Demotions Can Often Lead to Departures but Also to Fresh Starts

Allen Smith, J.D. By Allen Smith, J.D. August 22, 2018

​More than half (52 percent) of demoted employees quit, a recent survey shows, but demotions can offer workers new opportunities, with HR's assistance.

Forty-six percent of HR professionals have witnessed a demotion at their company, according to Aug. 9 research from staffing firm OfficeTeam. More than 1 in 10 workers, or 14 percent, have been asked to assume a lower-level role. Men were demoted more frequently than women—19 percent compared to 7 percent. Employees ages 18 to 34 (22 percent) were downgraded more frequently than those ages 35 to 54 (10 percent) and 55 and older (3 percent).

The research included responses from more than 300 HR managers at U.S. companies with 20 or more employees, and more than 1,000 U.S. workers ages 18 and older and employed in office environments.

"Few employees are excited about the loss of status that comes with a demotion," noted Kim Hodges, an attorney with Ogletree Deakins in Memphis, Tenn. "HR can help by communicating the reasons and advantages of the decision in a positive light." She said HR could highlight the opportunities that come with the new position and follow up with management and the employee "to make sure that everyone makes the most of the fresh start."

The employer should explain that it values the employee and that the demotion is an opportunity to develop skills the employee needs to move ahead, she explained. "Often, taking one step back leads to the employee being able to take two steps forward in the future," she remarked.

Reasons for Demotions

A demotion—a reduction in responsibilities and/or pay—occurs for a variety of reasons, Hodges observed. These include:

  • Performance deficiencies.
  • Corporate reorganizations.
  • Realignment of functions under different leadership.
  • Changing customer demands.
  • Shifting business needs.
  • The desire to find a better fit for an employee's skill set.

Chart: Survey Highlights Four Reasons for Demotions

Risk of Retaliation

A demotion can occur without lowering pay. In Burlington Northern v. White, the U.S. Supreme Court noted this in the context of an unlawful retaliation claim after reports of discrimination and harassment, said Jay Holland, an attorney with Joseph Greenwald & Laake in Greenbelt, Md.

He cautioned employers to be aware of the risks of retaliation claims following a demotion, given that equal employment opportunity (EEO) laws have anti-retaliation provisions, as do the False Claims Act, other whistle-blower statutes, the Family and Medical Leave Act, the Fair Labor Standards Act and the National Labor Relations Act. EEO laws include Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act and the Age Discrimination in Employment Act.

The reasons for demotion should always be well-documented to diminish the risk of a claim being filed for retaliation or discrimination, he noted.

Demote or Terminate?

Hodges said that she does not favor demotion for employees with severe policy violations or conduct issues. "In those cases, termination is more often the appropriate step," she remarked.

Demotions sometimes result in disgruntled employees, which can poison the work environment, Holland noted.

Most companies fire rather than demote poor performers, said Brian Alcala, an attorney with Nixon Peabody in Chicago. Some companies discharge those who aren't promoted, he added.

Demotions can be tough on the ego and embarrassing, said Brandi Britton, an OfficeTeam district president in Los Angeles. Demoted employees may disagree with management's decision, think they are qualified for the roles they had been in, and leave for opportunities in positions similar to the ones from which they were demoted.

But in today's economy, employers may want to retain employees who are underperforming in their jobs and move them to new positions down the corporate hierarchy, because companies are finding it difficult to fill positions, she noted.

Communication Is Key

Communication with the demoted employee is the key to a successful transition, Britton observed. Demotion should not come as a surprise, she said. It's the manager's responsibility to initiate ongoing discussions with an employee about job performance if he or she is not meeting expectations, she said.

Sometimes, people are promoted, demoted and then promoted again. HR professionals can explain this to demoted employees and work with managers to outline the tasks employees need to accomplish to be promoted again.

The transition can be made smoother if HR and the manager:

  • Communicate respectfully with the employee during the demotion discussion, keeping in mind that the organization is taking this step because of the desire to retain the employee and the expectation that he or she will be successful.
  • Honestly communicate any performance-related reasons for the demotion, or the reasons why the organization is taking this action as opposed to termination. The second point could be instrumental in helping the employee respond positively to the transition.
  • Clearly outline the new position, whether there will be a reduction in pay and the transition plan (e.g., last date in the old role, first day in the new role and to whom the employee will report).

The employer should be prepared for the employee to have an emotional and negative response. It may even be necessary to escort the person out of the office if the response is too negative or combative.

[SHRM members-only HR Q&A: How should we handle employee demotions?]

OfficeTeam recommends that the demoted employee:

  • Remain calm. Focus on why the role is being downgraded.
  • Get details. Find out what's expected in the new position and if there are steps to take to be reinstated to the previous job. Ask for information on areas for improvement and training opportunities.
  • Weigh the options. Think through the changes before deciding whether to make the most of the new role or to look for a different one.


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