Unfair dismissal and demotion Part 1

Unfair dismissal and demotion Part 1

It will come as a surprise to some to learn that in Australia conduct by an employer, or its managers or decision makes, can constitute the dismissal of the employee even where that conduct is not the dismissal of the employee. Many Australians will be vaguely aware of the doctrine of constructive dismissal, which in its most basic form means that there are circumstances when the law will regard the resignation of an employee as the legal responsibility of the employer, fort example where the employer forces the employee to resign. Where an employer advises an employee that he or she must resign because otherwise he or she will be dismissed, and face the improbum which dismissal almost always causes, it is easy to understand why an employee in that situation should be able to test the fairness of the dismissal in an unfair dismissal case.

However Australian law goes much further than this, and as we will see in this and the following 2 posts on the subject, there are circumstances when a perfectly voluntary resignation will be regarded as a dismissal at the initiative of the employer, and, wait for it, circumstances too where even an employee who continues to be employed, can sue for unfair dismissal!

The legal conception of the nuances of the issue, and thus the first of these 3 posts, is based upon an excellent analysis of the legal issue in a recent unfair dismissal case in the Fair Work Commission in which the Commissioner firstly reviewed the forensic history of the concept of what constitutes a dismissal.

“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:

“386 Meaning of dismissed

(1) [When a person has been dismissed]

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) [When a person has not been dismissed]

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) [Exception where purpose is to avoid employer’s obligations]

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.”

[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:

o The WR Act provides:

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

o 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.”

Harrison v FL Smidth Pty Ltd (2018) FWC 6695 per Saunders C