Demotion Or Redundancy? The options companies are considering

Many companies are currently considering demotion as an alternative to redundancy.  However, employers should be mindful of the contractual changes that need to be put in place and proper lawful processes are adhered to.

Restructuring within a company is favourable for employers as they can meet commercial objectives while retaining valued members of staff but it can be an emotive process full of legal risk.

When there are changes to a role then there is a requirement to alter the employee’s contract terms which may be on less favourable terms. Where a new role has reduced seniority, pay or reduced job description the employee will more than likely view this change as a demotion and by simply changing a job title, leaving the job description the same and paying less remuneration does not create a new role.

Demotion can act as an alternative to terminating employment but employers must ensure they follow a fair process.

Redefining roles

When reviewing roles, employers should be considering the impact of the proposed changes and the extent to which they alter the employee’s existing contract.

Where new roles have been created, these need to be checked to make sure they are comparable and reasonable.

Whenever there has been changes to an employee’s contract they must be lawful and not discriminatory in any way.

Communication of contractual changes

If there is a clause in the employee’s contract stating that terms can be altered, it should explain the circumstances where this is possible, for example, to avoid dismissal during a restructure. Communication of these changes should be discussed fully with the employee in order to gain their agreement which would avoid any complaints in the future.

If there is no clause in the employee’s contract then a consultation process should take place with the employee to gain their agreement to any changes. This process should be carried out fairly and in line with ACAS guidelines. Making any changes to an employee’s contract is a difficult process to go through because the employee may feel undervalued or adverse to the changes being discussed.

One area to discuss with your employee is whether the demotion is going to be permanent or temporary and what precisely the demotion will mean, for example, loss of status, responsibilities, employment benefits and/or salary. If the employer is transparent in these discussions then the employee may be more open to reconsidering their role, especially due to the current economic climate post-COVID-19. Employers must ensure that they avoid the employee feeling like they are working under duress.

Agreement to changes 

If the employee agrees to any changes then a new contract of employment should be written and signed. This new contract will highlight any new terms, job description and restructure. Employers should also take this opportunity to investigate whether the employee is entitled to redundancy pay as their previous employment contract has been terminated.

The employee does not consent

What should an employer do in respect of employees who, following consultation, still refuses to agree to the change required? One option is simply to announce that the change will be implemented from a set date. This is a risky strategy from a legal perspective. Imposing the change as a fait accompli will amount to a breach of contract by the employer. This runs the risk that employees may claim constructive dismissal or a breach of contract.

The best outcome for employers adopting this type of approach is that employees would simply accept the new working arrangements and go along with them. After a period of time, the legal position would be that such employees had impliedly agreed to the variation by their conduct.

Seek advice

If as an employer you are unsure of any of the factors discussed above, please get in touch and we can provide the relevant advice that you need to ensure the correct processes are followed.