A number of federal laws protect employees from unfair demotions. In general, a demotion must be justified on the basis of clearly identifiable performance reasons and employee error. Furthermore, demotions cannot target employees based on race or gender.
Discrimination
The Civil Rights Act of 1964 prohibits discrimination in the workplace on the basis of race, color, religion, sex or national origin. The law covers a variety of workplace issues, including hiring, firing, compensation and demotions. When an employee is demoted, the employer must prove that it did not unfairly target an individual or group of individuals; in other words, there was no discrimination involved.
Family and Medical Leave Act
The Family and Medical Leave Act (FMLA) states that an employer must reinstate an employee to the same or equivalent position he held prior to taking a leave for medical or family reasons. Put another way, it is illegal to demote someone because she took a leave of absence justified by law.
Contractual Requirements
Employers must honor contractual requirements for pay and title. Simply put, the firm cannot demote you to a lesser position or pay you less than what is stipulated in your contract just because business is bad. Except under extraordinary circumstances, such as a court-supervised bankruptcy, the employer must honor the original contract or present a clear and justifiable reason for unilaterally disregarding it.