In this case, the Employment Appeal Tribunal had to decide whether a decision to demote an employee was sufficient for the employee to claim constructive dismissal. A constructive dismissal occurs when an employee tenders their resignation in consequence of the employer’s actions which have fundamentally undermined the employment relationship.

The Claimant, Mr Wells, first worked for the Respondent’s predecessor, Bairstowe Eves plc, before he was transferred to Countrywide Estate Agents. Mr Wells’ original contract of employment contained only disciplinary sanctions of oral warnings, written warnings, up to 7 days’ paid suspension and dismissal. The Claimant’s contract was transferred to Countrywide Estate Agents and he was presented with a Countrywide Group handbook which allowed for other sanctions at the company’s discretion, such as demotion.

In 2007, Regulations were brought in which required all estate agents to take steps to combat money laundering, such as verifying the names and addresses of clients. Disciplinary action was started against the Claimant and two of his colleagues after an investigation revealed that the branch had a poor compliance with the money laundering obligations. The employer concluded that this was a very serious matter amounting to gross misconduct the Claimant was dismissed without notice. He was subsequently reinstated but with a demotion to a senior negotiator with a reduction in salary. However, Wells felt it was impossible for him to return to working for the Respondent; he resigned and brought proceedings for constructive unfair dismissal and wrongful dismissal.

At the Employment Appeal Tribunal (EAT) hearing, both the Claimant and the Respondent agreed that there was no contractual right to demote or impose new contractual terms as it was done at the appeal hearing.

The EAT ruled that the claims for constructive dismissal failed regardless because:

  • Wells had committed an act of gross misconduct which in itself warranted summary dismissal;
  • The Respondent had carried out a reasonable investigation into the matter and reasonably believed that Wells had committed the gross misconduct act; and
  • Dismissal, albeit a constructive dismissal, was a reasonable response to the allegations, meaning that it was fair.

This case shows that, in some cases, demotion may still be a reasonable action even though there is no contractual right to do so.  However, detailed advice should always be taken before demoting an employee.