Demoting an Employee

State or federal laws do not specifically limit your right to demote an employee. However, your policies, if not carefully drafted, may limit that right.

The California Supreme Court created a right to sue for “wrongful demotion” in breach of a contract to demote only for good cause. In Scott, et al. v. Pacific Gas & Electric Co., two senior managers were disciplined for alleged misconduct by demotions and reductions in their salaries and benefits. The court agreed with the managers’ argument that the employer’s policies, practices and communications created an implied contract not to demote without good cause. Because the employer’s handbook contained a progressive discipline system¹