Employee's 10 per cent pay cut classified as unfair dismissal by the Fair Work Commission

01 October 2021

The Fair Work Commission has determined an employer who cut a rail worker’s pay by almost $14,000 constituted a dismissal, giving the employee the green light to pursue an unfair dismissal claim.

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Overview of the facts

A manager who was employed for more than 30 years had his remuneration reduced by almost 10 per cent following allegations of misconduct. The company maintained its enterprise agreement permitted a reduction in position, rank, grade or pay as disciplinary consequences.

The rail worker considered the pay decrease was a “significant reduction” within the meaning of s.386(2)(c)(i) of the Fair Work Act 2009 (Cth) (the “Act”), and therefore amounted to a dismissal. The employee responded by lodging an unfair dismissal claim. In response to the claim, the company filed a jurisdictional objection inviting the Commission to dismiss the claim on the basis the employee was in fact not dismissed. 

The Decision

The Commission considered the ordinary meaning of “demote” to “reduce [to] a lower grade or class” and was satisfied the staff member had moved to both a lower pay grade and class.

The Commission found the $13,873 per annum decrease was a “significant reduction” within the meaning of section 386(2)(c)(i) of the Act.

When determining what is “significant,” the Commission considered all the relevant circumstances on an objective basis. It took into account the impact on the employee’s entitlements, including annual leave, long service leave and superannuation, as well as his personal financial circumstances.

 With regard to the facts and the significant reduction, the Commission was thereby satisfied the reduction amounted to a demotion. Further, the Commission was satisfied the demotion was significant enough to amount to a dismissal.

The Commission dismissed the jurisdictional objection raised by the company. The case will now be listed for further directions for the merits to be heard. Given the facts leading to the dismissal, it is highly unlikely the company will be able to persuade the Commission that it complied with the requirements of the Act, in which case, the employee will likely succeed. 

Learnings for business

Businesses should ensure they exercise caution when changing an employee’s terms of employment.   A demotion which involves a significant reduction in an employee’s remuneration or duties is classified as a dismissal. Demotions of this nature create a risk of legal claims including unfair dismissal.

In this case, the business attempted to point to its enterprise agreement to support  its argument that  the company was permitted to reduce an employee’s remuneration. It’s vital to remember and comply with the requirement of section 386 of the Act regardless of any policy, agreement or employment contract. 

How we can assist

Before considering a demotion or changing the terms of employment, call the Victorian Chamber’s Workplace Relations Advice Line on (03) 8662 5222 to discuss and confirm your obligations as an employer and any other suitable alternatives. The Victorian Chamber can also assist members with handling workplace matters and offer general advice on a range of workplace issues, including:

  • Award interpretation, classification and minimum entitlements
  • Disciplinary processes, performance management and termination
  • Personal illness and injury
  • Parental leave and flexible working arrangements
  • Redundancy
  • Occupational Health and Safety and WorkCover.

The Victorian Chamber’s expert Workplace Relations Consultants are also on hand to support businesses and provide cost-effective advice and solutions to a wide range of workplace matters, including unfair dismissals. If you receive a claim, our consultants can assist and advise you in workplace investigations as well as representation at the Fair Work Commission. 

[2021] FWC 4733

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