Demoting an employee may be a solution to poor performance.
When faced with performance or conduct issues, employers may look for alternatives to dismissal – one of which is demotion. This usually means reducing an employee’s rank or seniority and, in some cases, their pay.
But can an employer legally demote a staff member? It’s possible, but it’s a complex route for employers to follow and is riddled with risk. They need to be aware of the impact that such a significant change to an employee’s role and compensation can have.
Can someone be demoted for no reason?
In short, no. In order to demote an employee, the employer must have a fair and lawful reason to do so, and the employee’s contract must either allow for it or the employee must agree to the change.
Very simply, the employment contract should expressly reserve the right to demote an employee. And this contractual provision should lay down the circumstances in which demotion will be used – for example, as an alternative to dismissal when dealing with poor performance or misconduct.
This means that an employer should only demote an employee in accordance with the circumstances set out in the contract. Crucially, when taking the decision to demote, the employer must make sure that it’s not for any discriminatory reason, or they could face a claim for unlawful discrimination.
It’s also essential that they follow a fair procedure.
This means that if they’re considering demotion due to misconduct, they must first conduct a thorough investigation to establish the facts, inform the employee of the allegations, and give them an opportunity to respond before taking any action.
And if they’re demoting the employee for capability reasons, they should provide clear warnings and give them a reasonable opportunity to improve. This typically involves setting performance expectations, offering support or training, and monitoring progress over a defined period before taking further action.
In essence, demoting someone without reasonable and proper cause will be considered a breach of the implied duty of mutual trust and confidence. This could pave the way for the employee to resign and pursue a claim for constructive dismissal.
Even if the employer has an express provision in the contract allowing demotion, they should still consult with the employee to ensure they agree with the change and help avoid future complaints.
What if the contract doesn’t include demotion?
If there’s no provision in the employment contract allowing demotion, employers must then seek agreement from the employee. This means that they should consult with them, explaining the reasons for demotion and stressing it’s an alternative to dismissal. Any consent to demotion should be agreed in writing.
If, after lengthy consultation, the employee doesn’t agree to demotion, the employer may want to think about serving them notice that their existing contract will be terminated and offering them a new one with new employment terms and conditions.
Of course, none of this changes the fact that in cases of dismissal for acts of gross misconduct, an employer may still elect to dismiss the employee without notice if they don’t agree to the demotion.
The role of settlement agreements
Employers considering demotion may offer a settlement agreement to protect themselves from Employment Tribunal claims, including claims for breach of contract, unfair dismissal or discrimination.
A settlement agreement is a legally binding document between an employer and employee which settles any claims that arise from the employment relationship or the termination of employment.
In the agreement, an employee waives their right to bring legal claims against their employer in return for a discretionary severance payment. Most legal claims regarding statutory and contractual rights can be waived as part of the agreed terms in a settlement agreement, including unfair dismissal and discrimination.
And if an agreement cannot be reached, it’s important to note that settlement negotiations are generally protected by confidentiality rules and cannot be used as evidence by either party in legal proceedings. Because of the complexity and risks involved, legal advice should be sought.
Final thoughts
Demotion is a sensitive and challenging process that can affect more than just the employee involved; it can also harm team morale and the overall workplace atmosphere.
For this reason, when contemplating demotion, employers should consider alternative sanctions that might be more appropriate or effective in the circumstances.
Status counts – says tribunal
In a 2023 case, Walker v Robsons (Rickmansworth) Ltd, an Employment Tribunal upheld a claim for constructive unfair dismissal after a senior employee was made to feel demoted – not through a formal change in title or pay, but by how they were treated and positioned within the business.
The employee had returned to their old branch expecting to resume their role as branch manager. However, the role had been split between him and a more junior colleague. He was also reassigned to a desk in the middle of the office, while the more junior colleague sat at the manager’s usual desk at the back. These changes were not communicated clearly and came across as a downgrading of status.
When the employee raised concerns, the employer responded aggressively, including swearing and making an age-related remark during a heated exchange. The employee resigned and later brought claims of constructive unfair dismissal and age discrimination.
The Tribunal found that the cumulative actions – from the shared role to the desk relocation – could reasonably be seen as a demotion, damaging the relationship of trust between the parties. The unfair dismissal claim succeeded, though the age discrimination claim was dismissed; the Tribunal concluded the comment related to behaviour, not age.
The case is a reminder that changes that undermine an employee’s perceived seniority – even symbolic ones – can also be viewed as demotion and lead to successful claims if not handled sensitively and fairly.