As an employer, you may need to move staff around your company for several reasons. For example, for economic troubles or changes made within the industry. But if you're demoting an employee you have a responsibility to treat them correctly and follow employment law.

Failure to do so can lead to unfair or constructive dismissal claims being made against you, with potential compensation to pay.

In this guide, we'll discuss what demotion is, how to ensure you're acting on the right side of the law, and how to avoid claims being made against you.

What is demotion at work?

Demotion involves an employee being reassigned to a job role at a lower level within a company which comes with less responsibility, decreased salary, and status.

You must be aware of the negatives when deciding whether to demote an employee, as it can be a stressful and worrying time.

As an employer, you must understand when you can and when you can't demote an employee. Failure to get it right is against employment law and could lead to an unfair or constructive dismissal claim being made against you.

When do employers demote an employee?

There are particular circumstances when an employer may feel demotion is the only option available. Before deciding to demote an employee, you should properly consider whether it's the best option for you and your staff moving forwards.

Below are common reasons which can often lead to demotion and a strain on the working relationship.

Poor performance

If an employee has shown poor performance over a long period, you may see demotion as an alternative to dismissal.

However, demotion should be seen as a last resort. There may be circumstances behind why their performance has dropped off, such as family problems, financial stress, or ill health.

You may choose to move an employee due to their performance to a different position of the same rank. This is known as lateral move or deployment.

Disciplinary sanction

You may demote an employee as a disciplinary measure following an act of gross misconduct. Especially if they've been at the company for a long period (where dismissing them could be difficult).

It's important to remember that if you choose to demote a member of staff as a form of disciplinary action - you must ensure it's a proportionate sanction and follows a disciplinary process.

If this happens, you should take other reasonable disciplinary action before choosing to demote them. Such as:

• Providing a verbal or written warning.
• Creating a performance improvement plan.

Redundancy or restructuring

Employees often find themselves demoted following a company restructure. Restructuring often occurs due to economic challenges faced by a company. You must always follow a full and fair consultation process.

In challenging economic times, you may also be left with no choice but to make some staff redundant which may lead you to demote others.

If you're demoting employees due to redundancies, they may be entitled to redundancy payments for the termination of their original employment contract.

Is demotion against employment law?

Changing an employee's employment conditions and remuneration (the money they should be paid) for no legitimate reason and without their agreement is against employment law.

If changes have been made to someone’s working conditions but they remain employed by the same employer, they may feel hard done by and unfairly treated. As an employer, you have responsibilities to treat your employees fairly and with respect in any specific circumstances - that includes if you choose to demote them.

However, you can include a demotion clause within an employment contract which makes demotion legal. A fair process will still be needed when demoting employees.

What is a demotion clause in an employment contract?

Within an employment contract, you can include a clause where demotion is allowed, as well as other changes to the employment relationship. Such as an employee’s title or location of employment – full consultation is required to change the terms and conditions.

However, a court will interpret these clauses strictly. So the employee's contract should include an express right to demote employees in certain circumstances.

What's the process for demotion at work?

When you choose to demote an employee, you must follow a fair procedure and consistent process for all your staff. Failure to do so leaves you with the potential of constructive or unfair dismissal claims being made against you.

As an employer, ensure you take the following steps when demoting an employee:

• Discuss the proposed changes with the affected employee.
•  Explore whether the employee is qualified to work in the new role, and what it'll mean to have a significant reduction in salary or responsibilities.
• Explain to the employee whether the demotion to the new position is temporary or permanent.
• Create a new contract following the demotion, ensuring you receive their consent and accept your decision.

You must understand if you need to provide notice should you decide to demote an employee.

Do you need to provide notice before the demotion?

Employers who demote an employee should be aware that demotion comes with the same notice period as dismissal. Failure to provide the correct amount can lead to a claim being made.

To ensure you're acting legally when demoting an employee, you should provide a written statement to them within a month to inform them of the changes. This is alongside the correct notice period as per the Employment Rights Act 1996.

The statement should include details of any significant reduction to employee's remuneration, details of the new role, and any changes to salary or duties.

Can employees commence unfair dismissal proceedings following demotion?

If employees feel they have been unfairly demoted, they may file an unfair dismissal claim against you. A claim may also be made if you dismiss an employee for refusing to agree to the new working terms. Employers must never dismiss an employee unfairly.

For a claim to be made, the employee must have worked for you for over two years before being demoted – unless the dismissal is automatically unfair.

Can an employee claim constructive dismissal over demotion at work?

Making changes to an employee's contract without their consent is usually against employment law and a breach of contract. This can lead the employee to feel like the only position they have is to resign.

For example, demoting someone to a new role means a significant reduction in salary,

If an employee feels like they were forced out of a company due to a breach of contract, they may be left with no alternative but to make a constructive dismissal claim against you.

Can you be taken to an employment tribunal following the demotion?

If you demote an employee but didn't include a clause for making changes to an employee's remuneration or duties - a claim could be made against you.

Employees who feel they've been a victim of an unfair, or constructive dismissal could take you to an employment tribunal This may feel like the last chance in receiving compensation for being demoted.

If this is the case, then you should work with your employee to reach a settlement agreement and stop the potential for a tribunal.

Can employees seek legal advice from employment law solicitors following demotion?

If one of your employees feels they've been unfairly treated, dismissed, or demoted they may seek independent legal advice.

Employers should treat their staff correctly during all circumstances to avoid any unwanted legal battles.

Get expert advice on demotion with Peninsula

As an employer, you may feel like a demotion is the best choice for dealing with an employee whose performance has dipped or has committed misconduct. But if they feel they've been demoted or treated unfairly they may bring a claim against you.

You must always treat all your staff fairly. Failure to do so can lead to an employment tribunal with compensation to pay.

Peninsula offers professional advice and guidance on managing staff demotion. Our HR team offers 24/7 HR employment advice which is available 365 days a year. We also provide advice through multi-lingual support and fully trained counsellors who are ready to help.

Want to find out more? Book a free chat with one of our HR consultants. For further information, call 0800 029 4392

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