Unfair dismissal; what is the effect of a demotion

When will a demotion legislated upon an employee by an employer, and without the employee’s consent, constitute a dismissal. Here is an extract from a recent decision of the Fair Work Commission dealing with the issue.

“In A Gerrard v UPS Pty Ltd, 13 Commissioner Eames considered the circumstances where demotion of an employee would constitute dismissal:

“[52] The reasoning which underlies the principle that demotion constitutes dismissal was outlined by the Industrial Relations Court of South Australia in Russian v Woolworths (SA) Pty Ltd (Jennings SJ, Cawthorne and Parsons JJ, (1995) 64 IR 169), a decision referred to by Mr Troeth inter alia it stated:

“If one party purports to terminate the contract otherwise than in accordance with the terms of the contract that amounts to a repudiation of the contract by that party. This is so because the repudiation evinces an intention of that party to be no longer bound by the contract. The other party then has the option of accepting the repudiation thereby regarding the contract as at an end and in the case of a contract of employment seeking a remedy for the wrongful termination of the contract or electing to treat the contract as a continuing one seeking a declaration that it continues in restraining the other party from acting as if the contract was at an end.”

The High Court decision of Visscher v The Honourable President Justice Giudice, 14 provides further that repudiation of an employment contract by an employer does not take effect until there is acceptance of the repudiation by the employee:

“[81] 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.”

In Elgammal v BlackRange Wealth Management Pty Ltd, 15 a Full Bench of the Commission held:

“[13] …It is adequate for us to indicate that we accept that when considering whether an employer has repudiated the contract the test is not the employer’s actual intention, judged subjectively, but whether the conduct of the employer, judged objectively by reference to the effect on a reasonable person evinced an intention to no longer be bound by the contract.”

It is worth noting that at no stage did the Applicant complain to the Respondent about his demotion. The Applicant never argued that the actions of the Respondent were unfair or inappropriate. When told that his ongoing employment as as boilermaker he simply said “fine”. His only subsequent line of enquiry was in relation to his new rate of pay.

I accept that the Respondent did not intentionally repudiate the Applicant’s employment. The Respondent, as a sign of good faith, provided the Applicant with alternate employment. However, this is not the test.

Consideration

I have taken into account all of the submissions of the parties.

I am satisfied and find that the actions of the Respondent by reducing the Applicant’s salary by 20%, by withdrawing the Applicant’s use of a company car and company mobile phone and the reduced status of the Applicant’s role by moving the Applicant from a staff position to a tradesman was a significant reduction in the terms and conditions of the Application’s employment resulting in the Applicant being demoted. I am satisfied that a reasonable person, faced with these circumstances, would see the employment relationship at an end. I have taken this into account.

It is extraordinary that the Respondent submits that the Applicant is still “on the books”. The Applicant has not reported for work or been paid since the last week in April. It is also relevant that the Respondent has not attempted to contact the Applicant post 26 April 2018 to enquire in relation to his availability or his intended return to work. There has certainly been no enquiry from the Respondent in relation to the prospect of the Applicant abandoning his employment.

I have taken into account that there is no legal capacity for the Respondent to demote the Applicant in the Manufacturing and Associated Industries and Occupations Award 2010.

I accept the evidence of Mr Sampson and the submission by Mr Powter that the Respondent is an “old fashioned company” that tries to do the right thing by all of its employees. I also accept that the Respondent has given the Applicant plenty of latitude in relation to his performance and family issues. If the Respondent had simply dismissed the Applicant for his poor performance issues as a Projects Co-ordinator, rather than attempting to look after him by providing him with on–going employment, then this matter may have been determined in an alternate manner.

Conclusion

I find that the Applicant has been demoted by the Respondent. As a result, I find that the Commission has jurisdiction to determine the application.”

De La Torre v Coastwide Engineering Pty Ltd (2018) FWC 6446 delivered 3 November 2018 per Riordan C