When should you demote employees?

Labor Law Employee Tips Business Law Weekly Show Episodes 13 min read , August 19, 2021

Is demotion legal in the Philippines? Is there a way for you to give employees a second chance, but protect the company at the same time? A lot of owners, managers and supervisors are confused about demotion.

Now, take this question from Jenny. Hi Jenny! She submitted her question through our topic request board and she says,

"Attorney, is it legal to demote an employee? How do we impose it without going into litigation?"

If you're wondering the same thing, stay tuned.

This video is brought to you by the Complete Employee Discipline System, a book that teaches owners, managers, and supervisors how to handle any offense easily and systematically, It provides step-by-step procedures from incident reports all the way to the clearance process. Stand your ground and discipline with confidence. Go to info.legalguide.ph/discipline to learn more.

Welcome to Legal Guide Philippines, where we simplify the law to help you make better choices. I'm Attorney Erwin Zagala and I'm with my partner Attorney Ramon Ramirez. So today we're talking about demotion. Now a lot of you guys are confused about this and some of you guys feel very strongly about this "Attorney! Can we impose demotion? Is that legal?" "I think it's prohibited." "I think it's illegal!" So to help you out, I think we should start with what the law says about this topic. So let's start with a few questions.

Let's start with question one Attorney Erwin. May I ask you? Question one is,

Is demotion allowed by law?

Is demotion allowed by law? Now, to answer this, let's all start from the same page. OK, let's define what demotion is so we have a common understanding. Now demotion under the law involves a situation in which an employee is relegated to a subordinate or less important position, constituting a reduction through a lower grade or rank.

Now, this comes from the case of ISABELA-I ELECTRIC COOP., INC. vs. DEL ROSARIO, JR., it's a 2019 case Relatively new. Now, in short, The definition is quite elaborate. Demotion is a reduction in rank or status. You are being lowered. So you were here before, and then you are now here. So for example, you were a manager your status has been lowered to supervisor, or you were a supervisor then you were demoted R&F (rank and file) or to assistant supervisor.

That fits right? Just remember, the important thing here is the status has been lowered, there was a change in your rank or position. OK, but the question is, Where is that in the labor code? Attorney, you have to show me where it is. What article? It's funny you asked that because it's not in the labor code.

So it's illegal? Not necessarily because what we have is the principle of management prerogative. But where is that in the labor code? Sounds complicated, management prerogative is actually very simple, prerogative means "right".

So when you hear that it's actually "management right". Now under the principle of management prerogative... By the way, management prerogative is also not in the labor code. It's in the cases or jurisprudence... similar to demotion. And I think when you say jurisprudence, that's the cases by the Supreme Court.

So under the principle of management prerogative, employers are given the power by the law to decide how to run their businesses. So you are given leeway. Run your own business your own way. And part of that includes how to discipline their employees.

Now, an integral part of discipline is also deciding what kinds of penalties you want to impose against erring employees, correct? Yes. Now, the penalties they're not, I repeat, they're not specified by the law. So you will not see it in the labor code like, for this kind of violation, this will be his penalty... Suspension or for this kind of violation... termination.

The law left to the employers to decide how they want to treat it. So there's a lot of leeways? There is... So as an employer, you can determine the form in which these penalties take as an exercise of your management prerogative.

That way you have flexibility in running your ship. OK, so there's flexibility. What are the common penalties that an employer can impose on their employees for discipline? Let's mention a few. Ok, i think you are familiar with these: written reprimand. give a memo. I never received that. I've heard of it. Suspension. Termination.

And I would like to add to this list, while it's not commonly used: demotions are one of the ways in which these penalties can be imposed. So, you are just going to add demotion to the list. It's one of the ways in which you can provide consequences to violations at work.

When would we consider demotion or imposing the penalty of a demotion?

OK, so I have another question. So next to that would be... As an employer, when would we consider demotion or imposing the penalty of a demotion? When is it applicable? Yes.

So to make it easier for you guys, what we'll be doing is giving you a checklist of 5 items in this checklist. If these 5 things are on point, you need to talk to your employees, I think demotion may be a good fit for your situation.

First of all, there is a violation. And it seems to be true basically you have investigated, you gathered evidence, and it seems that there really was a violation. Take note, I included evidence in this scenario because it shouldn't be a hoax or hunch. It has to be supported by evidence. Clear? Next.

Number 2 is, there was an incident/violation it has to have gone through due process. Due process, what does that entail? You have issued an NTE, in appropriate cases, you've been in an admin hearing. and you are to give notice of your decision basically is it a notice of termination or suspension or whatever penalty you want to impose based on what evidence you've gathered.

So number 3, it seems to be that the cause of the violation is because the employee is unable to cope with their current position's responsibilities. It is quite long, let's make it simple. The employee seems unable to perform their role. So, for example, the sales manager, his team does not make the quota. So the employees seem unable to cope with the responsibility that is assigned to that position.

For another instance is the payroll supervisor and for example, one out of five payroll reports are coming back because there is a mistake. They may not be ready for that set of responsibilities. So that's number 3 if you feel that in your situation. It is covered by our checklist.

And let's go to number 4 from your perception, the employee is salvageable. Salvageable? Isn't that illegal? No that's different. salvageable in this context means you believe the employee can turn things around if you give them another chance. There is a chance. All right. So it's not a lost cause.

And then finally, number 5. If you think that an employee is salvageable, can you see the willingness? Does the employee seem willing to take a second chance? Oh, okay. But, so this fifth one is you're seeing something in the employee that they're willing to turn it around. In a sense, "I can see that you're salvageable like you're extending your hand." You think, if this hand is extended, would he reach for it from the other side. He would say, "Give me a chance, I'm willing to prove that I'm able to do the job."

So those are the 5 things in my checklist for you to consider demotion. Go through it, if it fits, then talk to each other. Co-Owners, co-managers, or co-supervisors whoever's in charge of discipline cases.

Before you demote, what are the requirements that you have in mind?

Okay, may I ask my third question Atty Erwin? Okay, my third question is, before you demote, what are the requirements that you have in mind? Okay, there is a specific requirement. You have to do something very important before demoting someone. So you have to remember that demotion is considered a penalty. Basically, this is what you did and this is the consequence. Correct?

Now, do you remember what we said in our previous video "Tips for drafting a notice to explain?" What is required if there is a penalty? the requirement is you have to comply with due process. Yes, I remember that. In the video, we oriented them that due process starts with the issuance of an NTE or notice to explain. What you have to realize here is employee discipline is just like parenting. Before you scold your kids, for those who have kids, make sure that you understand what happened and give them a chance to explain what they did. Now in labor relations, it's exactly the same.

Before you impose any penalty, you have to give them the chance to explain themselves. This means going through the proper due process proceedings. That's fair. Now, if the explanation given still shows that the employee is still guilty, then the employer is free to impose whatever penalty they deem appropriate and that includes demotion. So let's connect it with number 2... If it's in the checklist, why not consider demotion? Okay, Atty. last question and I'm sure a lot of you can relate to this.

So you said you can demote people right? What if you demote somebody can you touch their salary, or can you reduce it or is it supposed to stay at the same level? So I hear this a lot from demoted employees who object to this. And they usually cite non-diminution of benefits. Non-diminution of benefits. I remember that from law school Atty. Erwin.

It is true that the principle of non-diminution of benefits exists. And it says any benefit and supplement being enjoyed by the employees cannot be reduced, diminished, discontinued, or eliminated by the employer. Okay, that's a good argument. Atty. Erwin.

Therefore, they argue even if I was demoted, under the principle of non-diminution of benefits, my salaries and benefits should stay the same. Okay. Sounds legit But it doesn't make sense, doesn't make sense. If you're employing this kind of logic with me, essentially what you're saying is the employee does something terrible. Now to punish the employee.

The employer demotes them. Penalty. Now, the employee argues that you should still enjoy the salaries and benefits he enjoyed previously because of non-diminution. Yes, that's in the labor code. However, since he has been demoted, he now has fewer responsibilities and work, and yet he still enjoys the benefits of his previous position.

Is it right that that's what you're trying to argue? It doesn't make sense. Why? Here's the thing, you're actually you're not actually punishing an erring employee. In essence, you're rewarding them. Why? The work responsibility is lower but the salary grade is still high.

Okay, that makes sense Atty. Erwin. but for example, I'm an employee. I've read a few articles on the Internet. Okay, Attorney, that's not true. I don't believe you. that's still against the law.

Well if you don't want to believe me, at least believe the Supreme Court. If the Supreme Court said it, will you believe it? Well, of course, I'm bound to believe the Supreme Court. The Supreme Court, in the case of Norkis Trading versus Melvin Gnilo, said that demotion is a situation in which the employee is relegated to a subordinate or less important position.

But at the same time, here at the end, it says that it's usually accompanied by a decrease in salary. The Supreme Court said this already? Yes, it was also cited in ISABELA-I ELECTRIC COOP., INC. vs. DEL ROSARIO, JR. This was the case we mentioned earlier in this video. Earlier. That's a 2019 case.

Let's add more if you're still doubting us. In the case of Danilo Leonardo versus NLRC. The right to demote an employee falls within the prerogative of the management. Yes, we mentioned, it is alright to be demoted as long as it's an exercise of management prerogative. Now, the Supreme Court added reminders.

However, due process is required in these cases because, like in dismissal cases, this likewise affects the employment of a worker whose right to continue employment is also protected by law. Now also consider that demotion, like dismissal, is a punitive action and therefore the employee being demoted should be given the chance to contest the same.

And to be clear, if it's the result of the penalty, the demotion can result in a reduction of the salaries and benefits so that the new position of the demoted employee can be reflected in their pay. This falls as an exception to the non-diminution of benefits rule because it's a penalty that went through due process.


So thank you, Atty. Erwin for answering those questions. Let's do a recap. We talked about the demotion. Our first question was, is it allowed by law? And what did the law say Atty. Erwin? Definitely, yes. Although it's not cited, it's allowed.

Second, we talked about when should we consider demotion? And Atty. Erwin gave us 5 grounds or 5 tips when we would consider demotion. If that checklist fits your situation please consider it.

And the third question is, What is the important requirement before you demote? And Atty. Erwin said that it is due process. Right. Go through the process, so that they have the chance to explain themselves. And if ever there's none, you impose a penalty.

Of course, the fourth one or what you clarified with the demotion can you also lower the salary and your answer was yes. It's an exception to the non-diminution rule and the Supreme Court said so. Yes. Of course, we follow that.

Additional Resources

Okay. Now if you want to learn more about handling disciplinary cases, please go to info.legalguide.ph/discipline to learn more. If you want us to tackle your question in our show as we did for Jenny, go to legalguide.ph and click the SUBMIT TOPIC BUTTON.

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One last thing. Yes, employees make mistakes, but termination isn't the only solution. When trying to decide between demotion and termination. Remember the last time you made a mistake? Wouldn't you have wanted the chance to redeem yourself? Why is it any different with your employees? Who knows? They may end up surprising you because if you demote them instead of terminating them, they now want to prove that you were correct in believing in them.

So wasn't that simple? Now go make better choices.

Discipline demotion Penalty Violations