Fair Work Commission finds that an unauthorised demotion of an employee can constitute a dismissal

In the recent decision of Rory Maloney v Knowmore Legal Service Limited [2023] FWC 1780, the Fair Work Commission (FWC) has found that a legal services provider dismissed one of its employees after demoting her to a lower position and reducing her pay.

Facts

Ms Rory Maloney commenced her employment with Knowmore Legal Service Limited (Knowmore) on 9 October 2014. Prior to being demoted, Ms Maloney was employed in the position of Support and Trauma Informed Practice Manager on a permanent basis. Ms Maloney’s employment with Knowmore was underpinned by the National Association of Community Legal Centres Enterprise Agreement 2016-2020 (the EA).

On 20 March 2023, Ms Maloney received a letter from Knowmore’s Director of Client Services, setting out allegations of misconduct against her (the Allegations). In the Allegations, Knowmore indicated it had formed the preliminary view that there were sufficient grounds to demote her to the position of Social Worker/Counsellor. Ms Maloney provided a written response to the Allegations on 29 March 2023.

On 5 April 2023, Ms Maloney received a letter from Knowmore informing her that from 12 April 2023, she would be demoted to the position of Social Worker/Counsellor for a period of six months, with the potential to progress to a more senior position at the conclusion of the six-month period (the Demotion). Ms Maloney’s salary was reduced by approximately $16,000.00 by virtue of the Demotion. Ms Maloney refused to accept the Demotion, and accordingly was placed on leave without pay.

On 1 May 2023, Ms Maloney filed an application with the FWC alleging that the Demotion was a dismissal, and in contravention of the general protections of the Fair Work Act 2009 (Cth) (FW Act).

Knowmore argued that Ms Maloney had consented to the Demotion in her written response to the Allegations, in which Ms Maloney stated that she was open to further training ‘regardless of her role going forward’. In the alternative, Knowmore submitted that even if Ms Maloney had not agreed to the Demotion, that they had the right to demote her as her employment agreement stated that she could be directed to ‘perform other duties from time to time to suit organisational requirements’.

Knowmore further submitted that the Demotion was authorised by the EA, as it amounted to an ‘amendment of duties’ which the EA provides is a possible penalty or action in response to a finding of misconduct against an employee.

Ms Maloney submitted that the employment agreement and the EA did not permit Knowmore to demote her, and therefore the demotion amounted to a dismissal. The matter proceeded to a hearing before the FWC.

Decision

In determining the matter, the FWC considered the following issues:

• Did Ms Maloney voluntarily consent to the Demotion?
• Was the Demotion authorised by the employment agreement or the EA?
• Did Knowmore repudiate Ms Maloney’s employment agreement by demoting Ms Maloney?
• If Knowmore repudiated the contract, did Ms Maloney accept the repudiation?

In considering whether Ms Maloney voluntarily consented to the Demotion, the FWC noted that whilst Ms Maloney’s employment agreement did permit Knowmore to direct her to perform other duties broadly consistent with her role from time to time, it did not permit Knowmore to vary her pay without written consent. As Ms Maloney had not provided such written consent, the FWC was satisfied that Ms Maloney did not voluntarily consent to the Demotion.

The FWC found that the Demotion was not authorised by Ms Maloney’s employment agreement, as it was satisfied that a transfer to a lower graded position along with a significant reduction in pay was not akin to a direction which was ‘broadly consistent with her role’.

Whilst the FWC noted that transferring Ms Maloney to a lower graded position may have constituted an ‘amendment of duties’ within the meaning prescribed by the EA, the FWC was satisfied that the EA did not authorise a corresponding reduction in pay. In reaching this decision, the FWC noted that an enterprise agreement must explicitly authorise a reduction in pay.

The FWC noted that in the absence of a term in an enterprise agreement or contract of employment, an employer cannot demote an employee. As the FWC was satisfied that that Ms Maloney did not voluntarily consent to the Demotion, and that the Demotion was not authorised by either her employment agreement or the EA, the FWC found that Knowmore had repudiated Ms Maloney’s employment agreement.

Finally, the FWC found that the actions undertaken by Ms Maloney in response to the Demotion, including her refusal to return to work, made it clear to Knowmore that she objected to the Demotion. Accordingly, the FWC was satisfied that Ms Maloney had accepted the repudiation of her employment agreement.

Accordingly, the FWC ultimately found that Knowmore unauthorisedly demoted Ms Maloney, and therefore that the Demotion constituted a dismissal. The FWC noted that the matter would shortly be listed for a conference so that the dismissal could be dealt with by way of mediation or conciliation.

Take Home Messages

This matter highlights the dangers for employers who demote an employee to a position where there is a significant reduction in duties or remuneration, particularly where such action is not permitted under an applicable industrial instrument or by agreement with an employee.

Employers are recommended to have a robust procedure and policy in place which prescribes the procedure of demotions (which can be amended from time to time, as opposed to an enterprise agreement or employment agreement). Employers should ensure that employees are afforded procedural fairness in conducting workplace investigations and determining outcomes, before deciding to change their employment status.

For more specific information or advice on any of the material contained in this article please contact Sathish Dasan on +61 8 8210 1253 or sdasan@normans.com.au, Lincoln Smith on +61 8 8210 1203 or lsmith@normans.com.au or Thomas Tagirara on +61 8 8217 1337 or ttagirara@normans.com.au.