Managing people

What it means to be 'dismissed'

A five-member Full Bench of the Fair Work Commission has recently revisited what it means to be “dismissed” from one’s employment.

5 September 2022

The decision, NSW Trains v James [2022] FWCFB 55 (James) follows on from an earlier case, Broadlex Services Pty Ltd v United Workers’ Union [2020] FCA 867 (Broadlex) touching upon similar issues. Together the cases have reshaped the landscape for when changes to a person’s employment can trigger termination-based entitlements. 

By Luis Izzo and Rhys Kingston

The case of Mr James

Mr James had more than 30 years of service and was employed as a shift manager when NSW Trains unilaterally demoted him following an investigation into allegations of misconduct. Mr James continued to work for NSW Trains, performing the same duties as he had prior to his demotion. His grade, however, was reduced from Level E to Level A resulting in his gross pay reducing from $141,442 to $127,569. In response, he filed an unfair dismissal claim.

NSW Trains raised a jurisdictional objection to Mr James’ application, arguing that he had not been “dismissed”.

Section 386(1) of the Fair Work Act 2009 (FW Act) states that a person has been dismissed for the purposes of unfair dismissal laws if their employment has been terminated on the employer’s initiative or if the employee was forced to resign as a result of the employer’s conduct.

While a demotion may amount to a dismissal if an employee is forced to resign as a result, NSW Trains argued that, as Mr James remained an employee, he had not been “dismissed”.

At first instance, Deputy President Saunders rejected NSW Trains jurisdictional objection, finding that Mr James had been dismissed. The Deputy President determined that, although Mr James’ employment had not been terminated at NSW Trains’ initiative, or by way of resignation, section 386(2) of the FW Act implied that a demotion involving a significant reduction in remuneration or duties nevertheless amounted to a termination. 

The Appeal – a demotion can constitute a dismissal unless the instruments governing the employment expressly permit demotions

NSW Trains appealed the decision to a five-member Full Bench of the Commission.

The majority of the Full Bench found that, in some circumstances, a demotion will fall within the definition of “dismissal” set out in section 386(1) on the grounds that it amounts to a termination of employment at the employer’s initiative.

The Full Bench observed that a demotion involving a significant reduction in remuneration will ordinarily amount to a repudiation of the contract of employment (unless agreed to by the employee). If the employee accepts the repudiation, whether expressly or by conduct (such as by filing for unfair dismissal), the contract of employment is terminated, regardless of whether the employee remains in employment with the employer.

However, where the contract or industrial instrument under which an employee is engaged expressly contemplates demotions taking place, a different scenario arises.

The Full Bench held: 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 NSW Trains’ case, the employment contract under which Mr James was employed permitted demotions, as well as having prescriptive and procedurally fair processes in place to facilitate the appeal of such demotions. Accordingly, the Full Bench was satisfied no dismissal had taken place.

The unfair dismissal claim accordingly failed.

Remaining in employment not fatal to alleging an employee is dismissed

Intriguingly, the fact that James had remained in employment was not a critical factor in determining whether the employment had ended.

The Commission cited previous cases that endorsed the notion that an employee who had been subject to some unilateral variation of their conditions without consent could remain employed and also have had their previous employment terminated.

The primary case in support of this notion is Broadlex. In that case, an employee’s full-time employment was changed without consent to part-time employment, with a consequent 40% reduction in salary. Although the employee did not consent to the change, she continued in employment for Broadlex and began working the reduced hours.

A number of years later, the United Workers Union brought a claim on behalf of the employee, alleging that she should have been paid a redundancy when her employment was changed. Katzman J accepted in Broadlex that, in reducing the employee’s employment status from full-time to part-time, Broadlex had repudiated her employment contract. That impliedly gave rise to a termination of the pre-existing employment position and the creation of a new employment relationship on a part-time basis.

Katzman J accordingly found that the employer was bound to pay the employee redundancy pay under s.119 of the FW Act as her previous role was no longer required to be performed by anyone, notwithstanding the fact she remained in employment with Broadlex, under a new, part-time contract of employment. 

Cases increase protections for employees reluctant to leave employment

Together, James and Broadlex have shifted the options available to employees when subject to unilateral changes to their employment.

If an employee’s position or remuneration is changed without consent, these two cases provide a clear path for employees to contest the changes by filing unfair dismissal claims, redundancy claims or both, all whilst remaining employed under the revised/lower position.

This in turn may present a dangerous landscape for employers, who may be forced to defend such claims whilst simultaneously ensuring the relevant employees are not victimised or treated in any way adversely because the employee has exercised the right to file a claim.

For employers, real care needs to be taken when imposing unilateral changes to an employee’s contractual terms (whether it relates to duties, status or pay) which are not contemplated by the contract itself (or any applicable industrial instruments).

This article was written by Luis Izzo – Managing Director Sydney Workplace, and Ryhs Kingston, Associate, at Australian Business Lawyers & Advisors.

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