Can I Sue My Employer for Wrongful Demotion?

While a promotion is an indication of good work ethic and accomplishments in employment, a demotion says basically the exact opposite. A demotion isn’t solely a lowering of responsibilities and potentially even salary. A demotion implies that the employee’s work has been subpar and is not up to the standards required to keep their current position. That is why it is important to ensure that if an employee is receiving a demotion, it is for the right and legal reasons.

California is one of 43 states that maintains an “at-will” employment policy.  The term at-will employment means that an employer is free to terminate the employment relationship at any time with or without cause.  Similarly, employees are free to walk out whenever they please, without giving any warning or reason (See blog entitled “What is ‘At-Will’ Employment for more information).  Since an employer can terminate an employee at will, it is presumed that employees can be demoted at will.  However, there are certain circumstances in which an employer does not have the right to demote their employee.

For example, an employer cannot demote an employee for discriminatory reasons. Title VII of the Civil Rights Act of 1964 and the California Fair Employment and Housing Act (FEHA) specify which classes are protected from discrimination in the workplace, including: race, gender, nationality, religion, sex, and age.  Employers also are prohibited from demoting an employee in retaliation for engaging in protecting activity, such as reporting the employer’s illegal activity.

Discrimination and retaliation are not the only protections an employee has from demotion. If an employer and employee have signed a contract limiting the power to demote, then that would take precedence over the at-will employment clause. Another way an employer may be limited in its right to demote an employee is if the employer’s policies make this limitation “implied-in-fact”.

There are several factors that courts consider in evaluating whether a demotion is wrongful. The first is whether or not the employee is an at-will employee. The second factor courts look at is employer policies and whether or not the policy expectations make note of demotions or similar repercussions for not meeting employee expectations. The third is the “good cause” standard, which seeks to determine if employees would only be subject to demotion for good cause. If this is written in the policy, there is a smaller window of cause for an employee to be demoted. The fourth factor is the length of employment, performance evaluations, and whether the employee demonstrated a reasonable expectation that the employer would follow their own policies. All of these factors help courts determine whether an employee was wrongfully demoted or not.

A demotion can negatively impact an employee’s morale and their source of income. If you believe you were wrongfully demoted from your position due to discriminatory reasons or contractual reasons, you should consult an employment attorney to learn your rights.