Manager, his classification was downgraded. The Shift Manager remained at RC Level 6 and he remained a Shift Manager. However, from RC6 Level E, he was downgraded to RC6 Level A.
The role of Shift Manager has a classification structure that provided for annualised incremental increases in pay. When the Shift Manager was first appointed to this position in 2015, he was at RC6Level A. Year after year, as he remained in the same role of Shift Manager, his classification slowly rose from RC6 Level A to RC6 Level B until five years later, he had reached RC6 Level E.
The FWC found that while the Shift Manager remained under the same RC6 classification, the levels are meant to give top-performing employees to progress from Level A to Level E. Progression from one level to another brings higher pay that the other. Thus, while the Shift Manager remained a Shift Manager under the same RC6 Classification, his level, and thus his remuneration, was significantly reduced. He was, in fact, demoted.
When pay is considered to have been “significantly reduced”
The Shift manager’s pay was reduced by $13, 873. That meant that after his gross pay was deducted for taxes and child support payments, his fortnightly pay of $2900 became only $2400. His reduction in fortnightly pay impacts the value of his accrued annual leave entitlements, accrued long service leave entitlements, superannuation benefits, and his redundancy pay benefits. The Shift Manager’s gross pay had been reduced by 9.8%.
The jurisdictional objection raised by the train company was dismissed.
Todd James v NSW Trains  FWC 4733 (3 August 2021)
When verification was a team responsibility, evidence from the entire team must be considered or the investigation will be deficient
Exceptional circumstances: When a late application for unjust dismissal can still be heard by the Fair Work Commission