Summary
Sydney Trains reduced the annual pay of a shift manager as a penalty for disciplinary reasons. The shift manager remained on the job and the enterprise agreement as well as government regulations allowed such a penalty for disciplinary reasons. The FWC was asked to decide on whether the 10% pay cut could be considered a dismissal from employment. The FWC ruled that it was not, as the pay cut did not come with a demotion and neither the employment relationship nor the contract of employment was terminated.
Demotion authorised by an enterprise agreement and by regulation does not amount to dismissal
A shift manager had been employed for about 30 years by the same train company. He had been investigated for allegations of misconduct. The allegations of misconduct were substantiated and the train company decided to terminate the shift manager.
Demoted after he was disciplined and penalised for misconduct
The shift manager sought a review of the decision to dismiss him. After a review, the train company decided that the disciplinary action and penalty should be reduced from dismissal to demotion in rank. The shift manager’s rank was reduced from a Level 6E was reduced to Level 6A. This reduction in his employment qualification came with a reduction in his gross annual pay from $141,442 to $127,569. However, even after this disciplinary action, the shift manager remained to be employed by the train company as shift manager. He reported for work regularly and performed the same duties.
Filed an application for unfair dismissal
The shift manager filed an application for unfair dismissal with the Fair Work Commission. In deciding that application, the FWC in its decision (dated 3 August 2021) found that since the reduction of the shift manager’s pay was significant, and since this was coupled with a demotion, the shift manager had been dismissed at the initiative of the employer, despite his ongoing and continued employment.
Train company appealed
The train company sought to appeal the decision of the member of the Full Bench of the FWC. The question in this appeal is whether the shift manager had been dismissed from employment given that he had been demoted and his pay was significantly reduced.
Section 386 of the Fair Work Act
Section 386 of the Fair Work Act deems a person to have been dismissed if the employment has been terminated upon the initiative of the employer. The same section clarifies that a person cannot be considered to have been dismissed even when the demotion involved a significant reduction in the employee’s remuneration or duties if the employee remains employed by the employer.
The test to determine whether the shift manager was dismissed is whether the demotion involved a significant reduction in the shift manager’s remuneration or duties and whether he remained employed, even under a different or a new employment contract.
Termination of the employment contract but not the employment relationship
The Full Bench clarified that a demotion cannot always constitute a dismissal of employment unless there had been a termination of the employment relationship. In this case where the rank or grade and the pay of the shift manager was reduced, what was terminated was the employment contract only but not the employment relationship.
The demotion in rank and reduction in pay merely terminated the employment contract and replaced it with a new one, where the shift manager had a lower grade and lower pay.
Demotion as a penalty for misconduct is authorised
Clause 32.14 of the enterprise agreement and applicable legislation, particularly Regulation 20(1) of the Transport Administration Regulation gave the train company the discretion to impose particular punishments in disciplinary proceedings and this includes reducing the shift manager’s position, rank, or grade or pay.
The shift manager not only acquiesced to the reduction of his rank and diminution of his pay. He had accepted that under the circumstances where he was found liable for work-related misconduct, the employer was empowered not only by the employment contract but also by the enterprise agreement and the Transport Administration Regulation to repudiate the former contract of employment and create a new one. The shift manager continued to report for work. He continued to perform his duties as he had previously performed them.
Right to demote employees for misconduct given to employer
The Enterprise Agreement and the Transport Administration Regulations gave the train company a legal right to demote the shift manager. The shift manager’s employment contract was governed by this applicable statute and enterprise agreement even when these were not incorporated into the employment contract of the shift manager.
Although his contract of employment was silent as to the train company’s right to demote him in cases where he is found guilty of a misconduct, his employment was still regulated by both the Enterprise Agreement and the Transport Regulations which were superior instruments that prevailed over the shift manager’s employment contract. The enterprise agreement and the transport regulations were intended to operate together with the employment contract and supplemented the shift manager’s employment contract.
Therefore, the demotion of the shift manager that was exercised under the power of an industrial instrument or statute cannot constitute a dismissal under s.386 of the Fair Work Act where the demotion did not terminate the employment.
Demotion as a penalty was strictly regulated
It should be noted that both the enterprise agreement and the trade regulations provide that a demotion as a disciplinary consequence for a substantiated allegation of misconduct does not constitute a termination of employment. And in demoting the shift manager, the train company acted in accordance with the steps prescribed in both the enterprise agreement and the trade regulation to implement the demotion.
The enterprise agreement contained detailed provisions requiring investigation and disciplining train employees. The decision to impose the penalty of demotion was even subject to a review. In fact, the train company’s initial decision after he was found to have committed misconduct was to dismiss the shift manager but upon review, they decided to reduce the penalty and demote the shift manager instead.
The unfair dismissal application was dismissed.
Source
NSW Trains v Todd James [2022] FWCFB (8 April 2022) https://www.workplaceexpress.com.au/files/2022/Trains%20v%20James.pdf
