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How to Demote an Employee

By Jeanette Coleman, SPHR & SHRM-SCP on Sep 27, 2022
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Demoting an employee is never a fun or easy task, but sometimes it’s necessary. With proper care and planning, the process can be carried out for the good of both the employee and the company as a whole.

Has your organization been faced with the tough decision of demoting an employee and you're unsure where to start? Axcet has you covered. Here are the basics of how to demote an employee, when it can be done and any legal implications to keep in mind.

RELATED: How to Help an Underperforming Employee >>

Can You Demote an Employee?

Can you demote an employee? The short answer is yes, you can, as long as you do so for a legal reason. Common legal reasons for demoting an employee include misconduct, performance below expectations, noncompliance with company policies, insubordination and other general reasons related to an employee’s actions or nonactions. 

If performance levels have fallen below expectations, a reduction in responsibilities may be in order. Similarly, sometimes leadership just isn’t a strength of an otherwise great employee and a demotion from a management position is necessary. All of these are typical reasons to consider an employee demotion. 

It’s important to keep in mind, the reason behind demoting an employee does not have to be solely a disciplinary issue. Sometimes, a company’s budget demands that demotions or terminations are made. Additionally, organizational restructuring may necessitate demotions across certain departments. 

RELATED: How to Deal with an Employee Who Didn't Get the Promotion >>

Is it Legal to Demote an Employee? 

Employee demotions made for good reasons are generally legal. However, several reasons for demoting an employee are illegal. These are always off-limits, no matter where your business operates from in the US:

  • Demoting based on the employee’s family status, including the number of children they care for, an upcoming pregnancy, adoption, foster child, etc. 
  • Demoting based on the employee’s citizenship.
  • Demoting for any reason that is or could be perceived as discriminatory, including the employee’s race, ethnicity, national origin, gender, age, or disability. 
  • Demoting based on the employee’s report of company misconduct (i.e., “whistleblowing,” reporting an OSHA violation or speaking to a manager, another employee or the press about a legitimate legal or safety concern. 
  • Demoting because of the employee’s need to step away from work due to a qualified medical leave, including the need to care for a family member, as described in the Family and Medical Leave Act. 

If the decision to demote an employee isn’t being made for any of the above reasons, the demotion is likely legal. Make sure, however, to carefully check over your original (and any subsequent) employment contracts made with the employee. Does the employee’s contract have an anti-demotion clause or other similar language? If so, further evaluation of the legality of demotion may be needed. 

Six Keys to Effective Employee Discipline

How to Demote an Employee

Once the decision has been made to demote an employee and the unique legal implications of the decision have been considered, you’ll need to develop a plan for carrying out the role change. 

The process for demoting the employee will depend on whether the role change is being effectuated because of a disciplinary issue or a non-disciplinary reason, such as organizational restructuring. 

For disciplinary demotions, consider speaking with the employee’s immediate and upper-level supervisors for feedback on whether a new role would be suitable, or whether the employee’s actions or inactions make them a bad fit for the company. If possible, carry out the demotion in conjunction with a carefully thought-out Performance Improvement Plan (commonly referred to as a “PIP”). The PIP should outline where the employee has fallen short in the past, the goals the employee’s manager would like to see the employee accomplish, and the competency areas in which the employee should aim to improve. 

For both disciplinary and non-disciplinary demotions, effective and positive communication about the role change is key. 

RELATED: Four Risks Small Businesses Face When Firing Employees >>

How to Write an Employee Demotion Letter

Writing a demotion letter can be hard, especially because it’s often uncomfortable to be the bearer of bad news. However, demotions don’t have to be surrounded by negativity or carry an implication of failure. When termination was an option that was on the table, offering an employee a demotion instead can do wonders for the employee’s long-term career growth, as well as their loyalty to your company. Many times, employees will appreciate a “second chance” to succeed at your organization.

how to write an employee demotion letter

Here are four tips for writing an employee demotion letter:

1. Keep the Tone Neutral

Carefully writing a demotion letter in a professional manner can help frame the demotion in a neutral or even positive light and keep morale up at your company.

2. Clearly Communicate the Reason

Explain the reason for the demotion. If it was due to performing below expectations, be clear about the issues and prior steps taken to try to improve performance. 

3. Explain Why Company Leadership Chose Demotion Over Termination

Shining light on the positive impact the employee has made at your organization can help keep morale up. Being honest about why you chose not to terminate the individual can go a long way when hoping for a positive employee response to this difficult HR conversation. 

4. Present Details About the Employee's New Role

Providing a timeline for moving out of one role and into the next, along with a detailed job description is essential to a smooth transition. If a pay cut is on the horizon, it's best to be straightforward and honest with the employee.

Check out Axcet’s downloadable employee demotion sample letters for both disciplinary and non-disciplinary situations here >> 

Axcet: Your Partner for All Things HR

Is your company struggling to keep up with the heavy burden of an HR department, or could you simply use expert advice from time to time? Meet Axcet HR Solutions: human resources experts with over 30 years of experience. No matter the size of your need, we’d love to see how we can help your business succeed. Schedule a conversation with us today. Axcet HR Solutions Employee Relations

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