Demotions and unfair dismissal

In this very interesting forensic analysis of the circumstances in which a demotion in employment may be regarded as constituting the dismissal of the employee, a senior member of the Fair Work Commission also discusses whether it is necessary for the employment relationship to end for a demotion to be capable of being regarded as a dismissal for the purposes of the Fair Work Act.

“Is it necessary for the employment relationship to be terminated in order for a demotion to constitute a dismissal?

[10] In Harrison v FLSmidth Pty Limited (Harrison), 9 I traced the legislative history concerning when and how a demotion may constitute a dismissal for the purpose of an unfair dismissal application:

“Meaning of dismissal

[2] The journey to understand the proper construction of s 386 of the FW Act in the context of a demotion where the employee remains employed begins with Brackenridge v Toyota Motor Corporation Australia Limited (Brackenridge). 1 In that case, Ms Brackenridge sought the remedies of compensation and reinstatement in respect of what she alleged to be the unlawful termination of her employment by Toyota. Ms Brackenridge had been employed by Toyota as a chef supervisor, but was demoted to the position of canteen assistant on 3 February 1995 as the result of an investigation by Toyota into an altercation between Ms Brackenridge and Ms Law which led to Ms Law receiving a lacerated and swollen lip and several scratches. This demotion constituted the alleged termination of her employment.

[3] The Full Court of the Industrial Relations Court of Australia (Wilcox CJ, von Doussa & Marshall JJ) held that the decision by Toyota to demote Ms Brackenridge involved a termination of her contract of employment as a chef supervisor, but the question was whether Ms Brackenridge suffered a “termination of employment” within the meaning of s 170EA(1) of the Industrial Relations Act 1988 (Cth) (IR Act) (omitting references): 2

“There is a conceptual difference between the two situations. Ordinarily, the conceptual difference does not matter: dismissal will ordinarily terminate both the particular contract of employment and the employment relationship. In this case, however, Ms Brackenridge continued to be employed by Toyota after 3 February 1995. The employment relationship continued albeit under a new contract of employment.”

[4] At the time Brackenridge was decided, the IR Act did not contain any provisions dealing with a demotion, or provide a definition of termination of employment. However, central to the Full Court’s interpretation of s 170EA(1) was one of the objects of Division 3 of Part VIA of the IR Act, which gave effect to the Termination of Employment Convention (Convention), and s 170CB within Division 3 of Part VIA of the IR Act, which provided that “an expression has the same meaning in this Division as in the Termination of Employment Convention”. 3 The Full Court held that the phrase “termination of… employment” within s 170EA(1) of the IR Act was restricted by the meaning of that phrase as used in the Convention, which it interpreted to mean termination of the employment relationship.4 Because Ms Brackenridge’s demotion did not result in the termination of her employment relationship with Toyota, the Full Court held that there had been no termination of employment within the meaning of s 170EA(1) of the IR Act.

[5] In 1996, the IR Act was extensively amended and renamed the Workplace Relations Act 1996 (Cth) (WR Act). Unlike the IR Act, the constitutional validity of the WR Act did not rely so much on the external affairs power in s 51(xxix) of the Constitution but relied more on the corporations power in s 51(xx). That change in reliance had an impact on the termination of employment provisions in the WR Act. In particular, s 170CB of the former IR Act was repealed and the objects of Division 3 of Part VIA were amended to give effect to the Convention only by adopting particular procedures and “by orders made in the circumstances set out in Subdivisions D and E”. 5 Further, s 170CD(2) of the WR Act only limited expressions “used in Subdivision C, D or E of this Division” to the meaning of expressions used in the Convention. Importantly, the unfair dismissal provisions of the WR Act were in Subdivision B of Division 3 of Part VIA and the WR Act defined “termination” or “termination of employment” to mean termination of employment at the initiative of the employer.6

[6] In 1999, a Full Bench of the Australian Industrial Relations Commission in Bluesuits Pty Ltd v Graham (Bluesuits) 7 held that there was no requirement under the WR Act, as it stood at that time, to interpret the provisions of Subdivision B by reference to the Convention.8 Shortly after the decision in Bluesuits, Senior Deputy President Polites considered a circumstance in which an employee had been demoted but the employment relationship had continued in Boo Hwa Chan v Christmas Island Administration (Boo Hwa Chan)9 and observed that the phrase “termination of employment” in the WR Act included the termination of a contract of employment and the termination of employment relationship as a result of the 1996 amendments to the IR Act, and therefore, a demotion which resulted in the termination of a contract of employment was considered to be a “termination of employment” within the meaning of the WR Act.10

[7] In 2001, the Workplace Relations Amendment (Termination of Employment) Act 2001 (Cth) (WR Termination Amendment Act) amended the WR Act, 11 including by inserting, for the first time, a provision (s 170CD(1B)) concerning demotions in employment:

“(1B)

For the purposes of this Division, termination or termination of employment does not include demotion in employment if:

(a)

the demotion does not involve a significant reduction in the remuneration or duties of the demoted employee; and

(b)

the demoted employee remains employed with the employer who effected the demotion.”

[8] The Second Reading Speech made by the Honourable Mr Peter Reith, Minister for Employment, Workplace Relations and Small Business, on 27 June 2000, gives insight into the object of the demotion provisions in the Workplace Relations Amendment (Termination of Employment) Bill 2000:

“Establishing certainty in jurisdiction

Two other amendments in the bill aimed at ensuring certainty in jurisdiction will make it clear, firstly, that independent contractors do not have a remedy for termination of employment, consistent with the original intent of the Workplace Relations Act, and, secondly, that the demotion of an employee does not constitute termination of employment where that demotion does not result in a significant reduction in remuneration and the employee continues to work for that employer.”

[9] The Explanatory Memorandum to the Workplace Relations Amendment (Termination of Employment) Bill 2000 includes the following relevant material:

“OUTLINE

This Act will amend the Workplace Relations Act 1996 (the WR Act) to:

  • Preclude an employee who has been demoted in his or her employment from seeking relief in respect of termination of employment where the demotion does not result in a significant reduction in remuneration and the employee continues employment with the employer who effected the demotion;

Item 9 – After subsection 170CD(1A)

  1. Item 9 proposes to insert new subsection 170CD(1B), which will provide that, for the purposes of the termination of employment provisions of the Act (Division 3 of Part VIA), the expressions ‘termination’, or ‘termination of employment’, do not include a demotion in employment if the demotion does not involve a significant reduction in the remuneration of the demoted employee, and the demoted employee remains employed with the employer who effected the demotion.”

[10] It is not clear whether Boo Hwa Chan prompted the amendment to s 170CD of the WR Act, 12 however, it is plain from the terms of s 170CD(1B) of the WR Act, together with the Second Reading Speech and the Explanatory Memorandum, that Parliament did not intend to exclude all demoted employees who remained employed after their demotion from accessing the unfair dismissal provisions of the statute. Had that been Parliament’s intention, s 170CD(1B) would simply have stated that “termination or termination of employment does not include demotion in employment if … the demoted employee remains employed with the employer who effected the demotion”.

[11] In 2003, section 170CD(2), which was part of Subdivision A of Division 3 of the WR Act, was amended by inserting the words “this Subdivision” as follows:

“(2) An expression used in this Subdivision or Subdivision C, D or E has the same meaning as in the Termination of Employment Convention.”

[12] In Charlton v Eastern Australia Airlines Pty Ltd (Charlton), 13 a Full Bench of the Australian Industrial Relations Commission considered the impact of the 2003 amendment to s 170CD(2) of the WR Act to cases involving a demotion. After considering part of the legislative history, the Full Bench in Charlton summarised (at [12]) the position as follows:

“…If the expressions ‘termination’ and ‘termination of employment’ have the same meaning as in the Termination of Employment Convention then they do not extend to a demotion where the employment relationship continues. If the construction of those expressions is unconstrained by the Convention then they refer to a termination of the contract of employment or a termination of the employment relationship and therefore extend to a demotion that involves a termination of a contract of employment even if the employment relationship continues pursuant to a new contract of employment.”

[13] In Charlton, the Full Bench agreed with the appellant’s submissions that: 14

  • “the form of s.170CD(1B) suggests that, in enacting s.170CD(1B), Parliament proceeded on the premise that a demotion where employment continues can amount to a “termination of employment” and then sought to exclude particular demotions from the scope of that expression;” [emphasis added] and
  • “if the respondent’s argument is correct then s.170CB(1B) is rendered otiose: it has no work to do because, by virtue of the decision in Brackenridge, the expressions “termination” and “termination of employment” will never include demotion in employment if those terms have the same meaning as in the Termination of Employment Convention.”

[14] The Full Bench in Charlton then reached the following conclusions in relation to s 170CD(2) of the WR Act and the meaning of the expression “termination of employment” in the context of a demotion: 15

“[31] In this case there are two strongly competing interpretations. On balance we think that the true intention of Parliament in amending s.170CD(2) was not to give expressions used in Subdivision B of Part VIA the same meaning as in the Termination of Employment Convention and that s.170CD(2) should be construed accordingly, that is, as applying to the balance of Subdivision A and not to s.170CD itself. If Parliament had intended terms in the definitions in s.170CD(1) to have the same meaning as in the Termination of Employment Convention then it might be expected to have removed s.170CD(1B) at the same time it amended s.170CD(2), particularly in circumstances where s.170CD(1B) itself contains the expression “termination of employment” and the existing authorities, of which the Parliament is presumed to be aware, place demotion entirely outside the meaning of the expression “termination of employment” as used in the Convention. The fact that s.170CD(1B) remains and the fact that it deals expressly with the issue of when a demotion is not to be taken as involving a termination of employment (and does this in terms that appear to assume that, but for the provision, a demotion may involve a termination of employment) cause us to favour the construction advanced by the appellant: it produces a fairer and more convenient operation that conforms to legislative intention and avoids adopting a construction that gives s.170CD(1B) no practical effect. We perceive the operation for which the respondent contends to be unintended by the Parliament.

Application of principle in the present case

[32] Consistent with the decision in Boo Hwa Chan, a termination of employment occurs when a contract of employment is terminated. This necessarily occurs when the employment relationship comes to an end. However, it can also occur even though the employment relationship continues. Where a contract of employment has been terminated, but the employment relationship continues, this will be because a new contract of employment has come into existence. Therefore, whether the appellant’s demotion involved his employment being “terminated by the employer” within the meaning of s.170CE turns on whether his contract of employment was terminated notwithstanding the continuing employment relationship. This question is answered by reference to general law principles relating to the termination of contracts of employment, unconstrained by the Convention.”

[15] After Charlton, section 170CD(1B) of the WR Act was considered by the High Court in Visscher. The relevant facts of Visscher were summarised as follows by the majority of the Full Bench in Navitas: 16

“Briefly speaking, Visscher concerned a ship’s officer who was initially employed as a Third Mate, but in September 2001 was offered by his employer and accepted a permanent promotion to the position of Chief Officer. Shortly afterwards, the employer purported to rescind the promotion. Mr Visscher informed the employer, in writing, that he did not accept the rescission. Until January 2004, Mr Visscher continued to be assigned work, and paid, as a Chief Officer. In January 2004, Mr Visscher was informed that on his next voyage he would be required to work as a Second Mate. In February 2004 Mr Visscher wrote to his employer by email stating that he considered that he had been demoted, that this constituted a constructive termination of the contract of employment, and accordingly that he considered his employment as having been terminated by the employer. The employer’s response was that Mr Visscher had not been demoted because he had been employed as a Third Mate and that it would treat his email as a resignation. Mr Visscher then applied to the AIRC for relief in respect of the termination of his employment under s 170CE of the WR Act on the ground that the termination was harsh, unjust and unreasonable. A single member of the AIRC dismissed his application on the basis that his employment had not been terminated at the initiative of the employer, and this was upheld on appeal by a Full Bench of the AIRC.”

[16] In Visscher, the majority (Heydon, Crennan, Kiefel and Bell JJ) observed that:

“Mr Visscher regarded Teekay’s requirement of him to sail as a Second Mate as a repudiation of his contract of employment. On his case the termination of the employment relationship was “at the initiative of the employer”. Alternatively, Teekay’s requirement could be viewed as a demotion. Section 170CD(1B), by implication, treated a demotion as a termination of employment where it involved a significant reduction in the remuneration or duties of the employee. On either approach it was necessary for the AIRC to consider whether Mr Visscher was employed as a Chief Officer when the acts which resulted in the cessation of his employment occurred.” [emphasis added]

[17] The majority found that Mr Visscher’s contract of employment as a Chief Officer remained on foot in February 2004 and concluded (at [81]) that:

“Teekay’s notice of rescission did not automatically bring the contract appointing Mr Visscher a Chief Officer to an end. It was necessary that Mr Visscher accept the repudiation before the contract could be terminated. Nothing said in Automatic Fire Sprinklers Pty Ltd v Watson suggests any different contractual principle as applying to a contract of employment. In order to decide whether Teekay had repudiated Mr Visscher’s contract of employment in January and February 2004 it was necessary for the AIRC to determine the true contractual position between the parties at that time. It was necessary then to determine whether what was said by Teekay at that time amounted to a repudiation such that the termination of the employment relationship could be said to be at its initiative; or whether it amounted to a demotion within the meaning of s 170CD(1B). The correct legal starting point was not that Teekay had rescinded the agreement. Neither the Commissioner nor the Full Bench of the AIRC asked the correct question, as to the contract under which the parties continued after September 2001. This was an error going to jurisdiction.” [emphasis added]

[18] Justice Gummow, who was in the minority and concluded that there was no termination of the employment of Mr Visscher at the initiative of the employer by reason of the terms of an industrial instrument that applied to Mr Visscher, effectively came to the same view as the majority about s 170CD(1B): 17

“It may be accepted that ‘termination’ for the purpose of s 170CE(1) may include a ‘demotion in employment’ which involves a significant reduction in the remuneration or duties of the demoted employee (s 170CD(1B)).”

[19] In 2009, the FW Act came into force. Section 386 of the FW Act governs when a person has been dismissed. It provides that: …

[20] The principal differences between the demotion provisions in the WR Act compared to those in the FW Act are as follows:

  • The WR Act uses the expressions “termination” or “termination of employment”, whereas the FW Act uses the expression “dismissed” and s 386 of the FW Act deals with the “meaning of dismissed”, including by reference to where “the person’s employment with his or her employer has been terminated on the employer’s initiative” or “the person resigned from his or her employment” in particular circumstances; and
  • Although there is no material difference between the two limbs dealt with in s 170CD(1B)(a) and (b) and s 386(2)(c)(i) and (ii) of the FW Act respectively, the introductory words to those limbs differ as follows:
  • The WR Act provides:

“For the purposes of this Division, termination or termination of employment does not include demotion in employment if …” and

  • The FW Act provides:

“However, a person has not been dismissed if … the person was demoted in employment but …”

[21] There is no suggestion in either the Second Reading Speech or the Explanatory Memoranda to the Fair Work Bill that Parliament intended, by enacting the FW Act, to change the categories of demoted employees, if any, who are entitled to bring an unfair dismissal claim.

[22] Following the enactment of the FW Act, s 386(2)(c) was considered by Senior Deputy President O’Callaghan in the context of a demotion of an employee who still remained employed, performing new duties. 18 The Senior Deputy President interpreted s 386(2)(c) as requiring that there be both a significant reduction in the applicant’s remuneration or duties and that the applicant no longer be employed by the relevant employer in order for a demotion to constitute a dismissal.19

[23] On appeal, the Full Bench of the Commission in Phillip Moyle v MSS Security Pty Ltd (Moyle) 20 overturned the decision of the Senior Deputy President and held as follows:

“[9] Section 386(1) sets out a general definition of what constitutes a dismissal. Section 386(2) then sets out three sets of circumstances which, even if they fall within the general definition, are deemed not to be dismissals. These are, in effect, exceptions to s.386(1). The third of these exceptions, in s.386(2)(c), relates to demotions in employment. In order to fall within this exception – that is, for a demotion that otherwise constitutes a dismissal under s.386(1) to be deemed not to be a dismissal, both limbs of the exception must be satisfied, as Mr Moyle submitted. The construction adopted by the Senior Deputy President was, with respect, in error because it inverted the exception by making it necessary for an applicant to negative both limbs of the exception in order for the demotion to be a dismissal. This would have the perverse result that a demotion in employment could never constitute a dismissal, even where it is plain that the existing contract of employment has been terminated and replaced by a new and inferior contract, because the employee will necessarily have remained in employment with the employer and thus could not negative s.386(2)(c)(ii).

[12]…Whether or not the exception in s. 386(2)(c), properly construed, was applicable, it remains necessary for Mr Moyle to demonstrate at the outset that he had been “dismissed” within the meaning of s. 386(1).

[13] An action taken by an employer to change the remuneration and duties of an employee could not constitute a dismissal under s. 386 (1) where the change was one authorised by the contract of employment.

[23] We do not consider that there was any repudiation of Mr Moyle’s contract of employment by MSS, and that it continued to operate in accordance with its terms after Mr Moyle’s transfer took effect. Therefore, there was no termination at the initiative of the employer under s.386(1)(a) and no dismissal.”

[24] The Full Bench in Moyle did not consider in any detail the distinction between the termination of a contract of employment and the termination of an employment relationship, nor did it consider the correctness of the decision in Charlton. After the Full Bench handed down its decision in Moyle, another Full Bench in Navitas decided that the question of whether there has been a termination at the initiative of the employer for the purpose of s 386(1)(a) of the FW Act is to be conducted by reference to termination of the employment relationship, not by reference to the termination of the contract of employment operative immediately before the cessation of the employment. 21 In this regard, the majority in Navitas relied on the High Court’s judgment in Visscher in reaching a different conclusion to the earlier Full Bench in Charlton in relation to whether the termination of a contract of employment could constitute a “termination of employment”. The majority in Navitas concluded as follows in relation to this issue:

“[50] Thus it is clear, contrary to the first proposition stated in Lunn to which we have earlier referred, that a termination of the employment relationship might constitute a termination at the initiative of the employer under the WR Act notwithstanding that the contract of employment remains on foot. That is, under the WR Act, termination at the initiative of the employer did not, on its ordinary meaning, refer to termination of the contract of employment. The first proposition in Lunn to which we have earlier referred was therefore not a correct statement of the law under the WR Act, and as a result the Full Bench’s analysis in Lunn proceeded on the wrong premise that it was necessary to analyse whether the final employment contract was terminated at the initiative of the employer, not whether the employment relationship was terminated at the initiative of the employer. The correct position remained as stated in Mohazab, namely that a termination of employment at the initiative of the employer occurs where the action of the employer is the principal contributing factor which leads to the termination of the employment relationship.”

[25] Having regard to the decision of the Full Bench in Navitas, there are two possible ways in which the words of s 386 of the FW Act may be construed according to their ordinary meaning in relation to a demotion. On one view of s 386 of the FW Act, an employee who is demoted and elects to remain employed by their employer in the demoted role is not dismissed within the meaning of s 386. The relatively simple argument supporting this construction can be summarised as follows:

  • a dismissal within the meaning of s 386(1)(a) of the FW Act concerns the termination of the employment relationship, as distinct from the termination of a contract of employment; 22
  • an employee who has been demoted and who remains in employment has an ongoing employment relationship with their employer, notwithstanding the fact that one contract of employment may have been terminated and a new contract entered into;
  • section 386(2) of the FW Act deals with circumstances in which an employee “has not been dismissed”. It therefore narrows the meaning of “dismissed” in section 386(1). 23Consequently, section 386(2)(c) of the FW Act cannot convert what would otherwise not be a dismissal under s 386(1) to a dismissal; and
  • because a dismissal under s 386(1)(a) of the FW Act concerns the termination of the employment relationship and an employee who elects to remain employed by their employer after a demotion has an ongoing employment relationship with their employer, section 386(2)(c) cannot convert such a demotion into a dismissal within the meaning of s 386(1)(a).

[26] On another view, an employee who is demoted and elects to remain employed by their employer is “dismissed” within the meaning of s 386 in circumstances where the demotion involves a significant reduction in their remuneration or duties. For the reasons set out below, this construction is supported by the legislative purpose of s 386, as well as the context of the words within the FW Act as a whole. Context also includes the existing state of the law and the mischief the legislative provision was intended to remedy. 24

[27] First, s 386(1) of the FW Act does not purport to define the term “dismissal” exhaustively. It identifies that a person has been dismissed if s 386(1)(a) or (b) is satisfied, but does not, in terms, limit the circumstances which may constitute a “dismissal” to only those identified in s 386(1)(a) or (b). Section 386 of the FW Act must be construed as a whole, not just by reference to subsection 386(1).

[28] Secondly, the purpose of s 386(2)(c) of the FW Act is to define the circumstances in which the demotion of an employee who remains employed by their employer will not constitute a “dismissal” within the meaning of s 386 of the FW Act. 25 Such a purpose, by implication, suggests that there will be circumstances in which the demotion of an employee who remains employed by their employer may constitute a “dismissal” within the meaning of s 386 of the FW Act.

[29] Thirdly, if a “dismissal” within the meaning of s 386 of the Act were limited to a circumstance in which the employment relationship had been terminated, then s 386(2)(c)(i) would have no work to do. That is, if the existence of an ongoing employment relationship could, in and of itself, defeat an argument that a demoted employee had been dismissed, it would never be relevant to inquire whether the person who remained in employment had suffered a significant reduction in their remuneration or duties.

[30] Fourthly, the fact that paragraphs 386(2)(c)(i) and (ii) are phrased in present tense (i.e. “the demotion does not involve a significant reduction…” as opposed to “the demotion did not involve a significant reduction…” and “he or she remains employed..” as opposed to “he or she remained employed”) suggests that employees who have been demoted and (1) suffer a significant reduction in their remuneration or duties and (2) remain in employment with their employer, have access to unfair dismissal protection.

[31] Fifthly, s 386(2)(c) of the FW Act can be contrasted with ss 386(1)(a), (1)(b), (2)(a) and (2)(b), all of which are directed to circumstances in which the employment relationship has come to an end. The requirement in s 386(2)(c) that an employee “remains employed” suggests that it is addressing a quite different circumstance to the other parts of s 386 of the FW Act.

[32] Sixthly, s 386(2)(c) does not stipulate any period for which an employee must “remain employed”. A demotion by its very nature does not, of itself, terminate an employment relationship. The purpose of a demotion is usually to maintain the employment relationship, rather than to terminate it. When an employee is demoted, they remain employed for at least some period of time. It may be a very short period. For example, an employee who is told they have been demoted may respond seconds later by informing their employer that they resign immediately, thereby terminating the employment relationship. Another employee who has been demoted may remain employed for a number of days, weeks or months before deciding they are not willing to work in the demoted position and resigning from their employment. Given the absence of any period for which an employee must “remain employed” in s 386(2)(c) and the fact that every demotion results in an employee remaining employed for at least some period of time, the only sensible way to construe the expression “remain employed” in s 386(2)(c) is by interpreting it to mean that the employee “remains employed with the employer that effected the demotion” at the time they lodge an unfair dismissal application in the Commission. That is, s 386(2)(c) deals with a particular circumstance in which the employment relationship is ongoing and has not been terminated. In circumstances where an employee is demoted and the employment relationship is subsequently terminated, such an employee may contend they were dismissed, in that they were forced to resign by their employer’s conduct in demoting them (s 386(1)(b)). 26

[33] Notwithstanding the logic and initial attraction of the first construction (set out in paragraph [26] above), I am of the view that the second construction (set out in paragraph [27] above) is the correct one. That is, an employee will be “dismissed” within the meaning of s 386 of the FW Act if they are demoted in employment in circumstances where the demotion involves a significant reduction in their remuneration or duties and they remain employed by the employer that effected the demotion. Such an interpretation arises, by implication, from the terms of s 386(2)(c) considered in the context of s 386 as a whole and is supported by the textual indicators and legislative purpose set out in paragraphs [28] to [33] above. 27

[34] In my view, this construction is also consistent with the decision of the majority of the Full Bench in Navitas, which, in summarising the judgment of the majority in Visscher, stated (emphasis added): 28

“In summary the majority, having carefully drawn the distinction between termination of the employment relationship and termination of the contract of employment, identified the issue arising under the WR Act as whether there was a termination of the employment relationship at the initiative of the employer (or a demotion as defined in s 170CD(1B)).”

[35] Clearly, in coming to their decision, the majority of the Full Bench in Navitas saw the distinction between a dismissal involving a termination of the employment relationship at the initiative of the employer under s 386(1)(a) of the FW Act and a dismissal involving a demotion of the type defined in s 386(2)(c) of the FW Act (the equivalent of s 170CD(1B) of the WR Act).

[36] What, then, is the relevance, if any, of whether the demotion was or was not authorised by the employee’s contract of employment? In previous cases, the terms of a demoted employee’s contract of employment were considered relevant because it was believed that a termination of employment occurred when a contract of employment was terminated, regardless of whether the employment relationship continued, 29 and if the employment contract contained a term which authorised the demotion, then the contract remained on foot after the demotion and there was no termination at the initiative of the employer.30 In light of the decision of the Full Bench in Navitas, the termination of a contract of employment at the initiative of the employer does not, of itself, constitute a dismissal; s 386(1)(a) requires a termination of the employment relationship. Insofar as the previous authorities have considered whether the demotion was at the employer’s initiative, the focus has been on the expression “terminated on the employer’s initiative” in s 386(1)(a). However, there is no indication in the text of s 386(2)(c) that a demotion must be at the initiative of the employer in order to constitute a dismissal. It might be argued that reading s 386 as a whole, and in particular in light of when “a person has been dismissed” in s 386(1)(a), requires the demotion to be at the initiative of the employer. But it would be odd to construe s 386(2)(c) by picking up part of s 386(1)(a) (namely, the requirement of termination at the initiative of the employer) and then to ignore another central element of s 386(1)(a) (namely, the fact that it addresses termination of the employment relationship, which does not take place in the case of a demotion of an ongoing employee). The better construction, in my view, is to treat s 386 as dealing with two types of dismissals: first, a dismissal in which the employment relationship is terminated; and secondly, a demotion as defined in s 386(2)(c). As the majority of the High Court held in Visscher, s 170CD(1B) of the WR Act (now 386(2)(c) of the FW Act), by implication, treats a demotion of an ongoing employee as a dismissal where it involves a significant reduction in the remuneration or duties of the employee.

[37] It follows from the conclusions I have reached that it is not necessary to demonstrate at the outset that an employee has been “dismissed” within the meaning of s 386(1) before determining whether or not s 386(2)(c) is applicable, as was the approach taken in cases such as Moyle. 31 Nor is it necessary to find whether changes to remuneration or duties imposed by an employer on a demoted employee are authorised by a contract of employment, or alternatively, result in the existing contract being terminated and replaced by a new contract.

[38] In order for a person who has been demoted to have been dismissed within the meaning of s 386 of the FW Act, the test is whether the demotion involved a significant reduction in the employee’s remuneration or duties (whether or not the reduction was authorised by the contract) and they remain employed by the employer that effected the demotion. If so, the person is taken to have been dismissed.

[39] This type of distinction between contractual rights and obligations, on the one hand, and rights and obligations imposed or governed by statute, on the other hand, is not unusual in the field of employment law. For example, a contract of employment may authorise an employer to terminate an employee’s employment, at any time, on four weeks’ notice for any or no reason. The exercise of such a right by an employer will be sufficient to bring the contract of employment to an end, but it will not have any bearing on whether the dismissal was harsh, unjust or unreasonable. That is a different question.

[40] If a demotion involving a significant reduction in remuneration or duties was authorised by a contract of employment, submissions could be made as to the fairness of the dismissal. However, the existence of such a contractual right is irrelevant to the question of whether an employee who has been demoted and remains employed has been “dismissed” within the meaning of the FW Act.” [references omitted]

[11] I adhere to the opinions I expressed in Harrison.

[12] In Solarig, Deputy President Anderson said:

“[91] Whilst section 386(1) of the FW Act defines when a person has been “dismissed”, one approach, in circumstances where an employee continues in employment but claims to have been dismissed on account of the employer’s conduct, is to simply apply section 386(2)(c) of the FW Act.

[92] On this approach, section 386(2)(c) operates as a code within Part 3-2 that does not require a person who has continued in employment to meet the definition of dismissal in section 386(1). Under this construction, section 386(2)(c) creates a category of dismissed employee where the person continues in employment but has not been “demoted” within the meaning of section 386(2)(c) because each of sections 386(2)(c) (i) and (ii) do not apply to the given facts. Such decisions construe section 386(2) as deeming a dismissal to have occurred in circumstances where the statutory definition of demotion is not made out.

[93] An example of the aforementioned approach is the single member decision in Scott Harrison v FLSmidth Pty Limited. 18 It was held that as the employee was not “demoted” within the meaning of section 386(2)(c), then they were dismissed within the meaning of section 386.

[94] Were this approach to be applied in the present case, it would be readily open to conclude that Mr Bradley had been dismissed. Although his duties did not change and he remained in employment, the removal of the benefit in February 2021 was (for reasons set out later) a “significant reduction” in remuneration within the meaning of section 386(2)(c)(i) – thus he was not “demoted” within the meaning of the FW Act.

[95] However, to so conclude requires adoption of the aforementioned approach to the construction of section 386.

[96] Whilst the issue of the relationship between sections 386(1) and 386(2) of the FW Act is vexed, I respectfully do not consider that approach to be correct.

[97] I conclude that the correct construction of section 386, in circumstances where an employee continues in employment but claims to have been dismissed on account of the employer’s conduct, is not one where section 386(2) creates a class of deemed dismissals. I prefer a construction whereby a person who has not been demoted within the statutory definition in section 386(2)(c) is still required to meet the statutory definition of dismissal in section 386(1) in order to have been “dismissed” within the meaning of the FW Act.

[98] I do so for the following reasons.

[99] Firstly, the statutory language. The construction I prefer is a more natural and less strained reading of the statutory language. Section 386(1) is stated to describe “when a person has been dismissed. Section 386(2) is stated to provide “when a person has not been dismissed”. Section 386(2) follows both in sequence and language as an exclusion to section 386(1). As said by a full bench of the Commission in Phillip Moyle v MSS Security Pty Ltd: 19

“[9] Section 386(1) sets out a general definition of what constitutes a dismissal. Section 386(2) then sets out three sets of circumstances which, even if they fall within the general definition, are deemed not to be dismissals. These are, in effect, exceptions to s.386(1).”

[100] This approach (considering 386(1) and not solely 386(2)(c)) has been applied in some subsequent decisions of the Commission 20. In Broadlex, the Federal Court recently observed (in obiter) that “s 386 does not erect a class of deemed dismissals”21.

[101] Secondly, the statutory context. Section 386(2)(a) deals with time or task limited contracts. It operates as a pure exclusion. A termination that is not time or task limited within the meaning of section 386(2)(a) still needs to run the gauntlet of section 386(1) to be a dismissal; for example, it needs to be a termination on the employer’s initiative or a forced termination. A similar approach applies to section 386(2)(b) which deals with time limited training arrangements.

[102] A further contextual consideration is section 386(3). This is an anti-avoidance provision applicable to sub section (2)(a). It has the effect of making “sub section (2) not apply” in a (2)(a) instance where the employer’s intention is to avoid obligations. If sub section (2) does not apply in that instance, and if sub section (2) were to operate as deeming a dismissal to have occurred without recourse to section 386(1), then there would be no statutory provision left establishing a dismissal for the purposes of the cause of action.

[103] Thirdly, the legislative purpose. The statutory objects in section 381 establish an unfair dismissal scheme that requires a “fair go all round” to be afforded that “balances” needs of employers and employees 22. If, where an employee continues in employment, section 386(2)(c) itself deemed a dismissal where sub sections (i) and (i) are not made out, then no factor other than a significant reduction in remuneration or duties would be relevant to whether there had been a dismissal. Recognising that “remuneration” is a wider concept than merely wages (and could, for example, include a company vehicle or car allowance), and whilst remuneration and duties are certainly relevant factors (indeed, likely to be primary ones), non-demotion does not necessarily equate to dismissal. When considering if a person has been dismissed because they have been employed on varied terms, there are other relevant factors in addition to remuneration or duties which, in fairness, may arise and warrant consideration – for example, is the person working in the same location, or has the person’s non-remuneration terms of employment been compromised or enhanced (such as leave, rosters, hours, training), or are there relevant changes to status or seniority, or have any or all of the changes been agreed.

[104] Each of these factors are capable of consideration under section 386(1), but only two such factors (remuneration and duties) fall to be considered under section 386(2)(c). The latter approach risks failing to provide a fair go all round as it would only allow two of the relevant considerations (remuneration and duties) to be considered.

[105] A number of examples illustrate the potential unfairness in construing section 386(2)(c) in this manner.

[106] An employer increasing a person’s leave entitlement (such as annual leave quantum) by a set value to the overall package in lieu of withdrawing a significant remuneration entitlement of equivalent value, with all other conditions remaining unchanged and work continuing uninterrupted. In fairness, that employer is entitled to contend that they had not dismissed the employee. Such a contention would not be open if section 386(2)(c) alone was considered.

[107] Similarly, an employer who has significantly altered an employee’s duties but not their remuneration would necessarily be said to have dismissed the person even if the alteration was temporary or accompanied by enhanced remuneration or other enhanced employment conditions, or agreed.

[108] The potential unfairness may cut both ways. An employee who has had neither their remuneration or duties significantly reduced, but who has had their non-remuneration terms of employment substantially and unilaterally reduced would have no scope to contend that they had been dismissed within the meaning of section 386(1).

[109] Similarly, an employee who has had neither their remuneration or duties significantly reduced but who has a contractual right to work, for example, day shift only yet is then unilaterally rostered to work, for example, exclusively night shift, would have no scope to contend that they had been dismissed from their employment.

[110] I therefore conclude that non-demotion within the meaning of section 386(2)(c) does not necessarily constitute dismissal. Only where sections 386(1)(a) or (b) are made out has a person who is a continuing employee been dismissed within the meaning of the FW Act.”

[13] I respectfully disagree with the view expressed in Solarig that a person who remains in employment with their employer but who has been demoted and had their remuneration or duties significantly reduced is still required to meet the statutory definition of dismissal in s 386(1) in order to have been dismissed within the meaning of the Act. 10 Put another way, the effect of the decision in Solarig is that there must be a termination of the employment relationship in accordance with s 386(1)(a) or (b) in order for a demotion to be a dismissal within the meaning of the Act. In my respectful opinion, that is not correct. It is inconsistent with the decision of the High Court in Visscher11 and the Federal Court in Broadlex,12 where it was observed that s 386(2)(c) of the Act necessarily implies that a demotion involving a significant reduction in remuneration or duties is a dismissal even though the employee remains in the employer’s employment. I also make the following observations in relation to the reasoning in Solarig.

[14] First, in paragraphs [92] to [97] of Solarig, reference is made to “the statutory definition of demotion” and the question of whether an employee has been “demoted within the meaning of the FW Act”. The Act does not contain a definition of “demoted” or “demotion”. In order for s 386(2)(c), and the implication which arises from it, to be engaged, there must be a demotion and the demotion must involve a significant reduction in the employee’s remuneration or duties.

[15] Secondly, paragraph [100] of Solarig refers to the obiter observations in Broadlex that “s 386 does not erect a class of deemed dismissals”. It is necessary to consider this sentence in Broadlex in context. Broadlex involved a claim by an employee for redundancy pay in accordance with s 119 of the Act in circumstances where the employee’s job as a full-time cleaner had been made redundant and the employee had reluctantly accepted employment on a part-time basis with the same employer, doing the same duties as those she had performed on a full-time basis. Section 119 of the Act does not deal with dismissals; it is triggered if “an employee’s employment is terminated”. Justice Katzmann reasoned as follows in Broadlex:

“83 Subsection 386(2) re-enacts the exception introduced into the WR Act in 2001. That was contained in subs 170CD(1B) of that Act. Only the chapeau was different because that Act, like the IR Act, referred to “termination or termination of employment” rather than dismissal. In Visscher all members of the Court accepted that “termination of employment” within the meaning of subs 170CD(1B) could include a demotion in employment which involved a significant reduction in the employee’s remuneration or duties.

84 As Broadlex submitted, para 386(2)(c) necessarily implies that a demotion involving a significant reduction in remuneration or duties is a dismissal although the employee remains in the employer’s employment. Logically, the termination of a full-time contract at the initiative of the employer and its replacement by a part-time contract with significantly reduced hours or duties would also be a dismissal within the meaning of s 386. Properly construed, s 385 treats both kinds of cases as the termination of the employee’s employment on the employer’s initiative.

85 Broadlex submitted, however, that “[d]emotion as implicitly referred to in s 386(2)(c) is a specific type of dismissal that is outside the meaning of termination of employment”, citing Scott Harrison v FLSmidth Pty Limited t/a FLSmidth Pty Limited [2018] FWC 6695 at [26]. I do not accept the submission. Notwithstanding the approach taken in that case and with due respect to similar views expressed in other decisions of the Commission, properly construed s 386 does not erect a class of deemed dismissals. It proceeds from the premise that a demotion in employment which involves a significant reduction in remuneration or duties is a termination of employment within the meaning of the FW Act.

86 Broadlex drew attention to paragraph 1528 of the Explanatory Memorandum to the FW Bill, which states that s 386 is “intended to capture case law relating to the meaning of ‘termination at the initiative of the employer’” and which refers to Mohazab v Dick Smith Electronics Pty Ltd (1995) 62 IR 200 by way of example. According to Broadlex, this reference to Mohazab assists its argument. It claimed that there were two limbs to the decision in Mohazab: first, that termination must be at the employer’s initiative and second, that it is the employment relationship that must be terminated. In Mohazab the Full Court said at 205:

Consistent with the ordinary meaning of the expression in the Convention, a termination of employment at the initiative of the employer may be treated as a termination in which the action of the employer is the principal contributing factor which leads to the termination of the employment relationship. We proceed on the basis that the termination of the employment relationship is what is comprehended by the expression “termination of employment”: Siagian v Sanel (1994) 1 IRCR 1 at 19; 54 IR 185 at 201.

(Emphasis added.)

87 Since the statement in paragraph 1528 of the Explanatory Memorandum was that s 386 was intended to capture case law relating to the meaning of “termination at the initiative of the employer” it seems to me that the intention was to pick up that part of the decision in Mohazab which I emphasised in the above extract. If anything, the absence of a similar reference to Mohazab or, for that matter, Brackenridge in the paragraph of the Explanatory Memorandum dealing with redundancy tends to undermine Broadlex’s argument. It rather suggests that it was not Parliament’s intention that s 119 “capture” the same case law.”

[16] In my opinion, Justice Katzmann was distinguishing in these paragraphs between a termination of employment under s 119 of the Act and a dismissal under s 386 of the Act. That was necessary because Broadlex sought rely on decisions, such as Harrison, which dealt with the meaning of the expression “termination of employment” in the context of the Act’s unfair dismissal regime (s 386) to justify its construction of the expression “termination of employment” in the context of the Act’s redundancy scheme (s 119). Further, in the final sentence of paragraph [85] her Honour expressed the view that s 386 “proceeds from the premise that a demotion in employment which involves a significant reduction in remuneration or duties is a termination of employment within the meaning of the FW Act”. Read in context with her Honour’s observation in the previous paragraph ([84]) that “para 386(2)(c) necessarily implies that a demotion involving a significant reduction in remuneration or duties is a dismissal although the employee remains in the employer’s employment”, it is clear, in my view, that her Honour was not suggesting that a demotion must involve a termination of employment in accordance with s 386(1)(a) or (b) in order to constitute a dismissal. Finally, it has not been suggested in Visscher, Broadlex or Harrison that s 386 creates a class of “deemed dismissals”. Instead, as is stated in Visscher and Broadlex, and for the reasons given in Harrison, s 386(2)(c) necessarily implies that a demotion involving a significant reduction in remuneration or duties is a dismissal even though the employee remains in the employer’s employment. There may not be a significant difference between the concept of a dismissal which arises by implication and a “deemed dismissal”, but it is plain from what the majority of the High Court said in Visscher that a demotion involving a significant reduction in remuneration or duties is a dismissal within the meaning of the statute, and this arises by implication.

[17] Thirdly, the point is made in Solarig (at [103]-104]) that “remuneration is a wider concept than merely wages … and whilst remuneration and duties are certainly relevant factors (indeed, likely to be primary ones), non-demotion does not necessarily equate to dismissal. When considering if a person has been dismissed because they have been employed on varied terms, there are other relevant factors in addition to remuneration or duties which, in fairness, may arise and warrant consideration … Each of these factors are capable of consideration under section 386(1), but only two such factors (remuneration and duties) fall to be considered under section 386(2)(c). The latter approach risks failing to provide a fair go all round as it would only allow two of the relevant considerations (remuneration and duties) to be considered.” The flaw in this reasoning is that s 386(2)(c) does not only allow consideration of remuneration and duties. In order for the provision to be engaged, the person must have been “demoted in employment”. In determining whether a person has been demoted, a whole range of considerations may be relevant, including those to which reference is made in paragraph [103] of Solarig. If, but only if, a finding of demotion is made, then consideration must turn to whether the demotion involved a “significant reduction in remuneration or duties”. Parliament has decided that only demotions which involve a “significant reduction in remuneration or duties” are within the unfair dismissal jurisdiction under the Act. If the change to the employee’s employment arrangements does not constitute a demotion or the demotion involves insignificant reductions, if any, in the employee’s remuneration and duties, then the employee has not been dismissed (assuming they do not fall within either limb in s 386(1)(a) or (b)) and they are not protected from unfair dismissal.

[18] Fourthly, a number of observations are made in paragraphs [105] to [109] of Solarig concerning the potential unfairness of construing s 386(2)(c) in the manner set out in Harrison. As to the examples given in paragraphs [106] and [107] in Solarig of changes which may be made by an employer, or by consent, to an employee’s terms and conditions of employment, the first point to make is that it is unlikely that such changes would constitute a demotion, in which case s 386(2)(c) would not be engaged and there would be no dismissal. Further, or in the alternative, even if such a situation could constitute a dismissal, the fairness or otherwise of the changes would need to be considered and taken into account when assessing the factors under s 387 of the Act and reaching an evaluative assessment as to whether the dismissal was harsh, unjust or unreasonable. As to the examples given in paragraphs [108] and [109] of Solarig of unilateral changes to an employee’s non-remuneration terms of employment, such as forcing an employee who has a contractual right to work day shift to work night shift, s 386(2)(c) would not be engaged because even if the changes constituted a demotion the demotion would not (on the examples given) involve a significant reduction in the employee’s remuneration or duties. But such an employee would have a range of options available to them. They could bring their employment relationship with their employer to an end on the basis of the significant changes made by their employer and argue (strongly) that they had been dismissed within the meaning of s 386(1) of the Act. Alternatively, they could bring proceedings for breach of contract or (potentially) for appropriate relief pursuant to a dispute resolution provision in an applicable award or enterprise agreement. The other answer to this point is that Parliament has decided that only certain types of demotions, namely those involving significant reductions in remuneration or duties, ought be protected from unfair dismissal under the Act.

[19] Fifthly, it was held in Solarig that Mr Bradley, who had his right to use a company car for limited personal use withdrawn following an accident with a kangaroo, but otherwise remained employed by his employer on the same terms and conditions of employment, doing the same job (electrician), for the same base pay, at the same location, was dismissed within the meaning of s 386(1) of the Act because a “fundamentally different employment relationship (one of about 16% less value to the employee)” existed between Mr Bradley and his employer after the company car benefit was withdrawn. 13 With the greatest of respect, that conclusion seems very much at odds with the reasoning and conclusion of the Full Court of the Industrial Relations Court of Australia (Wilcox CJ, von Doussa and Marshall JJ) in Brackenridge v Toyota Motor Corporation Australia Limited,14 where an employee in the position of Chef Supervisor was demoted to the position of Canteen Assistant as a result of her involvement in a fight at work. On any view of it, this was a very significant change to Ms Brackenridge’s terms and conditions of employment. The Full Court concluded that “Ms Brackenridge continued to be employed by Toyota after 3 February 1995. The employment relationship continued albeit under a new contract of employment”.15 It was held that there had not been a termination of Ms Brackenridge’s employment.

[20] For the reasons given, it is not necessary for the employment relationship to be terminated in order for a demotion to constitute a dismissal within the meaning of s 386 of the Act. A demotion in employment which involves a significant reduction in the employee’s remuneration or duties is a dismissal even though the employee remains in the employer’s employment and there has been no termination of the employment relationship. 16”

James v NSW Trains (2021) FWC 4733 delivered 3 August 2021 per- Saunders DP