A demotion normally involves a reduction in rank or status, or a decrease in job responsibilities and/or salary. An employer may wish to demote an employee for a variety of reasons including poor performance, capability and/or as an alternative to termination.

Regardless of the reason for the demotion, an employer should be careful when demoting an employee. Any demotion should be managed professionally and lawfully; failure to do so may expose the employer to an unwanted claim.

Employer’s right to demote?

Variation clause in the employment contract: The employment contract may contain a clause which allows the employer to unilaterally vary a particular term or condition without the employee’s consent. However, unless the clause expressly provides for demotion of any employee, it is arguable whether the employer may demote the employee without express agreement.

Employee’s express agreement: If the right to demote is not found in the contract, an employer may demote the employee by agreement. An employee may choose to agree to a demotion as an alternative to retrenchment or termination. If the employee is agreeable with the demotion, the employer should record the agreement in writing.

Practical tips for demotion

1. Have a conversation with the employee about the demotion

Any conversation should take place in a private setting. The employer should provide a thorough and honest explanation for the demotion. For example, if the reason is performance related, the employer should have evidence readily available to support its argument. Both the employer and employee should document the discussion. The employer should also answer any queries the employee may have and be prepared to entertain other proposals, such as a request for a trial period for the new position or for some time to consider the new position before accepting it.

2. Explain the new position to the employee

The employer should make clear what is expected of the employee in the new role. Further, the employer should address any decrease in status, compensation and/or responsibilities to manage the expectations of the employee. It may be helpful to set out how the new role will assist in developing the employee’s skillset or how the new role is better suited to the employee.

3. Transition plan

It may not be appropriate to make a firm-wide announcement. Instead, it is worth speaking to the employee as to how he/she would like to announce his/her new role. If appropriate, the employer should also arrange the necessary training or induction programme for the employee to attend. It would also be helpful for the employer to follow up with the employee after the demotion to ensure he/she is adjusting well to the change.

It is worth mentioning that the employer should ensure that any decision to demote an employee is not made on the basis of gender, disability, race and/or family status. Doing so may contravene one of Hong Kong’s discrimination ordinances and expose the employer to liability.