Demotion: Five things employers need to know.

Demotion - a few rungs down the ladder?

Demoting an employee can seem a more attractive option than going down the disciplinary or performance route (and potentially terminating his or her employment). But it is not without its legal risks. So, before you second that demotion, here’s Julian Cox, Head of Employment at iLaw with exactly what you need to know. 

demotion employer need know
Julian Cox, Head of Employment at iLaw.

Demotion is often approached by employers and HR professionals with a degree of trepidation as an option in managing the workforce. This is perhaps not surprising, since as a potential sanction it undoubtedly represents a significant change to an employee’s employment arrangements and one that they may therefore be less than happy to accept.

Demotion can take various forms including a change in:

job title;

role;

duties;

and day to day responsibilities.

An employer may look to demote an employee for a number of reasons:

Based on work performance. An employer may look to demote an employee as an alternative to dismissal after going through a performance management procedure;

As a disciplinary sanction. For example, as an alternative to dismissal in a case involving allegations of workplace misconduct where the employee has substantial length of service;

Where a corporate restructuring exercise is taking place. Changes in economic circumstances may result in a need to reorganise the employer’s business, including seeking to demote certain individuals.

There are a number of legal pitfalls associated with exercising this option which for the unwary may result in unanticipated liabilities for the organisation.

Demotion represents a significant variation to the employee’s contract of employment. A change in job title or role with or without accompanying changes to duties and responsibilities is likely to represent a fundamental change to an employee’s terms and conditions of employment, particularly given the accompanying change in seniority or job status of the employee. So, here’s what you need to consider…

Consultation and agreement

Consultation and agreement should be sought before implementing a change in role and/or job status. Given a demotion is likely to amount to a substantial variation to an employee’s contract of employment, as a matter of good employment practice, prior individual consultation and agreement should take place before implementing any such change in role and/or job status.

This remains the case even where an employer has reserved the right under an employee’s contract of employment to change their terms and conditions of employment, given a demotion represents such a substantial change to the employee’s terms and conditions of employment.

The consultation process itself needs to be carefully considered. It should be for a sufficient length of time to allow meaningful consultation to take place between the employer and affected employee, involving a series of one to one meetings within that period providing both employer and employee with a forum to discuss the proposed changes and for the employer to obtain feedback from the employee. Discussions with the employee should include also alternatives to changing the employee’s job title and/or duties and responsibilities.

Employers need to be aware also that collective consultation obligations may exist written into the employee’s contract of employment, requiring consultation with a recognised trade union or works council for example. These also need to be considered and met by the employer.

Consider dismissal

If the employee refuses to accept the demotion the employer may need to consider dismissal.

If, following a period of consultation, the employee refuses to accept the demotion then the employer may have to consider dismissing the employee. This option is something that the employer ought to warn the employee of as part of the consultation process.

Alternatively, the employer may need to look terminate the existing contract of employment and offer re-engagement on the new terms.

And if, following a period of consultation, the employee refuses to accept the demotion, another option open to the employer is to look to terminate the contract of employment and to offer to re-engage the employee on new terms and conditions of employment which include the demotion.

The potential legal risks

In considering demoting an employee, employers need to be aware that there is a potential risk that they may be exposed to a claim in the employment tribunal.

This is something that employers need to be particularly conscious of where the employee concerned has over two years’ service as they will have unfair dismissal rights. A single finding of unfair dismissal may expose an employee to substantial financial liability.

For example, if the employer were to simply decide to unilaterally impose the demotion without proper prior consultation and agreement and leave it to the employee to respond, this may result in them deciding to resign and a claim of constructive dismissal.

Even where consultation does take place, employers  needs to be careful not to put undue pressure on the employee to agree the change given the consequences of refusal.  Where the employee feels undue pressure has been put to bear to accept the change they may also choose to resign and bring a claim of constructive dismissal.

In addition, employers need to be aware that in circumstances where the employer merely pays lip service to its obligation to consult and agree the changes and instead simply goes through the motions and does not properly engage with the employee  as part of a meaningful consultation process, effectively rendering it a sham, that may also result in a claim for constructive dismissal.

Employees who are dismissed for refusing the change may also have a claim for unfair dismissal and (if the employer does not serve notice of termination of employment) breach of contract.

Where the employee has refused to accept the demotion and the employer has terminated the contract of employment by way of a response and looked to offer to re-engage the employee on new terms and conditions of employment which include the demotion, and the employee refuses this also, whilst they may have a claim for unfair dismissal and (if the employer does not serve notice) breach of contract, the mere offer of re-engagement may mitigate their loss. It is for this reason that employers often decide to employ this tool in introducing new terms and conditions of employment.

Employers need to be aware that where an employee has insufficient service to claim unfair dismissal, they may still bring a claim for wrongful dismissal in any of the above circumstances.

Equality

A demotion may also be the basis for a claim for discrimination contrary to the Equality Act 2010 if it can be linked to a protected characteristic such as race, gender, sexual orientation, disability age, religion. Employers need to tread very carefully in this regard as an employee does not need to fulfil any requirement in terms of length of service to be able to bring a claim of discrimination before an employment tribunal. Unlike unfair dismissal claims, there is no cap on the level of compensation for loss of earnings an employee may seek from an employment tribunal in bringing such a claim.

The bigger picture

When handled carefully, demotion represents a useful option available to employers in certain circumstances; it is not one without its legal pitfalls. Given the risk of financial exposure, legal advice ought to be sought when an employer is considering demoting an employee before such a sanction is implemented.

The inevitable likely impact on staff moral also needs to be considered; it is certainly not a path employers ought to go down lightly. There are other, perhaps more effective, options available to employers in managing their workforce, such as offering additional support and training in a workplace performance situation, which are far safer and may yield a much better outcome for both employer and employee alike.

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