I would be careful. It is legitimate for an employer to dismiss an employee if the employee is not fit to do his job. This applies even if the employee is unable to do the job due to certified illness. It is unfortunate but the employer is not responsible for the employees problems, however difficult they my be.
Therefore, you may win the battle (on demotion) but lose the war (by being dismissed without compensation).
Your employer cannot reduce your pay retrospectively, which it sounds like your employer has done. However, you may not be entitled to pay while on sick leave. You should check the company policy on that if there is one.