DEMOTION ARISING FROM JOB RESTRUCTURING; CONSTRUCTIVE DISMISSAL: CASE REVIEW.

 

Introduction

Research by the Economic Research Policy Center (ERPC) reveals that 420,000 Ugandans lost their jobs as a result of COVID-19 wiping out several jobs. In an effort to remain in business, most business entities took to downsizing their staff by laying off their employees while others aimed for other restructuring models that could help them increase their operational efficiency like creation of specific roles, combining certain positions and completely doing away with other positions within the structures of their organizations.

Two year post COVID, various business entities and organizations in Uganda are still battling the economic effects of COVID amid law suits by their former employees for compensation as a result of unlawful and unfair terminations and dismissals, demotions, inadequate compensations, among others.

The Industrial Court of Uganda has in (Batabane Anatoli v Busoga Forestry Co. Ltd (Labour Dispute Reference No. 015of 2021) reexamined the circumstances where restructuring by employers occasioning demotion might amount to constructive dismissal. This article analyzes the decision and draws out the key legal positions and takeaways for employers and employees regarding restructuring occasioning demotion, constructive dismissal as a result, and the distinction between a job title and a job description.

In December 2021, the Industrial Court ruled in favor of the claimant, Batabane Anatoli, in a labor dispute case against Busoga Forestry Co. Ltd (Labour Dispute Reference No. 015 of 2021). The brief facts are that the claimant was offered the position of Finance Manager/Chief Accountant for Green Resources Plantation Companies in a contract dated December 21, 2010. The terms of the appointment required the claimant to report to the Managing Director of Busoga Forestry Company Limited on a day-to-day basis and to the Finance Director of Green Resources on matters relating to all financial reporting into the group. It was assumed that Bugoma Forestry Co. Ltd was part of a group of companies. As part of the role, the claimant was responsible for overseeing the finance and accounting operations of Green Resources Uganda companies, among other duties, and was offered a monthly salary of 4,500,000/-.

According to Busoga Forestry Co. Ltd, a restructuring of the finance department was necessary, and as part of the proposed changes, the claimant's reporting line and department headship were to be altered. The respondent claimed that the claimant was informed of the proposals and was involved in discussions to create a new post of Financial Controller who would head the department, with the claimant reporting to them while retaining his other duties.

However, the claimant maintained that he objected to the changes, as he believed that they would result in an unjustified demotion, and that he was capable of continuing to perform his job under his existing reporting lines. He further argued that by creating the post of Financial Controller, the respondent had breached the terms of his contract, as he believed that his job had effectively been given away.

Court’s Findings.

Court found that the redesigning of the Claimant’s job title as Chief Accountant- statutory and legal compliance was without his consent and the creation of the Post of Financial Controller was in an attempt by the Respondent to demote him without a hearing or any adverse job appraisals, both of which were illegal, as well as injurious to the claimant amounting to a serious breach of contract by the respondent.

In arriving at this decision, Court took into consideration the definition of constructive dismissal and citing Section 65(1)(c) of the Employment Act, 2006 stated that constructive dismissal happens where the contract of service is ended by the employee with or without notice, as a consequence of unreasonable conduct on the part of the employer towards the employee. In order for the conduct to be deemed unreasonable within the meaning of Section 65(i) (c), such conduct must be illegal and injurious to the employee and make it impossible for the employee to continue working. The conduct of the employer must amount to a serious breach and not a minor or trivial incident and the employee must act in response to such breach not for any other unconnected reason, and must act in reasonable time.

The court held that although the claimant continued to work and receive a salary after the post of Financial Controller was advertised, he resigned within a reasonable time frame, which was well within his rights to do so, and therefore constituted constructive dismissal. Court further found that the claimant had the option to stay away from work on the day the new position was advertised, but it was not necessary to do so. Advertising the job did not take away the claimant's job, and he still had the option of acting when the decision was actualized by seeking his signature on the addendum to the terms of employment.

The Court further noted that although restructuring is in the realm of an employer or owner of an organization, it must be done in accordance with Section 81 of the Employment Act. It reiterated its position in its previous decisions that it is mandatory for the employees contemplated for termination to be informed at least 1 month before termination takes effect and that the labour commissioner must be notified of the reasons of termination.

Emphasizing its decision in Yudaya Musisi v Orient Bank Limited (LDR 121/2017), court made it clear that phasing out a job or department in the structure of an organization is a right of the owner of the organization and can be done by re arranging, abolishing or combining certain positions or departments within an organization. However, a change of reporting lines by an employee to a lower person in rank and file than he was previouslyconstituted a demotion.

While an employer is at liberty to demote as part of restructuring or for any other reason, court citing its decision in Muyimbwa Paul v Ndejje Univeristy (LDR 222/2015) held that:

‘a person is only demoted after a system of appraisals finds him or her lacking in capacity to handle the current responsibilities or after a disciplinary process has established that the employee has committed an infraction calling for the demotion.’

In the instant case, no such process or system had been employed. In other words, without a reason for demotion, demotion is deemed to be unfair.

In determining whether the introduction of the Post of Financial Controller as the Head of the Accounting Department and the changing of the claimant’s reporting line constituted a demotion, court drew a distinction between a job title and a job description. Court agreed with the holding in Ugafode Micro-Finance Limited (MDI) vs Mark Kyoribona LDA No. 034/2019 where it stated that:

“A job title can be described as the position in the hierarchy of an organization given to the employee by the employer either at the time of the contract or later in the course of employment. It denotes one’s seniority or level within the organization and whatever the employee actually does in his/her role.”

The court further noted that while Section 59 of the Employment Act makes it mandatory for employers to provide employees with job titles as an essential component of the employment contract, such as job titles, it leaves it at the discretion of an employer to determine the employee’s job description and roles, in connection with the job title. The court interpreted this to mean that while job titles are an essential part of an employment contract and cannot be changed without the employee's consent, job descriptions or roles are entirely at the discretion of the employer, as long as they are directly related to the employee's job title. Job titles usually change with promotions or demotions.

Conclusively, it was court’s finding that what was disguised as a restructuring was a calculated move against the Claimant in a bid to demote him even when he was competent. Demotion of the Claimant without any disciplinary hearing or system of appraisals speaking to his incompetence was unreasonable conduct on the part of his employer and termination of the contract was as a result of this conduct hence constituting constructive dismissal.

Key Legal Implications

• 1.     Although restructuring is a right of an employer or owner of an organization, where it may include demotions, an employer must take caution on how to go about a demotion.
• 2.     A demotion without a basis such as a disciplinary process or system of appraisals showing incompetence or incapacity of an employee to perform his duties may amount to unreasonable conduct on the part the employer and where in such instance an employee terminates his contract, it could amount to constructive dismissal.
• 3.     A job title is one of the entitlements of an employee and a major contract in his or her employment contract and changing it without the consent of the employee amounts to breach of contract.
• 4.     While a job title is a major component of an employee’s contract of service and cannot be changed without the employee’s consent, a job description is not a major component of an employee’s contract of service, and is in the discretion of the employer to determine.
• 5.     Changes in reporting line by an employee to a lower person in a rank constitutes a demotion even when the employee’s salary remains the same.
• 6.     A demotion is deemed unfair where it happens in the absence of a system of appraisals that find the employee lacking in capacity to handle his or her current responsibilities or in the absence of a disciplinary process to establish that an employee has committed an infraction that calls for demotion.

 

From the above decision, it is clear that employers cannot hide behind the veil of restructuring to demote employees they no longer want around. Unless the employee agrees to a demotion, it appears safer to terminate and compensate them with notice. It is also clear that although demotion, just like termination is at the discretion of the employer, there must be a system of appraisals speaking to lack of capacity on the employee’s end before he or she is demoted. Absence of a basis for demotion would deem the demotion unfair.

As organizations and other business entities employ a number of restructuring strategies like phasing out and merging of roles, demotions, reduction in pay, changes in reporting lines, layoffs among others as they try to stay afloat and gain traction post COVID-19, employers need to be cautious of what legal implications each strategy may pose and act in accordance with the law.