Home - When can demoted employees access unfair dismissal laws?

UpdatesJan 27, 2022

When can demoted employees access unfair dismissal laws?

The unfair dismissal provisions of the Fair Work Act 2009 (Cth) (FW Act) can only be accessed by a person who has been dismissed. In James v NSW Trains (2021), the Fair Work Commission (FWC) considered when a demoted employee can access these laws.

FWC considers demotion and dismissal

An employer demotes an employee where it reduces the employee to a lower classification, grade or class. Usually, a demotion involves a reduction in remuneration and duties.

In some cases, demotion may be authorised by the employment contract, enterprise agreement or statutory regulation.

The decision in James v NSW Trains (2021) concerned a manager employed by NSW Trains who had his annual remuneration reduced by 9.8% as part of disciplinary action. The enterprise agreement and an NSW statutory regulation permitted the unilateral reduction in grade and pay.

The FW Act provides that where a demotion constitutes termination of employment on the employer’s initiative then it amounts to dismissal for the purposes of the unfair dismissal scheme. A demotion can amount to termination of employment if the employee is entitled to treat the demotion as a repudiation of the employment contract and leaves the employment. This is difficult where the employment contract or relevant law authorises the demotion.

However, the FW Act also provides that there is no dismissal if the demotion does not involve a significant reduction in the employee’s remuneration or duties and the employee remains employed.

In this case, the employee remained employed by NSW Trains after the demotion but the reduction in remuneration was found to be significant.

A significant reduction in remuneration or duties is one that is important, or notable, or of consequence, having regard to its context and intensity. It does not include impacts that are properly seen as minor or unlikely.

In this case, the reduction was $13,873, from $141,442 to $127,569. This resulted in his net income, after the deduction of tax and child support payments, decreasing from about $2,900 to about $2,400 per fortnight, and his gross hourly rate of pay decreasing by about $7, and his net hourly rate of pay decreasing by between about $4 and $4.50. The reduction in his gross annual remuneration reduced the value of his accrued annual leave entitlements, accrued long service leave entitlements, superannuation benefits and redundancy pay benefits.

The decision

At first instance, the FWC ruled that this amounted to dismissal even though the employee remained in employment. Deputy President Saunders stated that an employee who is demoted and elects to remain employed by their employer is dismissed in circumstances where the demotion involves a significant reduction in their remuneration or duties. Unfair dismissal laws can still apply even where the employment continues.

Appeal to a Full Bench

This ruling has been appealed to a Full Bench, which will decide whether, for the purposes of FW Act unfair dismissal laws, a person’s employment has been terminated on the employer’s initiative if they have been demoted and the demotion involves a significant reduction in remuneration or duties.

If yes, then the FWC will answer the question: where an employer imposes fundamental changes to an employee’s contractual arrangements that are detrimental to the employee, but the employee remains employed by the employer, is it only where those changes constitute a demotion in employment involving a significant reduction in remuneration or duties that the employee has been dismissed?

The Full Bench will resolve these issues in early 2022.

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