Case review: Demotion found to be a dismissal

In a recent decision of Rory Maloney v Knowmore Legal Services Limited [2023] FWC 1780, the Fair Work Commission (FWC) found that Rory Maloney (Ms Maloney) experienced a dismissal from her employment when Knowmore Legal Services (Knowmore) demoted her and significantly reduced her salary.

Background

On 20 March 2023, Ms Maloney was notified of a series of allegations related to misconduct (Allegations) (the details of these allegations for the purpose of determining whether Ms Maloney was dismissed were not considered by the FWC) and that Knowmore had reached a preliminary decision that there were sufficient grounds to demote her.

On 20 March 2023, Ms Maloney was notified of a series of allegations related to misconduct (Allegations) (the details of these allegations for the purpose of determining whether Ms Maloney was dismissed were not considered by the FWC) and that Knowmore had reached a preliminary decision that there were sufficient grounds to demote her.

On 5 April 2023, Knowmore communicated the final outcome to Ms Maloney, informing her of the decision to demote her to the role of Social Worker/Counsellor starting from 12 April 2023, for a duration of six months, with the potential to progress to a senior practitioner role at the conclusion of the six-month period. This demotion resulted in a significant reduction in Ms Maloney’s salary, from approximately $112, 571.04 to $96, 131.58.  Following the demotion, Ms Maloney did not attend work.

On 1 May 2023, Ms Maloney commenced a general protections claim alleging that the demotion was a dismissal and in contravention of the Fair Work Act 2009 (Cth) (FW Act). In response, Knowmore raised a jurisdictional objection denying that Ms Maloney was dismissed.

Knowmore’s Arguments

Knowmore argued that Ms Maloney agreed to the demotion, or in the alternative that Knowmore had the lawful right to demote her. In summary, the arguments raised by Knowmore were as follows:

• Ms Maloney implicitly acknowledged Knowmore’s right to demote her through her written responses to the allegations and her verbal statements. In her responses, Ms Maloney stated, while she would have preferred to not be demoted, she wished to continue her employment in whatever role Knowmore saw fit to provide her;
• at no point did Ms Maloney object to the proposed disciplinary action of demotion by asserting that it constituted a dismissal or that it was otherwise unlawful;
• Ms Maloney did not contest the legal basis of the demotion until 7 April 2023, through a letter from her solicitor. By that time, Knowmore had already reached its decision;
• Knowmore argued that all of its actions since 5 April 2023, remained consistent with the premise that Ms Maloney continued to be employed by the company;
• in the alternative, if Ms Maloney’s contract was not varied with effect from 5 April 2023, Knowmore relied on the term in her contract that permitted the company to direct her to perform other duties from time to time; and
• further, or in the alternative, Knowmore relied upon the NACLC Managing Misconduct Policy referenced in the NACLC Enterprise Agreement (NACLC EA), asserting that the demotion constituted an “amendment of duties” authorised by the NACLC EA.

Ms Maloney’s Arguments

Ms Maloney submitted that:

• neither the NACLC EA nor the associated Policy provided Knowmore with an explicit or implied capacity to demote her;
• the demotion was significant in terms of role and financial reduction, and it was potentially permanent. She argued that these three factors pointed to a demotion amounting to a repudiation and therefore a dismissal;
• she did not agree to the demotion and referred to Knowmore’s letter of 5 April 2023 which stated “knowmore understands and appreciates that this is a big change and in recognition of your comments about needing to consider your options (emphasis added), we have agreed that you do not need to attend work, today 5 April 2023.”. Ms Maloney argued that this sentence indicated that she did not agree to being demoted; and
• the relevant pay slips, indicated that Knowmore had reduced her hourly pay from $57.73 to $49.30 without further discussion.

The FWC Decision

The FWC considered the following key issues to determine whether Ms Maloney was dismissed:

• Issue One: Did Ms Maloney voluntarily consent to the demotion?

The FWC found that Ms Maloney did not consent to Knowmore reducing her pay, and even if Ms Maloney had provided such consent, the contract required the consent to be confirmed in writing, which did not occur.

• Issue Two: Is the demotion authorised by the employment contract or an instrument governing it?

The FWC determined that the demotion of Ms Maloney’s was not authorised by the relevant industrial instrument. This was due to the absence of any refence to pay reduction in either the NACLC EA or the MM Policy. Additionally, the contract did not allow for a reduction in pay unless both parties agreed to vary the contract in writing.

• Issue Three: Did Knowmore repudiate the contract of employment by demoting Ms Maloney?

Given that the FWC found that Ms Maloney did not voluntarily consent to the demotion and that the demotion was not authorised by the contract or its governing instrument, it concluded that Knowmore repudiated the contract by demoting Ms Maloney from her role as Support and Trauma Informed Practice Manager to the position of Social Worker/Counsellor.

• Issue Four: If Knowmore repudiated the contract, did Ms Maloney accept the repudiation?

The FWC found that the actions undertaken by or on behalf of Ms Maloney, made it clear to Knowmore that she objected to the demotion and did not affirm her employment contract. Therefore, Ms Maloney had accepted the repudiation. In light of these findings, the FWC ultimately found that Ms Maloney had been dismissed, thereby dismissing the jurisdictional objection raised by Knowmore.

Key takeaways

When contemplating changes to an employee’s terms of employment, it is important to obtain clear and voluntary consent from the employee.  This decision highlights that certain actions taken by an employer, if not accepted by the employee, can lead to substantial changes to an employee’s remuneration or duties, potentially amounting to a dismissal. Such actions could expose the employer to breaches of the FW Act.

National Employment & Labour Lawyers have a dedicated team who can assist you with your dismissal questions. We offer a free and confidential initial consultation, where we can discuss your situation and provide you with tailored advice. Get in touch with us today!