Can HR legally demote an employee?

The issue is a complex one – and costly for employers who fail to comply

Can HR legally demote an employee?

HR leaders are only human – and sometimes we make mistakes. Case in point – hiring or promoting an employee too quickly. So, if an employee isn’t performing their duties as an employer sees fit, is that enough to legally demote them? Well, that very much depends on the way in which an employer proceeds.

“The real issue is whether or not the demotion is a fundamental change to the terms and conditions of employment, in which case, it could constitute a constructive dismissal and trigger common law reasonable notice,” explained Lorenzo Lisi, partner at Aird & Berlis. “In Canada, a demotion would generally be deemed ‘fundamental’ to the terms and conditions of employment and if so, would require notice of such change. To determine if the change is fundamental, a lot depends on the nature of the change, which can include many factors.”

Not all changes to the employment of an employee would necessarily be considered fundamental. For example, while demoting a VP of sales to a salesperson would almost certainly be considered a demotion triggering a constructive dismissal, eliminating certain perks, such as a reasonable reduction in certain benefits, may not be.

“Even if an employee is to receive the same rate of pay and benefits, if the change to employment involves lesser responsibility or removes reports (or changes a reporting relationship), that still might be deemed a constructive dismissal,” added Lisi. “The key is that the entirety of the employment relationship will be reviewed to determine if there is a fundamental change.”

Having said that, employers may make such changes if notice is provided to the employee of the changes, similar to the notice required at common law on termination. Also, if the changes are made and the employee does not address them with the employer, they may be deemed to have accepted (or acquiesced) to the changes. 

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Importantly, Lisi told HRD, “even where there is a constructive dismissal, the employee may not necessarily be able to simply quit and allege damages. There may be an obligation at law to remain in the position to mitigate their damages. Every situation is fact specific, and employers are well advised to get advice before making any such changes.”

Lisi advised employers to carefully consider changes which could be deemed a demotion. If the reason for the possible demotion is job performance, Lisi believes that employers should address them within the performance improvement and assessment regime first, rather than a unilateral demotion. Lisi told HRD that employers should discuss any future changes to the job with the employee and get feedback. If a new or different job is to be offered, ensure the employee is provided a job description and has a full opportunity to ask any questions about the expectations, duties and other issues related to the job. And, if possible, notice of the change should be contemplated if no other options exist. 

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“Employers should use a unilateral demotion as an absolute last resort,” added Lisi. “At the end of the day, providing an employee a reasonable opportunity to improve their performance is, from a human resource perspective, a much better option. It may serve to realize the investment in employee training by gaining a better employee, and avoid a constructive dismissal allegation, which is both disruptive and creates a possible legal liability.”

If unsuccessful, often employers will consider a without cause termination - rather than a demotion.

In short, Lisi advises HR leaders to plan before you act, even if you believe there are issues supporting a demotion.  Employees are rightfully sensitive about any intrusion to their job duties.  Demotions should not be a substitute for effective performance management.

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