The case arose after an employer demoted an employee following a misconduct investigation and reduced her pay by more than $16,000.

Despite her lawyer sending a letter challenging the decision two days after the demotion, the employer deemed it “too late”. Their argument was that the employee remained employed following the demotion, meaning she had not been dismissed.

The employer relied on an assertion they had the capacity to demote under their “amendment of duties” option within their Managing Misconduct Policy, and a clause within the employment contract to direct someone to perform other duties from time to time, “to suit organisational requirements which are broadly consistent with her role.”

Decision

The FWC had to consider whether the employee voluntarily consented to the demotion, whether the demotion was allowed under the employment contract, whether the employer repudiated the employment contract by demoting the practice manager and, if so, whether she accepted the repudiation.

The FWC did not find that the employee “explicitly or implicitly consented” to reducing her pay in line with the contract, therefore “did not voluntarily consent to the demotion.”

Additionally, no reference to reducing pay was found in the Managing Misconduct Policy nor the employment contract. As determined in NSW Trains v Mr Todd James, there is no general right at common law to demote an employee in the absence of an express or implied contractual right to do so.

Consequently, the employer was found to have repudiated the employment contract, and the letter from the employee’s lawyer “made clear that she objected the demotion and did not affirm her employment contract and therefore, accepted the repudiation.”

It was therefore decided that the actions in demoting the employee amounted to a dismissal.

Learnings for business

This decision highlights the risks involved in demoting an employee and reducing their salary because of a disciplinary process, particularly when there is no clear understanding that an employee has agreed to the change or that there is a policy or contractual basis for the demotion.

It is vital to seek clear and definitive agreement when making any changes to an employee’s contract or terms of their employment. Without doing so, such a change could constitute a dismissal even if the person remains employed, which can lead to a successful general protection or unfair dismissal claim.

It is critical for businesses to review the terms of their employment contracts and the application of their policies and agreements before altering an employee’s position.

How the Victorian Chamber can assist

For assistance on any aspect of your employment obligations, please call the Victorian Chamber Workplace Relations Advice Line on 8662 5222.

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