There are occasions when a demotion will comstitute a dismissal and others where it will not. Here are the tests.
“Meaning of dismissed
[72] Section 386 of the Act governs when a person has been dismissed. It provides that:
“386 Meaning of dismissed
(1) A person has been dismissed if:
(a) the person’s employment with his or her employer has been terminated on the employer’s initiative; or
(b) the person has resigned from his or her employment, but was forced to do so because of conduct, or a course of conduct, engage in by his or her employer.
(2) However, a person has not been dismissed if:
(a) the person was employed under a contract of employment for a specified period of time, for a specified task, or for the duration of a specified season, and the employment has terminated at the end of the period, on completion of the task, or at the end of the season; or
(b) the person was an employee:
(i) to whom a training arrangement applied; and
(ii) whose employment was for a specified period of time or was, for any reason, limited to the duration of the training arrangement; and the employment has terminated at the end of the training arrangement; or
(c) the person was demoted in employment but:
(i) the demotion does not involve a significant reduction in his or her remuneration or duties; and
(ii) he or she remains employed with the employer that effected the demotion.
(3) Subsection (2) does not apply to a person employed under a contract of a kind referred to in paragraph (2)(a) if a substantial purpose of the employment of the person under a contract of that kind is, or was at the time of the person’s employment, to avoid the employer’s obligations under this Part.”
Consideration
[73] In Harrison v FLSmidth Pty Limited,2 Deputy President Saunders said the following:
“[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.3
[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. 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)).4
[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.5”
[74] The Deputy President adopted his above reasoning in James Todd v NSW Trains [2021] FWC 4733. At [24] of the decision, the Deputy President concluded that the ordinary meaning of the word “demote” is “to reduce to a lower grade or class (opposed to promote)”. The Deputy President determined that Mr James had been demoted and had suffered a substantial reduction in pay and therefore had been dismissed.
[75] On appeal,6 the Full Bench in NSW Trains stated the following:
“[32] Contrary to Deputy President Saunders’ construction, we consider that s.386(1) exclusively defines the circumstances which give rise to a person being ‘dismissed’ by an employer for the purposes of Part 3-2 the FW Act. It follows that a person who has been demoted in employment, but who remains in the employ of the employer, has only been ‘dismissed’ if the person’s employment has been terminated on the employer’s initiative within the meaning of s.386(1)(a) of the FW Act.
[33] We agree with the Appellant’s and the Respondent’s construction that s.386(2) serves to clarify the scope of s.386(1). This is evident from the language and structure of ss.386(1) and 386(2).
[34] Section 386(2)(c) clarifies that s.386(1) does not apply to certain circumstances. It does not give rise (by implication or otherwise) to a category of dismissal that is separate to s.386(1). That is not to say that in the absence of s.386(2), all circumstances in ss.386(2)(a)-(c) would necessarily be caught by s.386(1)(a). Contrary to the ACTU’s submission, the use of the word ‘however’ in the chapeau to s.386(2) cannot be sensibly read to suggest this.
[35] The effect of the Deputy President’s construction of s.386(2)(c) is that by implication, a demotion in employment which involves a significant reduction in the employee’s remuneration or duties is a dismissal under the FW Act. In the circumstances, Appeal ground 1 is upheld.”
[76] Dealing with the question as to whether s.386(1)(a) can encompass termination of the employment relationship and/or termination of the employment contract, the Full Bench stated the following:
“[76] The question of whether a demotion constitutes a dismissal for the purposes of s.386(1)(a) must be considered in its statutory context and common law principles applied in this context. It is clear from the legislative history and previous consideration of the provisions by the Commission and its predecessors that Parliament did not intend
s.386 to exclude all demoted employees who remain employed after their demotion from accessing the unfair dismissal provisions in the FW Act. Section 386(2)(c) proceeds on the premise that a demotion where employment continues can amount to a ‘termination of employment’ (and then clarifies that particular demotions fall outside the scope of s.386(1)). As a general proposition, provided the employee makes clear their objection to the demotion, they should not be taken to have affirmed their original contract of employment merely by continuing to work in the demoted position and being paid for that work whilst challenging the alleged dismissal before the Commission. Of course, it will be a question of fact in each case as to whether the conduct of an employee constitutes an affirmation of their contract.”
[77] Ultimately in NSW Trains, the Full Bench determined that the enterprise agreement governing Mr James’ employment authorised a demotion for the reasons given to Mr James and could not be categorised as repudiatory conduct.7
[78] In NSW Trains, it was held that a dismissal may be given effect to either by the termination of the employment relationship or the contract of employment. In either case, the termination must be “on the employer’s initiative”.
[79] The Respondent in these applications has submitted that the reclassification from Level 5 to Level 4 is correct, and because it has determined it is correct, it must reduce the classification for Mr Lovini, Mr Jacob (and Mr McDonald). Firstly, a court or tribunal has not established that the Respondent is correct in its reclassification. It is simply asserted by the Respondent that it is correct.
[80] Secondly, no consultation occurred with affected employees, denying them an opportunity to convince the Respondent that it is not correct.
[81] The Respondent’s submission that, because it has declared that the applicants are appropriately a Level 4, they must be correctly classified and be paid at a lower pay grade, is not accepted. An employer can pay employees at a higher pay grade if it wishes. There is nothing compelling the Respondent to move Mr Lovini and Mr Jacob to a Level 4. There is no breach of the Act or the Award in continuing to categorise the applicants as Level 5. Quite disappointingly, the Respondent’s desire to ensure an equitable pay grade and remuneration among its employees, and with a frustrated cohort of female Case Officers considering they are underpaid against their longer serving male Case Manger colleagues, has resulted in the Respondent tearing the applicants down instead of honouring the common law contract it had with them to grandfather their classification and pay rate.
[82] The evidence is clear that the applicants’ classification and pay rates had been grandfathered for many years. They were told that in the presence of Mr Foley in October 2021. Mr Foley’s evidence that he considered only the pay rate to have been grandfathered cannot be accepted, considering the amount paid to the applicants increased every year in line with annual wage increases. Regrettably, Mr Foley does not understand the concept of grandfathering. What it means is that the three Case Managers were grandfathered at Level 5, and all new employees would be employed at Level 4.
[83] Further, it is abundantly clear that at the conference in May 2024, the grandfathering arrangement of the three male Case Managers being paid at Level 5 was discussed. Female Level 4 Case Officers were agitating the issue. Mr Lovini and Mr Jacob took comfort in the fact that it was declared that their wages were not being reduced. Yet, just over one year later the Respondent did reduce their wages all in the name of “equality and fairness”. Fairness to Mr Lovini, Mr Jacob (and Mr McDonald) was not considered. They were informed in writing that their reduction in wages was in the best interests of the IFS team and the Respondent as a whole.
[84] One does not break the proverbial glass ceiling by amputating the legs of the men above. The applicants are entitled to have their employment contract enforced which specifies their classification and rate of pay. The Respondent is not entitled to arbitrarily decide that it will no longer be held to its end of the bargain.
[85] In these applications, the Respondent clearly initiated the demotion and informed Mr Lovini and Mr Jacob of the demotion in June 2025. Despite their protests, it took effect in July
- I am satisfied that the contract of employment entered into by the applicants with the
Respondent was ended on the employer’s initiative.
[86] As an aside, Mr Lovini and Mr Jacob have not been presented with contract variations to sign, despite all earlier contract variations requiring their signature. In this case the Respondent simply informed them they would be Level 4 from July 2025. Mr Lovini and Mr Jacob had no say in the matter. When Mr Lovini continued to agitate the matter, he was informed by Ms Spurdle on 11 June 2025, one day after he was notified of the reclassification:
“We also want to highlight that this ongoing back-and-forth is filled with similar context to previous emails by both parties, is not constructive. We have provided on multiple occasions a response in regards to your contract and decision-making process via email and in person, this is not progressing in a constructive direction. The classification decision has been finalised based on legislative requirements and the duties you perform, and continuing to revisit the same points will not change the outcome. Please refer to the justification as per my previous 2 emails. The company considered all avenues before landing on a decision, as you are aware we have been reviewing for over 12 months and this has been a thorough review process.”
[87] In effect, Mr Lovini was told to put up and shut up. Equally, Mr Jacob was told by the Respondent’s CEO that his reduction in pay was in the best interests of the IFS team and the Respondent as a whole.
[88] Having satisfied myself that the contract of employment entered into by the applicants with the Respondent was ended on the employer’s initiative, it is necessary to determine if there was a demotion resulting in a significant reduction in remuneration or duties while noting that the applicants remain employed with the employer that effected the demotion.
[89] Mr Lovini and Mr Jacob are performing the same duties they had been when they were employed at the Level 5 rate. They have, however, been reduced to a lower classification grade under the Award. I am satisfied that they have each been demoted.
[90] In James, the Deputy President determined that the reduction in salary of 9.8% by Mr James’ demotion was significant. It would have future impact on paid leave and superannuation entitlements. In NSW Trains, the Deputy President’s first instance decision that Mr James’ salary had been significantly reduced on account of his demotion was not disturbed on appeal.8 The test as to whether there has been a significant reduction is an objective test, having regard to all of the circumstances.9
[91] The Respondent in these applications has submitted that the reclassification from Level 5 to Level 4 is modest. It is not. It erodes several years’ worth of annual wage increases.
[92] If the applicants had not been demoted, their annual pay would have risen from
$101,787.51 to over $104,000. Instead, it reduced to $91,598.47 and then moved to $94,743.00 on account of the annual wage increase in accordance with the Award. It puts them in a position marginally better than they were in 2022.
[93] Whether the amount of the reduction is:
- $7,044.51 on the Respondent’s best case;
- over $10,000 against the $101.787.51 to $91,598.47; or
- around $10,000 against the approximate $104,000 to $94,743.00; the reduction is significant.
[94] It is so significant a sum that the Respondent considered it necessary to provide a one-off bonus of $10,000 – $12,000 to female Case Officers at Level 4 to make up the difference in their rate of pay with those of the applicants’ when the issue of gender pay disparity was being vocally agitated.
[95] The reduction in remuneration is significant not just in respect of the fortnightly pay to the applicants, but also in respect of any sum that they may receive when they finally leave the Respondent’s employment. The applicants are not far off becoming entitled to long service leave, whether they take the leave beyond 10 years of service or have it paid out to them beyond
10 years of service. The significant drop in remuneration also affects the applicants’ superannuation in the vicinity of $1,000 per annum; the loss compounded when it is time to retire.
Conclusion
[96] I am satisfied that each applicant has been dismissed at the initiative of the Respondent and the demotion of each of the applicants resulted in a significant reduction in their remuneration.
[97] Accordingly, the Commission has jurisdiction to convene a conference pursuant to s.368 of the Act to see if the Commission can assist the parties in resolving the matter by way of conciliation.”
Lovini & Jacob v Youturn Limited & Darce Foley [2025] FWC 3757 9 December 2025 per Hunt C