When a demotion constitutes dismissal

13 February 2019 Topics: Workplace relations and safety

In the recent decision of Scott Harrison v FLSmidth Pty Limited T/A FLSmidth Pty Limited [2018] FWC 6695 the Fair Work Commission found that the demotion of an employee amounted to a dismissal for the purposes of the Fair Work Act 2009.

Facts

The employee was employed as a Service Supervisor for 3 ½ years but, after breaching the employer’s alcohol policy, was demoted to the lower paying position of Mechanical Service Technician – Experienced.

The employee received a final warning for not performing BAC testing on his team prior to taking his team to site. The warning letter stated that the alcohol consumption ‘should have been identified… as a significant risk level of consumption’. Two of the team members had consumed 29 drinks between 6.30pm and 10pm at a local bar the night before reporting to work.

The employee remained employed in the demoted position at the time he made his unfair dismissal application to the Commission.

The employer argued that the demotion was:

  • authorised by the employee’s contract of employment because the ‘Location’ clause in the contract stated that the employee could ‘be required to perform other duties and assume other responsibilities and/or perform a different role’; and
  • an implied term of the employee’s contract and a well-known and ‘unwritten express term of employment, as an FLS services supervisor that the incumbent may be demoted by unilateral decision of the FLS, without termination at the instigation of FLS’; or
  • suggested by the employee.

Decision

The Commission rejected the employer’s arguments and held that, where an employee is demoted and elects to remain employed by their employer, they can still be ‘dismissed’ within the meaning of section 386 of the Fair Work Act in circumstances where the demotion involves a significant reduction in the employee’s remuneration or duties.

Significant reduction in the employee’s remuneration or duties

The Commission held that the demotion resulted in a significant reduction:

  • to the employee’s remuneration because of a reduction in pay from $43.50 to $39.45 per hour, a reduction in overtime and reduced superannuation; and
  • in the employee’s duties because, following the demotion, the employee no longer supervised employees or had direct client contact.

The employment contract did not authorise the demotion

The Commission also held that the employment contract did not authorise the demotion because there was no unqualified right within that contract for the employer to require the employee to perform a different role. The Commission noted that right conferred in the employment contract was only to be exercised to ‘meet the company’s business opportunities from time to time’, a right that was ‘quite different’ to a right to take disciplinary action for alleged misconduct.

Employee had not made an offer of demotion that the employer could accept

Finally, the Commission held that, while the employee had suggested in his show cause meeting that he was open to stepping down to a technician role, there had been no discussion about what reduction would be made to the employee’s remuneration.  As a result, the employer had not made an offer of demotion that the employee could have accepted because there was no certainty as to the terms.

In conclusion, the Commission held that the principal contributing factor to the employee’s demotion was the actions of the employer and it was therefore at the employer’s initiative, resulting in a dismissal within the meaning of section 386 of the Fair Work Act.

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