In certain circumstances the demotion of an employee can trigger the termination of their employment and allow them to bring an unfair dismissal claim. A recent decision of the Full Bench of the Fair Work Commission (the "FWCFB") has found that an employee who was demoted was not dismissed despite an almost 10 per cent reduction in salary.

Under the Fair Work Act 2009 (the "FW Act") an employee will be found to be dismissed if the employee's employment is terminated at the employer's initiative or the employee has been forced to resign because of conduct engaged in by their employer. The FW Act contains a specific exemption for demoted employees. A demotion will not trigger a dismissal if the demotion does not involve a significant reduction in remuneration or duties and the employee remains employed.

The first decision - FWC

NSW Trains demoted an employee following an investigation into the employee's misconduct. The demotion involved reducing the employee's grade classification and gross pay from $141,442 to $127,569. The relevant enterprise agreement contained a clause which permitted demotion as a potential outcome of disciplinary proceedings specifically stating that demotion could include "reduction in position rank or grade and pay". Demotion was also permitted under the relevant transport regulations.

The Fair Work Commission ("FWC") found that while the employee remained an employee of NSW Trains, the reduction in his remuneration was significant and that the demotion amounted to dismissal. The FWC found that the employee was entitled to bring an unfair dismissal claim.

The appeal - FWCFB

NSW Trains appealed the decision and argued that the employee had not been dismissed and therefore could not bring an unfair dismissal claim.

One of the issues considered by the FWCFB was whether the relevant enterprise agreement and transport regulations allowed NSW Trains to demote the employee following disciplinary proceedings. NSW Trains argued that as the employee's demotion had a statutory basis it could not meet the definition of "dismissal" under the FW Act. Further, it argued that there had been no adverse changes to the employee's terms and conditions of employment following the demotion. The employee was placed in the same pay grade (although at the lower end of the pay grade) and his reduced salary was still substantially higher than the salary contained in his written employment contract.

The FWCFB found that the enterprise agreement provided for the use of demotions and clarified that "a demotion may not amount to a termination of employment for the purposes of Part 3-2 of the FW Act where the instrument permits the demotion and provides in effect that it is not termination".

The FWCFB found that the relevant clauses of the enterprise agreement and transport regulations supported the position that demotions authorised by those instruments do not trigger dismissal.

For similar reasons, the FWCFB also found that NSW trains had not repudiated the employee's employment contract by demoting him. The FWCFB found that the employee could not bring an unfair dismissal claim as the demotion did not trigger dismissal. The FWCFB quashed the decision and dismissed the unfair dismissal claim.

Key takeaways

In certain circumstances a demotion will trigger a dismissal and the employee will be entitled to bring an unfair dismissal claim. It is also possible for demoted employees who remain employed after their demotion to bring an unfair dismissal claim.

However, in this case, the right to demote the employee following allegations and an investigation into serious misconduct was contained in an enterprise agreement and regulations. Accordingly, the demotion did not trigger dismissal. Similar rights may also be contained in statue or a contract of employment.

Employers commencing disciplinary procedures against an employee should carefully consider the terms of any applicable industrial instruments including enterprise agreements, legislation, regulations and contracts of employment to determine the permitted outcomes of disciplinary action.