Demotion is a useful but complex tool for managing misconduct, poor performance, or restructures. Handled incorrectly, it can lead to breach of contract or unfair dismissal claims. Here’s what HR professionals need to know.

  1. Disciplinary demotions

Demotion can be an alternative to dismissal for misconduct, but only if there’s an express contractual right to impose it. Without this, employee agreement is required to avoid legal risks. Even where permitted, it must be a reasonable and proportionate response to avoid constructive unfair dismissal (BBC v Beckett).

If an employee appeals a dismissal, demotion can be offered as a compromise. However, it must still comply with contractual terms or be agreed upon to prevent legal claims.

  1. Demotion for poor performance

Demotion can address capability issues, but again, it must be allowed under the employment contract or agreed upon. Even if permitted, employers must follow a fair process, including:

  • Providing a clear opportunity to improve before demotion.
  • Ensuring the decision is reasonable and proportionate.
  • Avoiding accidental demotion by making structural changes that reduce an employee’s status or pay.
  1. Restructuring  and business changes

Demotion may result from organisational changes, but significant reductions in responsibility, status, or pay will likely amount to a contractual change. Options include:

  • Agreeing the change informally.
  • Using ‘fire and rehire’ (dismissal and re-engagement) but ensuring compliance with the Statutory Code of Practice.

If redundancy is the reason for the change, follow redundancy procedures and offer demotion as an alternative employment option where appropriate.

To manage demotion effectively:

  • Ensure the employee can do the new role – provide training if necessary.
  • Give formal notice of changes – update contracts within one month under the Employment Rights Act 1996.
  • Provide support – help employees adjust to their new role and prevent bullying or exclusion.
  • Consider a settlement agreement – offer financial incentives if the employee is reluctant to accept the demotion.
  • Be consistent – ensure fairness across the workforce to avoid discrimination claims.

Handled well, demotion can retain talent while managing risk, but missteps can be costly.n. It is in the area of service provision that the ruling is likely to be most impactful.