The question of whether a demotion will constitute a dismissal under the Fair Work Act 2009 (Cth) (FW Act) was considered by the Full Bench of the Fair Work Commission (Full Bench) NSW Trains v James  FWCFB 55.
The matter was referred to a Full Bench on appeal from the first instance decision of Deputy President Saunders in James v NSW Trains  FWC 4733 (First Instance Decision) who found that the employee had been dismissed from his employment when he was demoted to a lesser role.
The employee was employed by NSW Trains as a Shift Manager for over 30 years. Following a disciplinary process, the decision was made to dismiss the employee. Following an internal review, this disciplinary penalty was changed to demotion, as permitted by the NSW Trains Enterprise Agreement 2018 (the Agreement) and the Transport Administration (Staff) Regulation 2012 (the Regulation) which applied to the employee’s employment.
In effect, the employee’s grade remained the same, however, his classification within the grade reduced and as a result, the employee’s remuneration was reduced by $13,000 (gross, per annum).
The employee lodged an unfair dismissal claim alleging that he had been unfairly dismissed from his employment, even though he had continued to work for NSW Trains in this lower classification. NSW Trains lodged a jurisdictional objection on the basis that the demotion was not a dismissal within the meaning of section 386 of the FW Act.
First Instance Decision
In the First Instance Decision, DP Saunders found that as there had been a “significant reduction in his remuneration” within the meaning of subsection 386(2)(c)(i) of the FW Act, the employee had been dismissed within the meaning of section 386 of the FW Act, even though the employment relationship was ongoing and had not been terminated.
Accordingly, DP Saunders dismissed the jurisdictional objection lodged by NSW Trains.
NSW Trains lodged an appeal against the First Instance Decision on a number of grounds, in particular that DP Saunders had misconstrued subsections 386(1) and 386(2) of the FW Act. As a result, DP Saunders had erred in not finding that the employee had not been dismissed in circumstances where the Agreement and the Regulation permitted demotions in disciplinary proceedings.
Full Bench Decision
The Full Bench decision concerned the interpretation of section 386.
The Full Bench found that subsection 386(1) provided the exclusive circumstances in which an employee is dismissed from their employment and subsection 386(2) clarified the scope of subsection 386(1). It found that subsection 386(2)(c) did not create a new category of dismissal which was separate to subsection 386(1).
For the Full Bench, it followed that in the context of an employee who was demoted but remained employed, would be “dismissed” if the employee’s employment has been terminated on the employer’s initiative (per subsection 386(1)(a)).
The Full Bench found that DP Saunders’ construction of subsection 386(1)(a), would wrongly suggest that a demotion which involved a significant reduction in remuneration or duties may be a dismissal, regardless of whether the employee remained employed.
In relation to whether an employee’s demotion can constitute a dismissal within the meaning of section 386, where there is a statute, enterprise agreement or contract which permits demotion and the demotion involves a substantial reduction in remuneration or duties, the Full Bench found that this will depend on the circumstances of each matter.
The Full Bench held at :
Put simply, a demotion may not amount to a termination of employment for the purposes of Part 3-2 of the FW Act where the instrument permits the demotion and provides in effect that it is not a termination. This will require consideration of the terms of the specific instrument purportedly authorising the demotion to ascertain its effect in the particular case.
In this matter, the Full Bench agreed that the Agreement and the Regulation authorised the demotion and supported a finding that the demotion did not constitute termination of employment. The Full Bench was satisfied that NSW Trains acted within the provisions of the agreement and as such, the demotion was not repudiatory conduct.
The Full Bench allowed the appeal and quashed the First Instance Decision. The jurisdictional objection was upheld and the employee’s unfair dismissal application was dismissed.
Lessons for employers
The Full Bench has confirmed that an employee will be dismissed for the purposes of the FW Act where the action falls under one of the categories of subsection 386(1)(a).
The Full Bench has also indicated that a demotion may be not constitute a dismissal where an enterprise agreement permits this, however this will depend on the circumstances of each matter and the drafting and construction of the enterprise agreement.
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