“The first step is to check if the employment contract or employment handbook has a term that allows demotion under certain circumstances,” Ray Chiang, partner in the Dentons Rodyk corporate group, told
HRD.
If there is such a term, then demotion should follow the terms stated in the contract or handbook.
In circumstances where there is no written term, firms will have to act in slightly different ways depending on the reason for the demotion. All involve negotiations because “at the end of the day demotion is a variation of terms of employment,” Chiang said.
For instance, if an employee has been performing poorly, the employer should give them a chance to improve.
“Employers will need to discuss openly and fairly with the employee, giving them sufficient feedback on where he or she should improve. Unless there are fundamental breaches of the employment contract by the employee, employers should also give the employee sufficient opportunities to improve before any final demotion decision is made.”
In the event of a corporate restructuring where certain positions have become obsolete, the same negotiation process will need to take place – without the requirement to invite the employee to improve.
If the employee doesn’t agree with the final results of the negotiation, the employer will have to work out how to terminate them, Chiang said.
“However because there is also the loss of a position in the restructuring situation, there may also be certain redundancy payments that have to be paid to the employee.”
Demotions of any sort should never be excessive, Chiang added.
“For instance, you cannot demote a CEO to a secretarial position. If such a situation does occur, it may be a breach of an implied term of trust and confidence between employer and employee.”
It is always prudent for the employer to ensure the demotion is justifiable and non-discriminatory in nature, he said, adding that the reasons for the demotion should also be given in writing.
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