Should You Ever Demote an Employee of Your Design Firm?

Demoting an employee can be an uncomfortable experience, but not all demotions are for cause. Some employees request a demotion due to extenuating circumstances that limit the amount of time and energy they have to expend at work. In other cases, tough economic times and restructuring lead to role consolidation and demotion. Of course, some employees are demoted for cause. Whether due to poor performance or unacceptable treatment of other team members, some employees will be demoted or let go because they are simply not the right fit. Can you demote an employee? Why would you demote a team member? What makes demoting an employee illegal? When should you demote someone instead of firing them? In this post, we answer all your questions about demoting an employee of your design firm. Read on to learn more.

Demoting an Employee: Why You Might Choose This Option

There are a few reasons why a design firm owner might demote an employee. The first — demoting for cause — is most obvious and probably most common. However, some firm owners choose to demote an employee during periods of economic hardship or while restructuring. 

They might also demote an employee at that employee’s request if their workload has become unmanageable. For example, an employee might ask for a demotion — reducing pay, workload, and hours — during pregnancy, the postnatal period, illness, or another major life event. 

Lastly, you might demote an employee if you promoted the wrong person. Bear in mind that an employee can always choose to part ways with your firm instead of accepting the demotion. In some cases, they could also sue your firm for violating their contract or otherwise breaking employment law.

Demoting an Employee for Cause

If an employee consistently fails to meet job requirements or perform at a satisfactory level, you might consider a demotion. Poor job performance might mean unsatisfactory work quality, missed deadlines, or a lack of productivity. In such cases, demotion allows the employee to continue at your firm with a lighter workload and more oversight.

Another situation in which you might consider demotion for cause is when an employee engages in unacceptable behavior towards colleagues or clients. Creating a respectful and harmonious work environment and supportive culture is crucial for the success of any design firm. Allowing such behavior to go unchecked can have detrimental effects on team morale and overall productivity. Of course, such a situation might warrant dismissal — not just demotion.

In most cases, if an employee fails to behave in a professional manner, negatively impacts employee morale, or violates company policies, an employer is within their rights to legally demote that employee’s position. Of course, it’s essential to include this type of language in the employee’s contract to ensure there are no legal risks following that employee’s demotion.

Demotion During Restructuring

Can you demote an employee when restructuring your firm? According to this resource from Indeed, “organizational restructuring is one of the most common reasons for demotions.” The need to restructure might be internal – caused by an economic upset, recent changes in the industry, or a pivot in mission or vision initiated by your leadership team. 

You might also restructure your firm following a merger or acquisition. As such, demotions might occur when merging two firms or acquiring an existing firm (or leg of another firm). In some cases, firms eliminate a role entirely but want to hold onto an effective, well-regarded employee. 

Alternatively, a firm might merge positions and offer that role to an employee who previously held a role with a more prestigious title. This might be a demotion in rank, but it might not result in lower pay. 

As always, it’s up to the employee to decide whether they will accept the demotion or move on to another firm. Bear in mind that some demotions are considered illegal or unfair, and might result in a settlement if that employee rejects the change. Even if demoting an employee is legal and appropriate, give that employee a few days to consider the switch to a new role and carefully consider their feedback if provided. 

Demotion Due to Economic Hardship

In July, our posts on the blog will focus on protecting firm culture and supporting employees during minor recessions and economic slowdowns. One way to keep employees on the payroll and ensure they retain access to all benefits is to cut pay or hours instead of laying them off. 

“Sometimes, a demotion is due to a lack of projects (as we experienced during the pandemic). Instead of layoffs in hard times, a demotion can keep someone on staff at a lower salary, while keeping their benefits. And then when we’re ready to ramp up, we bring them back to their previous role.”

Melissa Grove, Laura U Design Collective COO and Design Dash Co-Founder

To do this, a firm owner might ask their employees to shift from full-time to part-time – or they might offer a demotion. These types of demotions would typically result in reduced pay and reduced responsibilities. In many cases, such demotions are temporary – pending an end to the recession or period of economic hardship. 

We will discuss how to talk to employees about pay cuts, reduced hours, and these types of demotions in our July series.

Demotion After an Inappropriate Promotion

Can you demote an employee after promoting them to the wrong position? As with practically every other situation described in this post, the answer is “it depends.” Inappropriate promotions happen all the time. 

Maybe you offered a promotion to the wrong person. As Tom Gimbel writes in an article for Inc, business owners often “fail to realize that the best players aren’t always the best managers.” They promote the best procurement agents, marketers, or designers to management positions — not realizing that people who are excellent at their jobs aren’t always great leaders. 

Alternatively, an employee may have asked you for a promotion only to regret it after a few weeks or months in their new position. Just as business owners can misunderstand an employee’s capacity for leadership, so too can an employee overestimate their own ability or desire to take on a leadership role. 

Case Study: Ashley Couto of The Living Lab

For example, Ashley Couto was promoted to COO of The Living Lab after working for the same company as a marketing coach. According to Couto in an article she penned for Business Insider, “the stress [of this new leadership role] carried over into every aspect of [her] life.” She did not enjoy management and “wanted to return to work [she] loved: marketing, branding, and creation.” 

Six months after accepting the promotion and trying to make it work, Couto requested a demotion – even though it came with a huge pay cut. Though she worried about the C-Suite’s reaction to her request, “the result was a positive, laughter-filled conversation that left everyone satisfied.” Couto returned to a role that fulfilled her without the stress of leadership, and the C-Suite found a better fit for COO. 

If an employee asks for a demotion after a recent promotion, you are well within your rights to demote them to their original role as long as their contract does not explicitly point to the contrary. Of course, you might not actually be able to fulfill their request. If you have already filled their original position, it is no longer available to the promoted employee. Should this type of situation arise, consider why your employee wants to return to their previous role. Did they receive enough support and training after their promotion? Was their new role not explicitly outlined?

If – on the other hand – you decide that this person is a poor fit for their new leadership role, you might not have the legal option to demote them. 

Demotion Due to Skills Gap or Poor Role Fit

In some cases, you might demote someone to a more suitable role because of a skills gap you did not identify during the hiring and onboarding process. It’s possible that neither you nor the employee is at fault, but that the employee’s skills and experience are simply not evolved enough to ideally execute their current job. The employee did not lie or mislead you about their past. Expectations for this role might have been far different at their last firm. 

“A demotion can be a response to a major skills gap. If you bring on a new hire as a senior, but quickly find out they are more at the level of a lead designer, the demotion gives them an opportunity to learn and grow without being laid off. We try to remain as generous with salary as our fee schedule will allow in this situation.”

Melissa Grove, Laura U Design Collective COO and Design Dash Co-Founder

In this case, a demotion would be warranted, but the employee should not suffer a major pay cut or other consequences. Again, be sure to review their contract, take care to consider their perspective, and have an open dialogue with the employee before making a unilateral decision to demote. 

Demotion at the Request of the Employee

Last but not least, a firm owner might demote an employee at that person’s request. There are many reasons why an employee might ask for a demotion aside from returning to a more fitting role after an inappropriate promotion. 

“While not my favorite thing to do, demotions can be used in creative ways that aren’t entirely negative. Sometimes, you’ll have a designer who wants to move to part-time or even contract work due to a lifestyle change or move.”

Melissa Grove, Laura U Design Collective COO and Design Dash Co-Founder

For example, an employee might have given birth or adopted a baby recently and would like to spend more time at home with his or her child. It might also be more cost-effective for him or her to spend more time at home than to hire help. Alternatively, an employee might be diagnosed with an illness, experience a flare-up of a preexisting condition, or live with someone who is going through a similar situation. 

A demotion might give them the time and flexibility they need to help an ill or elderly family member, recover themselves, or adapt to a new lifestyle. A flexible schedule and fewer responsibilities could make an enormous difference for your team member.

Another option in these types of circumstances is to offer a remote or hybrid arrangement that works well for your firm and for that team member. If you do consider a remote or hybrid arrangement, think about instituting such an arrangement across the board instead of on a case-by-case basis. Such an arrangement could reduce costs for your firm while improving work-life balance for employees.

What Constitutes Unfair or Illegal Demotion? How to Demote an Employee Legally

Demoting employees is serious – especially if it limits their monthly income or advancement in the industry. In some cases, employee demotions can also be illegal. Of course, demoting an employee, docking their pay, or reducing their working hours because of their race, religion, gender, sexual orientation, or disability is always illegal. It’s also incredibly unethical. 

Demotions are also illegal when used as a disciplinary tactic unrelated to poor performance, harassment, or another violation of lawful employment terms. For example, it is always illegal when companies demote employees for cooperating with law enforcement or reporting unlawful activity. Unlawful activity could be anything from tax evasion to sexual harassment or discrimination.  

According to this resource from HG.org, “an employer either has no right or every right to demote a person.” Most contracts include language to allow for demotion or termination if the employee neglects their role or behaves badly. Furthermore, most states in the US – except Montana – are “at-will” employment states. In an at-will state, an employee can leave their job, be terminated, or be demoted at any point.

However, it’s important to keep in mind that breaking a shared contract before the employee violates its terms first can result in a lawsuit against your firm. 

Final Thoughts About Demoting an Employee as a Design Firm Owner

No matter the impetus, the decision to demote an employee should not be taken lightly. Consequences run the gamut. If an employee does not request the action themselves, demoting that employee could result in legal action against your firm. Affirming a demotion request could cause upheaval in your firm – displacing other employees or disrupting team dynamics. 

Demoting an employee could impact your firm’s culture or a team’s morale. Therefore, it is essential to involve your HR department or seek legal advice to make sure you are taking the right course of action for yourself, your firm, your employee, and their team. 

Despite the potential risks, demoting an employee can be the best choice for everyone. During periods of economic hardship, demotions can ensure employees keep their jobs and benefits without endangering the future or finances of your firm. Demoting an employee can also help them respond to personal challenges and lifestyle changes, or encourage them to pursue a more fulfilling career. 

Would you demote an employee if they asked for a lighter workload? Have you ever demoted an employee for cause? Tell us in the comments below.