Demoting an employee isn’t easy, but unfortunately it comes with managing people. Find out how to handle this process while protecting your company.

Demoting an employee may be one of the most awkward and difficult conversations you’ll have with someone on your team. Unless an employee approaches you to voluntarily request that they step back from their current responsibilities, it’s never easy to tell someone that they’re moving down the organizational hierarchy. After all, this can involve:

  • Fewer responsibilities
  • A less prestigious title
  • A loss of managerial status
  • A reduction in pay

It can be demoralizing to the employee.

But it’s a very necessary conversation if you find yourself in a situation such as:

  • Your organization is restructuring or has undergone a merger or acquisition. This often requires roles and responsibilities to be consolidated and reorganized because of redundancies.
  • You realize that an employee lacks the skills for which they were hired. Perhaps they need more training and experience, or their skills better align with a different role.
  • An employee’s job performance has been suffering and you’ve been unable to resolve the issue with coaching, additional training or performance-improvement plans.
  • It turns out that an employee wasn’t ready yet for a promotion to their first managerial role.
  • A person on your team was a good employee, but a poor manager. (In some cases, employees discover they don’t actually want to be anyone’s boss.)

Demotion versus termination

Regardless of the scenario, you’re demoting an employee, as opposed to terminating them, because you recognize the value that they could offer your company – just not in their current role. You have reason to believe you can correct this by shifting them into a new position in which they can excel.

When an employee’s performance in their current role has been less than optimal, demotion may be a viable option as one of the last steps in the progressive discipline process or performance improvement plan before termination – if all other steps have failed.

In deciding whether to demote or terminate an employee because of performance issues, consider whether the employee accepts responsibility for their performance and have been making sincere efforts to improve. Or, are they putting the blame elsewhere and making constant excuses? You’ll have to look at the individual employee and their history with the company on a case-by-case basis.

For employees who do take accountability for unsatisfactory performance, a second chance – even in the form of a demotion – can strengthen their loyalty to your company. Their appreciation at getting another opportunity can motivate them to do better.

For more difficult employees who exhibit undesirable behaviors or a poor attitude, consider whether a demotion will effect positive change if all other efforts to resolve these issues have failed. For example:

  • Do they consistently violate workplace policies or ethical standards?
  • Have they ever been threatening or abusive toward other team members?
  • Are they  excessively negative?

Think about the optics of keeping such an employee with your organization, and the effect it can have on the rest of the team. Weigh whether this person will truly be successful in another role, or if they’ll carry the same bad habits and behaviors with them.

If termination is what ultimately needs to happen, be careful about using demotion to delay the inevitable. Demotion shouldn’t be treated as a stopgap or as a “Band-Aid.” It’s not only a waste of your company’s time and resources but demoting an employee who should be terminated can be worse for your workplace culture, team dynamics and reputation than simply terminating them outright.

The demotion process

Here’s the general process you should follow when demoting an employee.

1.      Establish and document the reason for the demotion

You need to have a detailed explanation for how you reached this point and a clear reason why you’re taking this action now. And it needs to be backed up by written documentation of the employee’s history with your company. Maintain these notes in a personnel file.

This will help you to be more objective and fair in demotion conversations and can help protect you against legal action by disgruntled employees.

2.      Inform the employee

Schedule an in-person meeting with the employee in a private setting. Under no circumstances should you tell an employee that they’re being demoted via email or text. Not only could those means of communication seem cold and impersonal, but you need to be able to:

  • Better control the delivery of the message and the overall narrative
  • Convey a caring and reassuring tone and demeanor
  • See the employee’s reaction
  • Answer questions and engage in a back-and-forth dialogue
  • Immediately take steps to keep the employee engaged

It’s always a good idea to have a witness to the conversation present. The witness could be either an HR specialist or a manager who is at least one level above the employee being demoted. To be sensitive to the employee, do not include any of the employees’ peers at the company – someone at the same level as them or lower – for risk of causing unnecessary awkwardness or embarrassment.

Provide the employee with a clear explanation for why you made this decision, as well as:

  • A new job title
  • A written job description outlining new duties and responsibilities
  • The new reporting structure
  • The impact on their pay and when those changes take effect

Emphasize that they’re still a valued part of the organization, and why. Reassure them that you want them to stay on board and excel in their new role.

Offer your continued support as they shift to their new role. State that you have an open-door policy.

Remind them that the situation isn’t permanent. At some point in the future, they can move to a different position or be promoted again as organizational needs evolve and their skills further develop.

3.      Document the meeting

Just as you should document everything about the employee’s history with the company leading up to the demotion meeting, you should also document the actual conversation in which you inform them of a demotion.

Ask the employee to sign change-in-status forms and a letter acknowledging the demotion.

In the letter, make a distinction between the company’s mandate that an employee change positions versus an employee’s voluntary request to change positions. This may help protect your company from legal action, as you don’t want anyone to later claim that they didn’t understand their demotion and how it impacted their status, work responsibilities and pay.

Include these items in the employee’s personnel file.

4.      Communicate with impacted parties

It’s certainly not fun and has plenty of potential to be awkward, but as soon as possible you need to inform the other team members who will be impacted by an employee’s demotion. For example, it could change who they report to or increase their workload.

How you handle this will be largely similar to how you announce an employee’s termination:

  • Schedule a team or department meeting so everyone receives the news simultaneously. This enables you to prevent gossip and the proliferation of different “versions” of the story.
  • Share only the basic facts: “Employee X is moving into the role of ___.” Avoid wading into details or explaining why – or even labeling it as a demotion. It’s simply a change.
  • Describe the transition plan and how others’ roles are impacted.
  • Specify where questions can be directed.

5.      Execute your planned transition strategy

Hopefully, you’ve engaged in succession planning prior to demoting an employee and have a replacement ready, or have at least selected a group of team members to temporarily assume those responsibilities. You’ll want to have a firm understanding of the next steps to facilitate a smooth and seamless transition.

To avoid leaving loose ends and allowing outstanding projects and tasks to fall through the cracks, decide whether you’ll:

  • Have the employee complete certain pending items.
  • Reassign open tasks to other managers or team members.
  • Ask the demoted employee to work alongside the individual replacing them for a set period to brief them on their role.  

Depending on the situation, it’s also possible that you’ll need to reorganize the structure and reporting relationships more broadly across the team and redistribute workload for the longer term.

Following your meeting with the employee in which you inform them of the demotion, introduce them to their new supervisor. Have them undergo any additional training needed for their new role.

6.      Follow up regularly with the employee

Reach out to the employee to see how things are going, whether it’s a regularly scheduled meeting or a more informal check-in. This accomplishes three important objectives:

  • Confirm the employee is still engaged and finds their work meaningful. The last thing you want is for them to feel as though they’ve been set aside and forgotten. Continue to assign them to special projects so they’re still contributing and building their knowledge, skills and experience. Remember: You kept them at your company because you felt they had the potential to be an asset.
  • Keep a pulse on the employee’s goals and how they’re progressing toward them.
  • Pay attention to their attitude. Demoting an employee can be a hit to their ego, and therefore it can complicate their feelings toward the company as a whole and the management that demoted them going forward. Any increased negativity and pessimism can spill over into the team and affect the people around them. If these issues exist, don’t let them linger – maintain awareness and address them promptly.

7.      Have a contingency plan

It’s always possible that things won’t go the way you planned. What if the employee refuses to move to a new position and wants to stay put in their current role? How will you handle that?

By the time you consider demoting an employee, you’ve likely already exhausted the employee’s options for coaching and performance-improvement plans. If not, consider what else you can do to help the employee be more successful in their current role. Have a plan in place and be ready to act.

Otherwise, be prepared to explain that, if they don’t accept the demotion, your only option it to terminate them – and be ready to follow through.

Legal considerations to watch out for

Much like terminating an employee, demoting an employee may be considered as an adverse employment action. Therefore, you need to take certain steps to reduce your vulnerability to legal actions by employees.

The most common complaints by employees concern:

  • Discrimination: The perception that you demoted an employee because of their age, gender, race or any other protected status.
  • Retaliation: The perception that you demoted an employee as punishment for an action they took, such as submitting a complaint or taking a leave of absence.

You can safeguard your company against discrimination and retaliation complaints by:

  • Accurately documenting – in writing – information about an employee’s performance and history with your organization
  • Following all company policies and processes
  • Being mindful of the timing of employee demotions

Additional safeguards for other types of legal actions include:

Checking whether active employment agreements or contracts exist

If so, are there anti-demotion clauses in these documents? Violating these could lead to lawsuits. (Typically, this is only relevant to high-level positions.)

Providing employees with sufficient notice of a demotion – and, in most cases, the salary decrease that goes along with it

The amount of notice that you need to provide depends on your company, the complexity of the transition and, most importantly, the state laws where you operate. Certain states stipulate how much notice should be given to employees of reductions in pay. Make sure that you act in compliance with the laws of the states in which you operate. At a minimum, you need to provide notice prior to the start of a new pay period – but confirm whether your state requires a longer period.  

Avoiding ambiguity

When explaining to employees why they’re being demoted, stick to discussions about performance, skills and behavior – concrete attributes that you can measure. Don’t use phrases such as “you’re just not a good personality or cultural fit for our workplace.” That reasoning is much more subjective and can expose you to legal risks when people wonder if the real reason is discriminatory. (And, if someone’s not a good fit for the culture, demoting them wouldn’t resolve that problem anyway.)

Summing it all up

Demoting an employee is never easy, but unfortunately, it’s a reality of managing people.

Once you’ve decided that the employee does have value in your organization and isn’t a candidate for termination, make sure you follow all the steps in the typical demotion process while adhering to all your company policies and guidelines.

To best protect your company against legal action, make sure to

  • Document everything about your interaction with the employee
  • Provide the employee with at least the minimal required notice, as dictated by the employee’s work state, if there is a reduction in pay involved with the demotion.

For more information about dealing with employees whose job performance and skills just aren’t up to par in their current roles, download our free e-book: A practical guide to managing difficult employees.

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