When can an employer demote an employee lawfully?

A demotion could occur in a number of circumstances, for example as a disciplinary sanction, the outcome of a performance management process or part of an organisational restructure. A demotion could involve a change to the employee's status, responsibilities, job title and/or salary. However, as a demotion is likely to involve a change to the employee's terms and conditions, the employer must ensure that it is not in breach of the employee's contract.

To avoid a breach of contract, the employer should obtain the employee's agreement to the demotion. The employee may be prepared to accept a demotion as an alternative to dismissal. For example, the employee may agree to take a less senior position following a performance improvement procedure, if the alternative is dismissal. Or the employee may accept a demotion as part of a restructure, where the alternative is redundancy.

There may be a clause in the employment contract that allows the employer to demote the employee in certain circumstances, for example as a disciplinary sanction, or a general clause allowing it to change the employee's terms and conditions. Even where there is such a clause, the employer should ensure that it is acting reasonably. It should consult the employee over the change, making sure they understand the reason behind it, and attempt to obtain their agreement. Where the demotion is an alternative to a dismissal on the grounds of misconduct or underperformance, the employer must have followed the relevant procedure.

If the employer goes ahead with the demotion without the employee's consent or the contractual right to impose it, the employee could continue to work under protest and bring a breach of contract claim, or they could resign and claim constructive dismissal. An alternative to imposing such a change would be to dismiss and re-engage the employee on new terms.