The case of NSW Trains v Todd James involved allegations of misconduct against Mr James, a manager at NSW Trains. NSW Trains had taken disciplinary action against Mr James under their Enterprise Agreement by reducing his grade and pay whilst still retaining his employment as a manager. Mr James’ duties and work location were unchanged.
The demotion meant that Mr James would lose about $13,873 per annum in remuneration which represented about 10% of his pay and would affect his long service leave accruals and redundancy entitlements.
At first instance, Deputy President Saunders of the Fair Work Commission, determined that Mr James could file an unfair dismissal application because he was “dismissed” within the meaning of the Fair Work Act 2009 (Cth) (even though his employment relationship continued, he suffered a significant pay reduction). The Deputy President did not consider that it was relevant for the purposes of the requirement of a “dismissal” in the Fair Work Act that either Mr James’ written contract of employment or the Enterprise Agreement, could allow for a demotion of his employment.
The decision was then appealed by NSW Trains and heard by the Full-Bench.[1]
The Full-Bench by majority, found the following: –
- Section 386(1) of the Fair Work Act (which deals with the meaning of dismissal) exclusively defined the circumstances when a person is dismissed by an employer. This includes when a person is demoted in employment.[2]
- A “demotion in employment” means a demotion to a lower position, rank, grade or pay, at the employer’s initiative and without the employee’s consent, giving rise to a repudiation of the contract of employment.[3]
- The Full-Bench left open the argument that a repudiation of a contract of employment by an employer that is accepted by an employee and gives rise to a new contract of employment (say because the employee accepts a demotion under protest but remains in employment), also results in a termination of the employment relationship.[4]
- Just because an employee delays in objecting to a change in their employment conditions and remains in employment, can still mean that they have not accepted the repudiation conduct of their employer (including a demotion) (see for example in Broadlex,[5] where the Court accepted that an employee accepted a repudiation of their employment contract by refusing to sign the employer’s consent form or agree to a variation of the employment terms).
- An employee who is willing to accept a demotion as an alternative, can still argue that there has been a termination of employment.
- In this case, the Enterprise Agreement and Transport Regulations authorized a demotion by NSW Trains of its employees as a disciplinary outcome. If the “demotion” was taken in accordance with the Enterprise Agreement, being instruments made under the Fair Work Act, they do not amount to repudiatory conduct by the employer.[6] Therefore, there was no termination of employment (or dismissal).
- It is not necessary that the Enterprise Agreement had to expressly refer to a demotion as being authorized for the demotion not to amount to a termination of employment. The context of the Enterprise Agreement might authorize demotions and therefore will not amount to a termination of employment.
- Similarly, written contracts of employment can authorize demotions to occur and therefore not amount to a termination of employment, provided they are not designed as devices to avoid the unfair dismissal for provisions of the Fair Work Act.[7]
Important take outs
- The decision suggests that it would be improper in in every case to consider that any demotion will amount to a dismissal.
- The Enterprise Agreement, statutory regime and the employee’s written contract of employment might affect whether an employee was “dismissed” (and therefore their rights to file an unfair dismissal or general protections dismissal claim under the Act).
- Employees who are demoted, either in their duties or remuneration, can still apply for unfair dismissal (or general protections dismissal) relief even if they do not immediately object to their demotion, as an alternative to a termination of their employment.
To obtain legal advice about the circumstances of your case, including about whether a demotion or dismissal has occurred in your employment or at your workplace, please contact our office.
[1] [2022] FWCFB 55, Justice Ross, VP Catanzariti, VP Asbury, DP Easton and Commissioner Ryan (8 April 2022)
[2] Ibid, para 32
[3] Ibid, para 35
[4] Ibid, para 46 following the decision of Broadlex Services Pty Ltd v United Workers’ Union [2020] FCA 867
[5] Broadlex Services Pty Ltd v United Workers’ Union [2020] FCA 867
[6] Ibid, para 23
[7] See, para 140