Can an employee be demoted?

This question comes up regularly, usually when the employer is at the end of their tether and had enough of a particular individual!  Whether it’s because that employee is not pulling their weight, can’t keep up with changes or maybe their attitude isn’t right, or they are not keeping up with a shift in your company culture, demotion on the face of it often seems the simplest option. 

But just how easy is it to demote an employee?  Well, it’s not that straight forward; by demoting an employee, which generally involves a reduction in pay as well as a change in job role, without their agreement, you are in effect unilaterally varying their terms (which is unlawful and could lead to the employee resigning and claiming constructive dismissal) or to put it another way, you are terminating their contract of employment (which may also be unlawful!)

There are certain circumstances in which employees can be demoted lawfully by their employer, but employees remain protected by many employment rights.  Let’s look at when demotion could be lawful or unlawful. 

Employers may consider demoting an employee in a number of circumstances.

Can I demote an employee who is under performing?

Where an employee is underperforming in their job role, an employer may look to demote an employee as an alternative to dismissal following a performance management procedure, but you must follow your performance management or disciplinary procedures first (which as we know can take several frustrating months!)

While the net effect of being demoted can be unfavourable, for some employees a reduction in responsibilities and remit may come as a relief from the pressures of their previous role, particularly if they have been genuinely trying their best but are still struggling.

Can I demote an employee who is guilty of misconduct?

Where an employee has committed an act of misconduct, demotion can act as a reasonable alternative to dismissal for example where the employee has a substantial length of service and has already been issued a final written warning.  

Can I demote an employee has part of a restructure?

Demotion can act as an alternative to terminating employment, as part of a redundancy or restructuring programme or in response to economic changes and market forces requiring reorganisation and demotion of certain individuals.

You may be keen to retain an otherwise valued employee, or perhaps be willing to retain the employee in a lesser capacity for which they may be better suited. Retaining an employee also avoids the cost of recruiting and training new staff.

Can I have a protected conversation with my employee?

In some instances, where both parties have formed the view that the matter cannot be resolved, and the working relationship cannot continue, it may be possible to agree to end the employment relationship in a mutually acceptable way through a settlement agreement.

A settlement (or compromise) agreement would usually have the effect of ending the employment contract, with the employee waiving certain rights in exchange for a settlement amount and an agreement to keep the terms of the exit confidential. Settlement agreements are often used by employers to manage legal risks and protect against future claims for unfair dismissal or breach of contract.

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For employees, demotion can be difficult to deal with; in terms of self-esteem, pride, and finances if there has been a reduction in remuneration but it may be preferable to dismissal and being without a job altogether.  Regardless of whether the demotion is as a sanction or because of workplace changes, it will be important for you to consult with your employee, for the demotion to be regarded as lawful and avoid giving the employee grounds to take legal action against you.

Check your employee’s contract of employment to ascertain if the terms permit you to demote an employee. In the absence of any express clause contained within the employment contract or other contractually binding clauses within a disciplinary policy or staff handbook expressly permitting demotion, you would ordinarily need to obtain your employee’s consent for the demotion to be lawful.

Even where your contract of employment permits the terms to be ‘varied’ this generally refers to changes that reflect legislative or other legal developments or to reflect the changing needs of the business. 

If you would like to discuss this further please contact us