Are Employee Demotions Legally Allowed?

An employer may demote an employee for a wide range of reasons. An employee may have failed to meet the requirements of the probationary period of a promotion, behaved in an egregious way that justified demotion. Whatever the reason, a demotion can cause stress, confusion, or even humiliation. As with any change to an employment situation, it is the individual circumstances that will determine whether the situation constitutes a wrongful dismissal. We explain some factors that all parties should consider when an employee is demoted in Ontario.

Can You Legally Demote an Employee?

Whether an employer can demote an employee depends largely on the terms of the contract of employment. If the employee agrees in the contract that they could be demoted and have their pay reduced in certain circumstances, a court could find that contract to be binding. Without any such agreement, however, the demotion of an employee would more likely be treated as a constructive dismissal if it is a fundamental and unilateral change to the employment agreement.

That said, the change must actually be fundamental. If a manager is asked to temporarily carry out some of the work of the people she normally supervises, that may not be a substantial enough change to constitute constructive dismissal. Similarly, if a person’s job remains the same but they now report to someone who was once their junior, this may also not be a demotion.

Factors that a court may consider when determining if a demotion is a constructive dismissal include:

  • Whether the employee is now lower in the company hierarch or reporting chain
  • If there have been changes to significant parts of the job
  • If the demotion position would be embarrassing or humiliating
  • If another person is assigned the employee’s duties
  • If there is a corresponding change to compensation
  • If it could impact future advancement possibility, and
  • If the employer acted in bad faith.

No one factor will be determinative. An employment lawyer can assess if enough of these factors are met to constitute a constructive dismissal.

Reasons an Employer May Demote an Employee

There are ways that an employee can be demoted without it triggering a constructive dismissal. One way is if the employment contract included provisions for a demotion. For instance, if a contract states that the employee will have a lower title if they do not complete certain training requirements, acting through on that contract would not be a constructive dismissal. Another way is if an employee has been promoted but the contract has a probationary period. Returning the employee to their original role for failure to meet certain requirements set out in the contract may not be considered a constructive dismissal. 

A demotion also may not be constructive dismissal if the employer is choosing to demote an employee where they have just cause for dismissal. Take for instance a manager who is caught stealing and is warned that if they are caught stealing again, they will be terminated. If they are then caught stealing again and demoted to a lower position, that would not be a constructive dismissal as the employer had just cause for termination. This is because the employee in his actions has effectively terminated the original contract and the employer has chosen to offer a new position. 

Workers should also be aware that due to a regulation passed by the Ontario government to address the economic downturn caused by COVID-19, their demotion may not be considered a constructive dismissal for the purposes of the Employment Standards Act. For more on this issue, read COVID-19 and the Workplace: What Employees Need to Know. This regulation has recently been extended to December 31, 2021. It is particularly important during this time to speak to an employment lawyer as workers can access judge-made common law remedies for constructive dismissal but cannot use the self-help remedy of bringing a complaint to the Ministry of Labour. 

When Can You Demote an Employee?

It is also important to consider the facts leading up to the demotion. If an employee was demoted after reporting unsafe working conditions, that would likely be considered a reprisal. Conversely, if an employee had an accident outside of the workplace prior to the demotion, the demotion may be part of the accommodations made by the employer for the employee to be able to return to work. This could even include a reduction in pay without reaching the level of a constructive dismissal, so long as it is logically connected to the change, such as the employee works fewer hours in the lower position.

An employment lawyer will go through the events leading up to a demotion to gain a full picture of the situation and help determine if it constitutes a constructive dismissal.

Can I Be Demoted Without Warning?

An employee should be reasonably aware that a demotion is possible in certain circumstances. For instance, if a contract stipulates that the employee can be demoted for failing to complete a training program, that can’t be buried in size 6 font in a 20-page contract. If an employee is demoted instead of being dismissed for cause, the employee should also be given warnings that their conduct could lead to termination or dismissal, much like a for cause dismissal. For something like physical violence, a warning may not be necessary before a demotion.

Should I Accept a Demotion?

As with most employment matters, it depends. Like other forms of termination, a court assessing damages in a constructive dismissal case will consider whether the worker mitigated their losses. It is thus possible for a court to find a demotion to be constructive dismissal but ultimately reduce the damages by the amount that the worker could have mitigated their losses by accepting the lower position. This is why it is important to speak to an employment lawyer before accepting or rejecting a demotion offer. If you have been notified of a demotion, contact us today for a free 30-minute consultation.

Employment Lawyers at Monkhouse Law specialize in Employment Law, Human Rights Law, and Disability Insurance Law. We serve employees, independent contractors, and employers, and strive to get optimal results for every client through skilled advocacy and research on each matter. We have successfully represented clients before all levels of court in Ontario, including the Superior Court, the Divisional Appeals Court, and the Court of Appeal and have also appeared before the Supreme Court of Canada.

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