While employment can come to an end or change in accordance with the terms of an employment contract, a demotion, dismissal or a redundancy can trigger rights or entitlements under the Fair Work Act 2009 (Cth) (FWA). How a change or termination is characterised for employees covered by the national workplace relations system under the FWA can determine their rights, including whether they may be eligible to lodge an unfair dismissal claim in the Fair Work Commission (FWC). For employers, getting the characterisation wrong can potentially turn a business decision into a workplace legal dispute.
What is a dismissal?
Under the FWA, a dismissal occurs when an employee’s employment is terminated on the employer’s initiative, or when an employee is forced to resign in response to the employer’s unreasonable conduct (often called a “constructive dismissal”).
Common dismissal scenarios include:
- Misconduct or performance-based terminations (e.g. serious misconduct, repeated poor performance).
- Termination for capacity, where an employee cannot perform the inherent requirements of their job.
- Constructive dismissal, where an employer’s conduct (such as a severe unilateral demotion) leaves the employee with little practical choice but to resign.
Employees who are:
- employed for at least the minimum employment period (6 months, or 12 months for small businesses), and
- covered by an award or enterprise agreement, or earn less than the high-income threshold,
can generally bring an unfair dismissal claim if they believe the dismissal was harsh, unjust or unreasonable. Employers need to show there was a valid reason for the dismissal and a fair dismissal process was implemented and may also raise jurisdictional objections such as genuine redundancy.
What is a genuine redundancy?
A dismissal is a genuine redundancy if all of the following are satisfied:
- The employer no longer requires the person’s job to be performed by anyone because of changes in the operational requirements of the employer’s business.
- The employer has complied with any obligation in a modern award or enterprise agreement to consult about the redundancy.
- There is no reasonable opportunity to redeploy the employee within the business or associated entities.
If a dismissal is a genuine redundancy, the employee cannot bring an unfair dismissal claim, although other rights (for example, redundancy pay entitlements) still apply.
For employees, warning signs that a “redundancy” may not be genuine include:
- The same or very similar role is re‑created or filled soon after.
- There was no meaningful consultation under the applicable award or enterprise agreement.
- There were obvious redeployment options that were not explored.
For employers, practical steps to support a genuine redundancy include:
- Documenting the operational reasons and decision-making process.
- Checking and strictly following consultation clauses in the relevant award or agreement.
- Actively considering and documenting redeployment options, including at lower levels or in associated entities.
Case Study: Adcock v Blackmores Limited & Ors [2016] FCCA 265
This case clarified that declaring a position redundant does not automatically end the employment relationship where the employer is genuinely attempting to redeploy the employee. Here, the employer offered roles not inferior in seniority or remuneration to the redundant position, but Mr Adcock declined them. The court found that Mr Adcock had terminated the employment by indicating he would no longer attend work, constituting a repudiation of the contract of employment which Blackmore’s subsequently accepted. Accordingly, Mr Adcock’s claim for redundancy pay failed.
What is a demotion?
A demotion typically occurs when an employer moves an employee to a lower-ranked position, usually involving a reduction in pay, status, or responsibilities. The employee might be asked to take a pay cut, move to another department, or report to a new manager. Demotions may be triggered by performance management, misconduct, restructuring (mergers or changes in ownership), or by agreement (for example, an employee seeking less responsibility).
The FWA draws an important line:
A demotion is not treated as a “dismissal” for unfair dismissal purposes if the employee remains employed and the demotion does not involve a significant reduction in remuneration or duties.
If there is a significant reduction in remuneration or duties, the demotion can amount to a dismissal, even if the employee technically stays employed in a new role.
“Significant” is not defined in the FWA, so the FWC uses the ordinary meaning – a noticeably or measurably large change. For example, if your employer changes your role unilaterally (without your consent) and the change causes a significant cut in pay or a major loss of core duties, it may amount to a dismissal at the initiative of the employer.
Case Study: Scott Harrison v FLSmidth Pty Ltd [2018] FWC 6695
A Service Supervisor was demoted to a Mechanical Service Technician. Although he remained employed, his pay fell by 9.3% and he lost all supervisory functions. The FWC found the reduction substantial enough to constitute a dismissal under the FWA. The employee was therefore entitled to pursue an unfair dismissal claim.
When can a demotion lead to an unfair dismissal claim?
A demotion may give rise to an unfair dismissal claim when the legal definition of “dismissal” is triggered under the FWA.
Typical risk scenarios include:
- Significant pay cut: A sizeable reduction in base salary, allowances, bonuses or commission that is not authorised by the contract or award.
- Major loss of duties or status: Moving from a senior or supervisory role to a substantially lower position with a marked loss of responsibility and authority.
- Unilateral change without consent: Implementing a severe demotion without the employee’s agreement and without contractual or award support, which may amount to repudiation of the contract.
- Constructive resignation: The employee resigns in response to a serious demotion, arguing they were effectively forced out and therefore dismissed.
For an employee to bring an unfair dismissal claim based on demotion, they still need to meet the usual gateway criteria (service period, coverage by an award/enterprise agreement or under high‑income threshold, and lodging within 21 days of dismissal). If those thresholds are met, the FWC will look at the size of the reduction in pay and duties, the reasons for the demotion, and whether the process was fair, to decide if the demotion amounted to an unfair dismissal.
Other remedies under the Fair Work Act
If a worker is demoted or dismissed because they exercised a protected workplace right (such as taking parental leave, lodging a complaint, or engaging in union activity), they may have grounds for a general protections claim involving dismissal.
If the employment contract does not permit demotion and the employer proceeds anyway, there may be a claim for breach of contract.
Depending on the circumstances, other statutory or common law remedies may be available. An employment lawyer can assess your specific situation.
Practical tips for employers and employees
For employers:
- Before demoting, check the employment contract, policies and any applicable award or enterprise agreement to see what changes are allowed.
- Where possible, consult with the employee, explain reasons, propose options, and obtain written agreement to any demotion, especially if it involves reduced pay or duties.
- Avoid large unilateral reductions in salary or responsibilities; consider alternatives such as performance improvement plans or agreed role redesign.
- In restructures, identify whether you are dealing with genuine redundancy or demotion and follow redundancy consultation and redeployment obligations carefully.
- Keep detailed records of consultation, decision-making, and offers made, to defend any future unfair dismissal claim.
- Seek legal advice before taking action if you are unsure of your obligations.
For employees:
- Ask for the proposed demotion or redundancy details in writing, including changes to title, duties, location and pay.
- Check your contract, award or enterprise agreement and consider whether the change is within what you previously agreed.
- If you face a large reduction in pay or a major drop in responsibilities, seek advice quickly about whether it may amount to a dismissal and whether you can bring an unfair dismissal claim.
- Be aware of strict time limits (generally 21 days from dismissal) and eligibility criteria for unfair dismissal applications to the FWC.
- If offered a demotion instead of redundancy, clarify whether rejecting the demotion will lead to termination and what entitlements or risks that creates.
This article provides general information only and is not a substitute for legal advice; tailored advice is important because small factual differences can change whether a demotion, dismissal or redundancy is lawful or gives rise to an unfair dismissal claim or other remedies under the Fair Work Act.
If you or someone you know wants more information or needs help or advice, please call (02) 5127 5261 or email [email protected].