21 February, 2016
Philip Moyle v MSS Security Pty Ltd [2016] FWCFB 372
What you need to know
- It is important that employers identify those actions that may result in an employee being found to have been demoted, and understand the potential claims that an employee can make to challenge any demotion.
- An employer should only consider demotion where there is an express right to demote the employee in the employee's contract of employment or the relevant industrial instrument.
What you need to do
- Employers should carefully review their contracts, policies and industrial instruments to determine ifthey have, or wish to create, a legal right to demote employees.
- Employers should consider alternatives to demotion, especially where an employee does not consent to the demotion and the employer faces the prospect of defending proceedings commenced by the employee while the employee is still in the workplace.
- Where an employee consents to or accepts the demotion, it is advisable to issue a new contract of employment which waives the notice period for terminating the previous contract of employment.
Have you ever considered demoting an employee? Some employers demote employees, thinking they have chosen a more lenient (and less risky) course of disciplinary action than termination of employment, only to be faced with defending an unfair dismissal claim while the employee is still employed. Other employers demote employees without realising it.
The recent decision of Philip Moyle v MSS Security Pty Ltd [2016] FWCFB 372 highlights some of the key issues for employers when considering whether to demote an employee, and if the employer has a right to do this.
When can an employer demote an employee?
In Moyle, the employee brought unfair dismissal proceedings against MSS Security Pty Ltd following changes to his classification, employment conditions and remuneration.
The employee was given notice by his employer that he and other security guard staff would be required to rotate to new sites in accordance with a new client contract. When the employee moved to the new site:
- his classification under the Security Services Industry Award 2010 changed from level 5 to level 3 as he no longer performed supervisory duties;
- following the change in classification, he was paid approximately $1 less per hour at the new site;
- he changed from night shift to day shift at his request; and
- as he was no longer working night shift, he ceased to be paid an additional loading.
The employee commenced proceedings, arguing that he had been demoted and that this demotion constituted an unfair dismissal.
Was there a dismissal?
The employer submitted that the Commission did not have jurisdiction to hear the matter because the employee had not been dismissed at the employer's initiative within the meaning given by s386.
Considering the matter on appeal, a Full Bench of the Commission confirmed that s386 of the FW Act should be applied as follows.
Step 1: Was there a dismissal?
An employee must first establish that he or she has been "dismissed" at the employer's initiative.
The Full Bench found that the employee's contract allowed the employer to require the employee to work in a security guard role at any site at which the employer held a security services contract. Further, the employee could be required to perform any security guard duties for which he was qualified and trained, and was entitled to payment for the role he was performing at the time commensurate with the classification of that role under the Award.
For these reasons, the Full Bench found that there was no repudiation of the employee's contract by the employer, and the contract continued to operate in accordance with its terms after the employee was moved to the new site. Accordingly, the employee had not been dismissed at the employer's initiative for the purposes of s386(1)(a).
Step 2: Does a relevant exception apply?
If an employee is found to have been dismissed at the employer's initiative, consideration must then be given to the exceptions to dismissal set out in s386(2).
Section 386(2)(c) provides that a demotion will not constitute a dismissal for the purposes of the FW Act where: (1) the employee remains employed with the employer that effected the demotion; and
(2) the demotion did not involve a significant reduction in the employee's remuneration or duties.
As Mr Moyle had not been dismissed at the employer's initiative, it was not necessary for the Full Bench to decide whether there had been a "significant" reduction in the employee's remuneration or duties for the purposes of the exception in s386(2). However, the Full Bench noted that a $1 per hour reduction in wages for an award-dependant and low paid employee and/or the removal of supervisory duties may well have been a significant reduction. This gives some indication of the approach that the Commission may take in future cases.
When does an employer have a right to demote an employee?
The circumstances in which employers consider demoting an employee are varied but usually arise in the context of the employee's loss of a qualification, misconduct and associated disciplinary proceedings or as an alternative to redundancy.
There are limited circumstances where an employer can lawfully demote an employee. These circumstances include:
- where the employee's employment contract contains an express power of demotion, or the power to vary specific aspects of the employment relationship such as the employee's title, reporting structure, remuneration, location of employment or classification;
- where a relevant industrial instrument contains an express term allowing for demotion without termination of employment; or
- where the employee expressly consents to or authorises the demotion.
What are the consequences of demoting an employee absent an express right?
Demotion at law occurs where an employer unilaterally alters an employee's contract of employment in circumstances where the employer has no contractual entitlement to do so. The change to the employment contract may include a change to a lower graded position or lower level duties or a reduction in remuneration.
Where the demotion involves a significant diminution in duties or remuneration of the employee, the courts and the Commission have found this to constitute a repudiation of the contract of employment by the employer, which can constitute dismissal. In circumstances where an employee remains employed by the employer, a significant reduction in conditions can constitute the termination of a contract of employment and the formation of a new contract on different terms.
In Whittaker v Unisys Australia Pty Ltd [2010] VSC 9, Justice Ross adopted the following passage from Macken, McCarry and Sappideen's, Law of Employment, (3rd edition):
…Serious, non-consensual intrusions upon the status or responsibilities, as well as upon the remuneration, attaching to a job may well be held to amount to a repudiation of the contract of employment, and their actuality will not be denied merely by the retention of the job's title.
On the facts of the Whittaker case, it was held that the decision by the employer to unilaterally promote another employee into Mr Whittaker's existing role, and transfer Mr Whittaker to a newly created and different role, constituted a repudiation of his employment contract.
Where the employee consents to a demotion and there is no significant loss of remuneration or duties, it is more likely that the Commission or courts will conclude that there has been a variation to the current contract of employment by consent. In these circumstances, there has been no dismissal.
Risks associated with demotion
Unfair dismissal
An employee who has been demoted may commence unfair dismissal proceedings against an employer alleging that the demotion involves a dismissal, and that the dismissal was harsh, unjust or unreasonable.
An employee will not be entitled to unfair dismissal protection if the employer can establish that:
- the demotion does not constitute a dismissal under section 386(1), because the change in the employee's remuneration or duties was authorised by the employee's contract of employment; or
- the demotion does not involve a significant reduction in the employee's remuneration or duties and the employee remains employed with the same employer (s386(2)(c)). This will necessarily be considered on a case by case basis.
Adverse action
A threat or decision to demote an employee can constitute adverse action, even in circumstances where an employee's contract of employment contains an express power to vary the employee's remuneration or duties.
Where an employee alleges that the employer has demoted the employee for a prohibited reason (for example, because the employee has exercised a workplace right), the employer will be presumed to have demoted the employee for that reason unless the employer proves otherwise.
Accordingly, employers should take care when demoting an employee and ensure that the reasons for doing so do not include a prohibited reason.
Breach of contract
Where a contract of employment does not expressly permit an employer to alter an employee's remuneration or duties, an employee who is demoted may be able claim breach of contract on the basis that the employer has varied the employee's position without consent, and therefore repudiated the employment contract. That is, the employer's breach is sufficiently serious to show that the employer no longer intended to be bound by the employment contract. The Commission and courts have found that a unilateral reduction in an employee's remuneration is almost always a serious breach.
Where an employer is found to have repudiated the contract, the employer may be held liable for damages (but only where the employee chooses to accept the repudiation and terminate the employment contract).
Redundancy
There are some circumstances, such as a restructure, where a demoted employee may be entitled to redundancy payments for the termination of their original employment contract, despite the fact that they remain employed (albeit on different terms).
Employers should carefully review applicable industrial instruments to consider the consequences of demotion in these circumstances.
Making the case: Insights from Geoff Giudice
An employee who has been unilaterally demoted can make an application under the unfair dismissal provisions in the Fair Work Act 2009 (Cth), but only in particular circumstances. Leaving aside the other statutory qualifications and focussing only on unilateral demotion, whether an employee can make an application depends upon the answer to two questions:
- (a) was there a demotion in law?
- (b) if so, was the demotion excluded by the terms of s.386(2)(c)?
In considering (a) it is necessary to distinguish between demotion in practice and demotion in law.
Whether there has been a demotion in law depends upon the terms of the employee's contract of employment and any other relevant legal instrument such as an award or enterprise agreement. Moyle demonstrates the distinction between demotion in practice and demotion in law. Mr Moyle had been performing the role of team leader for around two years when he was directed to relinquish that role and instead to perform the role of a security officer without team leader responsibilities at a reduced rate of pay. While this would normally be regarded as a demotion, the Commission found that in law it was not because the terms of Mr Moyle's employment contract permitted the employer to give such a direction. For this reason Mr Moyle's application was invalid.
Had the Bench concluded that the contract did not permit the direction and there was a demotion in law, (b) would have become relevant. It would then have been necessary to consider the operation of s.386(2)(c)(i), which provides that a demotion will not be a dismissal for the purposes of the unfair dismissal provisions if the demotion does not involve a significant reduction in the employee's remuneration or duties.
For further information, please contact:
Geoffrey Giudice, Ashurst
geoffrey.giudice@ashurst.com
