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Why Employers Choose Demotion Over Termination

As an alternative to termination, some employers may choose to demote employees as a method to retain employees who fit in well with the company but are under-performing.  While employee demotion certainly poses risks for employers, there are a many reasons for an employer to choose demotion over termination.  For example, a newly promoted employee may be under-performing in the new role as manager and instead of firing the longtime employee, the employer wants to re-position the employee to his or her former role.  Demotion may also be the correct decision for an employer based on organizational restructuring that results in the elimination of an employee’s current position or to simply find a better fit for the employee’s skill set.  Whatever reasons an employer may have to demote an employee, it is of the utmost importance that all demotions are handled with extreme caution.

A poorly-handled demotion can easily result in the same legal liabilities that accompany employee termination.  This is because when an employee is demoted, the employer is adversely changing an employee’s terms and conditions of employment.  This means that employers are still subject to employment discrimination laws as if the employee was being fired when an employee is demoted.  For this reason, it is important for employers to thoroughly determine the purpose behind a potential demotion and examine if a demotion can truly achieve the desired purpose.  It is not appropriate to implement a demotion as a means to punish an employee or only as a temporary measure before the employee is eventually fired.  Further, demotion should not be used as a method to coerce an employee to quit.  If the end goal is to fire the employee or hope they quit instead of accepting the demotion, save the time and effort required to demote the employee and simply fire them.  A disciplinary demotion is not likely to correct the problem and could send the wrong message to employees that the employer does not take acts of misconduct seriously.

Ultimately, the question of whether or not to demote an employee must be decided on a case-by-case basis.  Employers should answer the following questions first to determine whether to demote an employee:  Does the employee have the skill set to be successful in the demoted role?  If the demotion is the result of performance-related issues, was the employee afforded all opportunities to improve performance prior to the demotion?  How will the demotion affect the employee’s team or department?  Is the employee responsible to supervise others in their current role?  Will the employee suffer a reduction in pay as a result of the demotion?

If an employer decides to demote an employee, there are inherent challenges the employer may face.  For example, if the employee’s former position included supervisory responsibilities, it is likely issues may arise when the employee is placed back working alongside employees they previously managed.  It is also possible that before the employer chooses to demote the employee, the employee’s former position may have already been filled, or the position was eliminated.  Another common challenge an employer could face is that a demotion normally results in a pay reduction, which could be difficult based on the length of time the employee spent in the previous role.  Employers also face risks associated with consistency of organizational policies, questions of fairness, and possible discrimination.  Prior to choosing to demote an employee, employers must ensure that all disciplinary policies and performance review policies are consistently enforced throughout the company.

When an employer chooses to demote an employee over firing the employee, the following tips will help the make the discussion with the employee and their transition to the lower position less disruptive and awkward.

  1. During the demotion discussion, be respectful of the employee’s feelings. Explain that this step in the employee’s career is being taken by the organization’s desire to keep the employee at the company and that the employee is expected to be successful in the new position that is better suited for his or her skill set.  Relieve some of the burden from the employee and place blame on the company for making a mistake when the employee was given tasks that he or she was not prepared to successfully complete.

  2. Honestly explain to the employee the reasons for the demotion, whether it is performance-related or based on organizational restructuring. Be sure to explain that this action is being taken as opposed to terminating the employee.

  3. Outline how the employee will transition into the new position, what the responsibilities will be, when he or she will start the new role, and who he or she will report to.

  4. If the demotion results in a pay reduction, address this point and do not avoid it or gloss over it.

  5. Be ready to receive an emotional and likely negative response from the employee. This is why the discussion should be held in private, generally at either the beginning or end of the workday.

  6. Be prepared to answer the employee’s questions such as: “Can I have more time to improve?”; “Can I have a few days to think about it?”; “What if I don’t choose to take the lower position?”; “Can I move to a different team/department?”

  7. Should the employee choose to accept the demotion, use the meeting to work out a plan to decide who needs to be notified of the employee’s demotion, what information will be shared, and when that communication will take place.

Most employers will tell you that the choice to demote an employee is the exception rather than the norm.  Although the process to demote an employee can be difficult to navigate and requires extensive risk management, the choice to demote an employee under the right circumstances can allow an employer to retain a valuable employee while placing the employee in a role better suited to his or her abilities.


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