There seems to be a lot of confusion when it comes to using demotion in the workplace. Is it possible to impose demotion under the law? One camp says no because it is a violation of security of tenure. Others say that you can, but you have to keep paying the same salary because it will violate the non-diminution of benefits principle. Others claim that you’re better off sticking to the suspensions and terminations. Let’s discuss this in today’s article.
Is it legal in the first place?
First, let’s answer the basic question: is demotion allowed by the law in the first place? Answer is yes, it is allowed. "But Attorney! I can’t find it anywhere in the labor code! How can something that isn’t in the labor code be legal?" Well, that’s because it isn’t in the labor code. It‘s found in the principle called Management Prerogative and has been discussed in Supreme Court cases.
Under the principle of management prerogative, employers are given the power by the law to decide how to run their businesses, including how to discipline their employees. An integral part of discipline is to decide what kinds of penalties to impose against erring employees.
These penalties are not specified by the law. As an employer, you can determine the form in which these penalties take as an exercise of your management prerogative. That way, the employer can have flexibility in running the ship. Common penalties can take the form of reprimands, memos, suspensions and terminations. While it is not commonly used, demotions are one of the ways in which these penalties can be imposed.
Can I just impose Demotion when I feel like it?
In my workshops, there is a rule that I emphasize over and over again for participants. I tell them, “Employee discipline is just like parenting. Before you scold your kids, make sure that you understand what happened and give them a chance to explain what they did.” In labor relations, it's exactly the same. Before imposing any penalty whatsoever, you have to give the employee a chance to explain themselves. This means going thru proper due process proceedings.
Since demotion is just another form of penalty, it stands to reason that you should go thru due process before imposing demotion. In short, if the employee does something bad, and the employer gave the employee chance to explain their side. If the explanation still shows that the employee is still guilty, then the employer is free to impose whatever penalty (including demotion) seems appropriate.
But what about Security of Tenure?
Some people seem to think that once a person acquires security of tenure in a position, they are entitled to it forever. Therefore, they reason, they can’t be removed or demoted from their position. They are "secure" there once they are regular. They usually cite Section 18, Article II of the Constitution and the Article III of the Labor Code.
As a general rule, I agree with that. But the people who claim this seems to miss a crucial component. If I were explaining this to a person, here's how I would phrase it:
"Yes, you are guaranteed by the law to feel safe in your position. The law will protect you. However, if there is special circumstance or a reason for disciplining you and it went thru due process, then the general protection does not apply. It only applies to whimsical or arbitrary penalties."
So to cap it off, demotion which has gone thru proper due process is an exception to security of tenure. This is consistent with management prerogative.
If an employee is demoted, can their salaries and benefits be reduced as well?
I got this question in a workshop once, “Attorney, we demoted an employee. However, I heard the principle of non-diminution of benefits. Therefore, we didn’t reduce the salary. Did we do the right thing?”
The principle of non-diminution of benefits state that "any benefit and supplement being enjoyed by the employees cannot be reduced, diminished, discontinued or eliminated by the employer." Therefore, they argue, "Even if I was demoted, the law says my salaries and benefits should stay the same." This is wrong on so many levels, and it doesn't make sense. Consider the situation with me:
- Employee does something horrible.
- To punish the employee, you demote them.
- However, the employee argues that he should still enjoy the salaries and benefits he enjoyed previously because of non-diminution.
- Since he has been demoted, he now has fewer responsibilities and workload, and yet, still enjoys the benefits of his previous position.
In effect, what you did was to say to the employee, “Hey, you did a bad thing. To punish you, we’ll reduce your responsibilities and work load but on paper, you’ll have a lower rank. Hope you learn your lesson.”
There’s a massive disconnect here between your intention and the lesson you're teaching your team. You’re not punishing an erring employee: you’re rewarding them. The net effect is they get off Scott free for something they did, and get paid for more than they are contributing to the company. If this is the way you run your business, employees will all plot to commit a violation which will get them demoted (but not terminated).
To be clear, you can reduce the salaries and benefits of a demoted employee to reflect their new status within the company. This falls as an exception to the non-diminution of benefits principle because it went through due process.
"Attorney, aren’t we going against the law by demoting rather than doing outright terminations?"
Nope, you’re not doing anything wrong. In fact, the Supreme Court itself has stated that if you can find another penalty that can suit the violation aside from termination, it prefers the lighter penalty in order to protect employees. This was the case of Cavite Apparrel vs. Marquez:
Dismissal is the ultimate penalty that can be imposed on an employee. Where a penalty less punitive may suffice, whatever missteps may be committed by labor ought not to be visited with a consequence so severe for what is at stake is not merely the employee’s position but his very livelihood and perhaps the life and subsistence of his family.
So yes, between demotions and terminations, the law actually prefers that you consider demotion first before dismissing employees. Nothing wrong with including this as an option, provided that it still disciplines your team appropriately.
Need help with discipline issues?
That's it for demotion. Hope this was helpful for you. If you need more information about how to conduct disciplinary procedures, I recommend you stop by our book store and grab a copy of the Complete Employee Discipline System. It’s available for sale right now.
