States provide unemployment insurance to assist those without work to stay afloat while they look for new jobs. Usually, unemployment doesn't pay as much as a claimant's former income but acts to stave off or mitigate a financial crisis. However, unemployment is only available to those without work. Although demotion and the associated reduction in income can be difficult, a person who has full-time employment cannot receive unemployment benefits.
Loss of Hours
Unemployment insurance can help those whose hours are reduced as a result of their companies' financial hardships. If your demotion includes a cutback in hours, then unemployment insurance may provide relief. States have varying rules about the number of hours you must lose before you qualify for unemployment benefits, so check with your state unemployment program for details.
Quitting
If your employer is mistreating you and is in violation of wage and labor laws, it may drive you to quit. In this case, you can apply for unemployment and the state will investigate the situation. If a caseworker finds that you indeed experienced unfair treatment or discrimination, you can receive unemployment benefits. However, your case will be stronger if you complain to your state department of labor and try to resolve issues with your employer before taking the extreme action of quitting.
Termination
When demotion is followed closely by termination, you may also be eligible for unemployment insurance benefits provided you were not at fault. In this situation, a state caseworker will get testimony from both you and your former employer and may even request personnel and employment records. If your former employer acted unfairly, in violation of state or federal laws or was retaliating against you for complaining, you will likely receive unemployment. However, if gross misconduct such as failing to show up for work, failing drug tests or committing petty theft led to your termination, you are not eligible for benefits.
New Employment
Your best remedy for a bad work situation is to find a new job. Demotion can be painful, but your best option is to keep your job while looking for new work. State labor and employment development departments offer free job-search resources.