Demotion is where an employee is reassigned by their employer to a role within the organisation that carries lesser responsibility, status or remuneration than their current role.
There are certain circumstances in which employees can be demoted lawfully by their employer, but employees remain protected by many employment rights.
The following guide looks at when demotion could be lawful or unlawful, and what action you can take against your employer where you believe you have been unfairly treated or wrongly demoted.
Can I be demoted?
Employers may consider demoting an employee in a number of circumstances.
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.
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.
Demotion can act as an alternative to terminating the contract of employment, for example as part of a redundancy or restructuring programme or in response to economic changes and market forces requiring reorganisation and demotion of certain individuals.
The employer 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.
For employees, demotion can be difficult to deal with on a number of levels – 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. While the net effect of being demoted can be unfavourable, for some employees a reduction in responsibilities and remit may represent a relief from the pressures of their previous role.
In other instances, an employer may simply seek to change the classification, working conditions or remuneration that the employee receives for a number of reasons wholly unrelated to the conduct or performance of the employee, and in so doing, inadvertently demote the employee to a lesser role.
Regardless of whether the demotion is as a sanction or as a consequence of workplace changes, it will be important for the employee to understand their employment rights and what the employer should do in order for the demotion to be regarded as lawful and avoid giving the grounds for the employee to take legal action against them.
When can an employee be lawfully demoted?
It is generally unlawful for an employer to unilaterally impose demotion on an employee, where it would be tantamount to changing the terms of their contract of employment without their agreement. This could constitute a breach of the employment contract and could provide sufficient grounds for the employee to resign and claim constructive dismissal.
Check your contract of employment to ascertain if the terms permit demotion by your employer.
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 the employer to demote you by way of disciplinary sanction or otherwise, your employer would ordinarily need to obtain your consent for the demotion to be lawful.
This will require consultation with you to discuss the proposed changes in your role, responsibilities and contractual terms, such as remuneration and whether the change would see your contract terminated and a new agreement with new terms signed under a ‘re-engagement’ scenario.
If, following a period of consultation with your employer, you do not agree to the change in terms, take professional advice as in some circumstances, it may be possible for your employer to dismiss you. For your dismissal to be lawful, your employer should have advised you during the consultation process of the risk of dismissal should you refuse the demotion.
Also note that where demotion is a result of disciplinary action following an act of gross misconduct, the employer may be able to dismiss you without notice if you do not agree to the proposed change in terms.
Even where your contract of employment permits the terms to be ‘varied’ (ie changed) to allow for demotion, it is still good practice for your employer to consult with you about the changes first.
What does my employer have to do to demote me?
Even where there is an express contractual clause that allows for demotion in a disciplinary context, whether this be in response to misconduct or poor performance, an employer must still follow a fair procedure and only use demotion where this is a reasonable and proportionate sanction in response to findings from a full investigation.
Penalties such as demotion must also be used in a consistent manner by your employer or there may be grounds for discrimination and unfair dismissal claims.
In circumstances where the employer is proposing changes generally, other than by way of sanction, but perhaps restructuring the workforce, they should consult or negotiate with the affected employees, and where relevant their representatives, for example, from a trade union or staff association, explaining the reasons for the proposed changes and giving serious consideration to any suggested alternative solutions.
As part of this process, the employer should also explore additional issues such as whether you are suitably qualified to work in the lower level role, what this will mean for you in terms of any reduction in salary and benefits, whether you will be redeployed to a different team, and whether the demotion is to be permanent or for a trial period only.
Where the demotion forms part of a wider restructuring programme, such as redundancy, and you agree to be re-engaged under a new contract with new terms for the new role, you may also be entitled to redundancy payments for the termination of your original employment contract, despite being employed on different terms.
Finally, an employee who has been demoted, whether by way of an imposed sanction or by agreement, the terms of their new role, including any reduction in remuneration, should be set out in writing. Once employers have agreed on changes with their staff, they need to update the terms of their employees’ written statement of employment conditions and write to their employees within a month to inform them of these changes. You should request written confirmation of the new terms if this has not been offered or provided.
What can an employee do if being demoted?
If you are concerned about any disciplinary sanction imposed on you by way of demotion, or any significant changes otherwise made to your job role that amounts to a demotion, under ACAS guidance you should first try and resolve the issue on an informal basis with your employer.
Very often, issues can be resolved quickly and easily through a conversation with management. Failing this, you consider following your organisation’s internal complaints process by raising a formal grievance in writing, so as to give your employer the opportunity to resolve the matter without recourse to legal proceedings.
In these circumstances, it may be appropriate to ‘work under protest’, in other words, to continue to do the job and work for your employer pending resolution of the matter, while making it clear in writing that by doing so you do not agree with and are not accepting the change in terms or the demotion.
If working under protest, you should confirm this status on a regular basis to ensure clarity of your position while the dispute is being resolved.
In considering demoting an employee, employers need to be aware that there is a potential risk that they may be exposed to a claim in the employment tribunal.
On the face of it, demotion, where it is not permitted under an employee’s contract of employment or it is without their agreement, could constitute a breach of contract, such that the employee may be able to resign and claim constructive dismissal. If you are considering resigning due to the actions of your employer, you should always consider seeking independent legal advice. Resignation is considered a drastic step and constructive dismissal claims can be challenging to establish.
It is also important to note that where an employee has not made any real attempt to resolve any concerns or objections with their employer prior to resigning and claiming constructive dismissal, this can make it much more difficult to argue that they have been constructively dismissed by their employer at a later date. Further, the employment tribunal has powers to reduce compensation awards where a party has failed to follow ACAS guidelines in trying to resolve the issue.
The employer will also need to proceed with care when disclosing the news of the demotion within the workplace or publicly, not least before it has been discussed or fully resolved with you. In particular, you may be well within their rights to resign and claim constructive dismissal on the basis of breach of trust and confidence where you have not been given an opportunity to appeal any demotion imposed upon you by way of sanction for misconduct or poor performance.
If you have over two years’ continuous service at the time of dismissal, unfair dismissal proceedings could be available where the demotion involved a dismissal that can be shown to have been unjust or unreasonable in the circumstances. It would also be open to an employee to remain in their demoted role but to claim unfair dismissal from their previous post or for an unlawful deduction from wages, assuming that their demotion resulted in a reduction in their salary in some way. The employer can however potentially rely on defences, including where the demotion does not constitute a dismissal under section 386(1), because the change in the employee’s remuneration or duties was authorised by the employee’s contract of employment or the demotion does not involve a significant reduction in the employee’s remuneration or duties and the employee remains employed with the same employer (s386(2)(c)).
With the right legal advice you can make an informed decision as to your prospects of success, and whether or not it may be more sensible to take formal action while you are still employed.
Should I sign a settlement agreement?
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, discrimination or breach of contract.
If you have been asked to sign a settlement agreement, whether as a result of refusing to agree to a demotion or new contractual terms, or following disciplinary action, take immediate legal advice. A settlement agreement will only be legally binding on your employer if you have taken independent legal advice and where you understand the full implications of the contractual terms. Your employer should fund or contribute to the legal fees for advice on the agreement, so it is worth asking if this has not already been offered.
Do you have a question about being demoted at work?
If you are facing a demotion at work and you are concerned about the grounds for demotion or the procedure your employer followed, take advice.
DavidsonMorris are experienced employment law specialists offering guidance and support to employees facing difficulties and unfair treatment at work. If you believe your employer has failed to follow the correct process in demoting you, contact us for advice on your legal options.
Last updated: 27 August 2022