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When Can an Employer Demote an Employee?

Whitten and Lublin | May 22, 2018

Under common law, an employee can seek damages for constructive dismissal if an essential term of his/her employment is unilaterally changed by the employer. This may include key responsibilities, status, and/or compensation. There is, however, exceptions. When an employee has demonstrated that they are unfit for the position they hold, an employer may be able to demote the employee to a position of lesser responsibility. This is especially the case where the employer has just cause to dismiss the employee.

This is outlined in the case of O’Dwyer v. Dominion Soil Investigation Inc. (1999). In this case, the employer demoted the employee, Mr. O’Dwyer, to the position of Senior Engineer from a Branch Manager position. This was due to unauthorized purchases, failure to abide by company policies and unauthorized use of a company vehicle on numerous occasions; the employer here had cause to dismiss due to misconduct. Upon being demoted, O’Dwyer quit and attempted to sue for damages in a constructive dismissal allegation. In essence, he claimed the employer changed the conditions of his employment to the point where he had no other option but to quit thus entitling him to payment in lieu of a notice. (Note that O’Dwyer’s pay and benefits remained unchanged which makes it more difficult to successfully claim constructive dismissal.)

The court, however, ruled that the employer nonetheless had just cause to dismiss O’Dwyer, rendering the constructive dismissal claim unsuccessful. The court also outlined the 4 options the employer had in this instance. The employer could have dismissed the employee for cause, disentitling O’Dwyer from severance or notice pay. The employer also could have demoted the employee to a position with less responsibility but keep wages and benefits the same (as was done here), or demote the employee and also decrease pay and prepare to defend a constructive dismissal claim. Lastly, the employer could have chosen to do nothing at all.

It is always advisable for both employees and employers to seek legal advice when faced with such scenarios. Employers should be careful when attempting to demote an employee that occupies a key senior position. If a constructive dismissal case is successful, the employer may owe a significant amount of damages through common law notice pay. Conversely, employees should attain legal advice when seeking to resign and claim constructive dismissal. Employees should note it is especially difficult to claim constructive dismissal when pay and benefits remain unchanged, as was the case in O’Dwyer above.

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