Transfer and demotion of employees | Inquirer Business

Transfer and demotion of employees

/ 08:28 AM November 01, 2022

Termination or dismissal of employees is an inevitable reality in the course of running a business. The law provides for the just (retrenchment, closure, installation of labor saving devices, redundancy and disease) and authorized causes (serious misconduct, willful disobedience or insubordination, gross and habitual neglect of duties, fraud or willful breach of trust, loss of confidence, commission of a crime or offense, and analogous causes) as grounds for termination of employment.

On occasion, there may be an employee that the company considers to have talent and potential, but suddenly commits an offense that would otherwise be a ground for termination. There are also instances when an employee has performed poorly in his or her task, but the company sees the potential in the person.


Oftentimes, in such situations, the company resorts to termination of employment as it is not clear to them whether they can just transfer the employee to another role or demote the employee in order to give him or her  another chance.

The truth is, the transfer to another position or demotion of employees is actually provided for in our labor laws, and the proper standards and procedure are in place.


Transferring an employee is usually resorted to when an employee is not performing well in a role or performing below the expected standard. It may be based on management’s assessment of the qualifications, aptitude, and competence of its employees where, by moving them around in various areas of its business operations, it can ascertain where they will function with the maximum benefit to the company. (Philippine Japan Active Carbon Corporation v. NLRC, G.R. No. 83239 March 8, 1989)

On the other hand, demotion as a penalty is usually resorted to by the company when an employee has committed a violation or breach of company policy. In lieu of termination, some companies impose upon the erring employee the penalty of demotion from their rank or position.

Both transfer and demotion of an employee are allowed under our labor laws and when done properly, are considered an exercise of the employer’s management prerogative.

The Management Prerogative Doctrine provides that every employer has the inherent right to regulate, according to his own discretion and judgment, all aspects of employment, including hiring, work assignments, working methods, the time, place and manner of work, work supervision, transfer of employees, lay-off of workers, and discipline, dismissal, and recall of employees. (Peckson vs. Robinsons Supermarket Corp, G.R. No. 198534, July 3, 2013)

There are limitations on the exercise of management prerogative. It must be exercised in good faith, with due regard to the rights of labor, and not used to circumvent the laws and oppress labor. (Dongon vs. Rapid Movers and Forwarders Co. Inc., G.R. No. 163431, August 28, 2013)

Guidelines on transfer of position

In the case of transferring an employee to another position where the company feels the employee’s qualifications are better suited, the employer should take note of the following guidelines:

(a) the transfer is a movement from one position to another of equivalent rank, level or salary without break in the service or a lateral movement from one position to another of equivalent rank or salary
(b) the employer has the inherent right to transfer or reassign an employee for legitimate business purposes
(c) a transfer becomes unlawful when it is motivated by discrimination or bad faith or is effected as a form of punishment or is a demotion without sufficient cause
(d) the employer must be able to show that the transfer is not unreasonable, inconvenient, or prejudicial to the employee


Again, a valid exercise of management prerogative for the maximum benefit of the company does not violate an employee’s right to security of tenure which does not give the employee such a vested right in a position as would deprive the company of its prerogative to change an assignment or transfer someone where they will be most useful. When a transfer is neither unreasonable, nor inconvenient, nor prejudicial to the employee, and it does not involve a demotion in rank or a diminution of salaries, benefits, and other privileges, the employee may not complain that it amounts to a constructive dismissal. (G.R. No. 198534, July 3, 2013)


It is also an option for businesses to provide employees who have committed violations and breach of their duties and responsibilities another chance at redeeming themselves by way of the imposing the penalty of demotion instead of dismissal from employment.

Demotion is defined as a situation where an employee is appointed to a position resulting in a diminution in duties, responsibilities, status or rank, which may or may not involve a reduction in salary. Where an employee is appointed to a position with the same duties and responsibilities but a rank and salary higher than those enjoyed in his previous position, there is no demotion and the appointment is valid. (Virginia D. Bautista v. Civil Service Commission and Development Bank of the Philippines, G.R. No. 185215, July 22, 2010)

Generally, demotion is allowed as a valid exercise of management prerogative, often as a consequence of an employee’s failure to comply with company productivity standards. (Leonardo vs. NLRC, June 16, 2000 and Fuerte vs. Aquino, June 16, 2000)

Standards to follow in demotion of employees

When the penalty of demotion is to be imposed on an employee the employer must ensure that it shall follow the same standards and procedure for dismissal of employment. Accordingly, procedural and substantive due process should still be observed.

While an employer may demote an employee for valid reasons, it must first comply with the twin requirements of notice and hearing.

The Supreme Court has explained that while due process required by law is applied on dismissals, the same is also applicable to demotions as demotions likewise affect the employment of a worker whose right to continued employment, under the same terms and conditions, is also protected by law. Moreover, considering that demotion is, like dismissal, also a punitive action, the employee being demoted should as in cases of dismissals, be given a chance to contest the same. (Jarcia Machine Shop and Auto Supply, Inc. v. NLRC, GR No. 118045, January 2, 1997)

There must thus be a notice to explain that gives the employee an opportunity to submit an explanation and supporting evidence to refute any claim of violation or breach of duty or responsibility, the possibility of a hearing, and the notice of decision by the employer served upon the employee which clearly addresses the infraction and penalty imposed. This is referred to as due process.

Finally, when an employee is demoted, it may necessarily follow that the position will have a lower salary and benefit. Since demotion is recognized by law, there is no violation of the principle of diminution of benefits.

The author, Atty. John Philip C. Siao, is a practicing lawyer and a Founding Partner of the Tiongco Siao Bello & Associates Law Offices, a Professor at the MLQU School of Law, and an Arbitrator of the Construction Industry Arbitration Commission of the Philippines. He may be contacted at [email protected] The views expressed in this article belong to the author alone.

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