Can a pay cut constitute a dismissal?

In a recent case, the Fair Work Commission considered whether a reduction in a worker's gross pay constituted a 'dismissal', despite no changes to his work duties or location. Ultimately, the Commission found in the worker's favour – that a demotion involving 'significant reduction' in remuneration may be considered a dismissal. The case provides a solid reminder to employers to be wary of Fair Work legislation before making material changes to an employee's remuneration or work duties.

The employee was a shift manager, having worked for the same company for 30 years. Following an investigation into alleged misconduct, the company took disciplinary action against the employee, and decreased his gross pay from $141,422 to $127,569.

The employee contended that the $13,873 downgrade was a ‘significant reduction in his remuneration’, which constituted a ‘dismissal’ under the Fair Work Act.

The Hearing

The Commission considered two key issues: whether a demotion could constitute a 'dismissal' and whether the employee's demotion involved a 'significant reduction' in his remuneration.

The Commission was satisfied that, while a dismissal could be defined as a termination by the employer, it could also occur when an employee is demoted but remains employed, if the demotion involves a ‘significant reduction in [the worker’s] remuneration or duties.’

Turning to the second issue, the company asserted that the worker was not demoted, given there was no change to his position, duties or location of work, and he was still paid an acceptable rate under the company’s enterprise agreement. The Commission disagreed, noting that the employee’s gross remuneration decreased by about $2,900 per fortnight or $7 per hour. Commenting that this reduction had a flow-on effect on the employee’s ability to afford expenses such as his mortgage or school fees, the Commission found that the downgrade in pay was ‘plainly important and of consequence for [the employee]’ and was, therefore, a significant reduction.

With this, the Commission concluded that, despite the fact that he still worked in the same role, the employee was ‘dismissed’ under the Fair Work Act. Proceedings are now underway to determine whether the employee’s dismissal was unfair.

Key Takeaways

• A dismissal typically represents the termination of an employment relationship at the employer’s initiative
• However, as the case above demonstrates, a dismissal can also occur where the worker remains employed if there is a significant reduction in their remuneration or work duties
• Given this, employers should act cautiously when making material changes to an employee’s remuneration or work duties