A demotion, dismissal and redundancy are three different ways employment can change or end under the Fair Work Act 2009 (Cth) (FWA). The Fair Work Act 2009 (Cth) governs how employers and employees manage these changes. How a change is characterised for employees covered by the national workplace relations system under the FWA can determine their rights, including whether they may be eligible to lodge an unfair dismissal claim in the Fair Work Commission (FWC). For employers, getting the characterisation wrong can turn a business decision into a workplace legal dispute.
What is a dismissal?
Under the FWA, a dismissal occurs when an employee’s employment is terminated on the employer’s initiative. It also occurs when an employee resigns in response to the employer’s conduct (often called a “constructive dismissal”).
Common dismissal scenarios include:
- Misconduct or performance-based terminations (e.g. serious misconduct, repeated poor performance).
- Termination for capacity, where an employee cannot perform the inherent requirements of their job.
- Constructive dismissal, where an employer’s conduct (such as a severe unilateral demotion) leaves the employee with little practical choice but to resign.
Employees who:
- are employed for at least the minimum employment period (6 months, or 12 months for small businesses), and
- are covered by an award or enterprise agreement, or earn less than the high-income threshold,
can generally bring an unfair dismissal claim if they believe the dismissal was harsh, unjust or unreasonable. Employers must show there was a valid reason and fair process. They may also raise jurisdictional objections such as genuine redundancy.
What is a genuine redundancy?
A genuine redundancy occurs if all of the following are satisfied:
- The employer no longer requires the person’s job to be performed by anyone because of changes in the operational requirements of the enterprise.
- The employer complies with any obligation in a modern award or enterprise agreement to consult about the redundancy.
- There is no reasonable opportunity to redeploy the employee within the business or associated entities.
If a dismissal is a genuine redundancy, the employee cannot bring an unfair dismissal claim. However, other rights such as redundancy pay still apply.
For employees, warning signs that a “redundancy” may not be genuine include:
- The same or very similar role is re-created or filled soon after.
- There was no meaningful consultation under the applicable award or enterprise agreement.
- There were obvious redeployment options that were not explored.
For employers, practical steps to support a genuine redundancy include:
- Documenting the operational reasons and decision-making process.
- Checking and strictly following consultation clauses in the relevant award or agreement.
- Actively considering and documenting redeployment options, including at lower levels or in associated entities.
Case Study: Adcock v Blackmores Limited & Ors [2016] FCCA 265
This case clarified that declaring a position redundant does not automatically end employment. This applies where the employer genuinely attempts redeployment. Here, the employer offered roles not inferior in seniority or remuneration. The employee declined them. The claim for redundancy failed.
What is a demotion?
A demotion occurs when an employer moves an employee to a lower-ranked position. This often involves a reduction in pay, status, or responsibilities. The employee may move to another department, take a pay cut, or report to a new manager. Demotions may result from performance management, misconduct, restructuring, or agreement between the parties.
The FWA draws an important line:
A demotion is not treated as a “dismissal” for unfair dismissal purposes if the employee remains employed. It also applies if the demotion does not involve a significant reduction in remuneration or duties.
If there is a significant reduction in remuneration or duties, the demotion can amount to a dismissal. This applies even if the employee remains employed in a new role.
“Significant” is not defined in the FWA. The FWC applies its ordinary meaning. This means a noticeably or measurably large change. For example, a unilateral role change that reduces pay or removes core duties may amount to a dismissal at the initiative of the employer.
Case Study: Scott Harrison v FLSmidth Pty Ltd [2018] FWC 6695
A Service Supervisor was demoted to a Mechanical Service Technician. His pay dropped by 9.3% and he lost all supervisory duties. The FWC found the reduction was substantial. It constituted a dismissal under the FWA. The employee could therefore pursue an unfair dismissal claim.
When can a demotion lead to an unfair dismissal claim?
A demotion may lead to an unfair dismissal claim when the legal definition of “dismissal” is triggered under the FWA.
Typical risk scenarios include:
- Significant pay cut: A large reduction in pay, allowances, bonuses or commission that is not allowed under the contract or award.
- Major loss of duties or status: A move from a senior role to a lower position with reduced responsibility.
- Unilateral change without consent: A severe demotion without agreement and without contractual or award support. This may amount to repudiation.
- Constructive resignation: An employee resigns due to a serious demotion and claims they were effectively dismissed.
An employee must still meet eligibility requirements. These include the service period, coverage by an award or enterprise agreement, or earning below the high-income threshold. They must also lodge within 21 days of dismissal.
If these thresholds are met, the FWC considers the size of the reduction in pay and duties, the reason for the demotion, and whether the process was fair.
Other remedies under the Fair Work Act
If a worker is demoted or dismissed because they exercised a workplace right, they may bring a general protections claim. This includes rights such as parental leave, complaints, or union activity.
If an employer breaches the contract by imposing a demotion, the employee may also bring a breach of contract claim.
Other statutory or common law remedies may also apply depending on the circumstances.
Practical tips for employers and employees
For employers:
- Check the employment contract, policies, award or enterprise agreement before making changes.
- Consult with the employee and explain the reasons before implementing a demotion.
- Avoid large unilateral reductions in pay or duties.
- Consider alternatives such as performance plans or agreed role changes.
- Identify whether the situation involves redundancy or demotion and follow proper consultation rules.
- Keep detailed records of decisions, consultation and offers.
- Seek legal advice before taking action.
For employees:
- Request details of the proposed change in writing.
- Check your contract, award or enterprise agreement.
- Assess whether the change is permitted under your employment terms.
- Seek advice quickly if pay or duties are significantly reduced.
- Be aware of the 21-day time limit for unfair dismissal claims.
- Clarify what happens if you refuse the demotion.
This article provides general information only. It is not legal advice. Workplace law depends on individual circumstances. You should seek tailored advice before acting. For assistance, please call (03) 9600 2768 or email [email protected].