Advisor miscalculated the personnel budget for research grant
Is it possible for them to “demote” me to a lower level, part time, or similar?
In my experience, it is much less complicated (legally and bureaucratically) to transfer the required money from other sections of the grant such as travel or publication costs.
How should I go about dealing with this?
There are usually many culprits in such a situation (and you are not amongst them):
The funding organisation should have noticed that the alloted personal costs do not suffice for a PhD student (assuming that 100 % is the standard for PhDs in your field).
In fact, I have heard that some funding agencies explicitly fund a PhD position with a certain part-time level or full-time (depending on the field) for a certain period of time – as opposed to funding a certain amount of money that exactly suffices for this. This way, the detailed sums (which not only depend on your level, but on many other factors such as location and similar) are left to the bureaucrats to determine and to move and scientific personnel (such as your supervisor) should never have to worry about this.
When issuing your contract, your university’s administration should have checked that they have the required funds to pay your salary for the duration of your contract.
Your supervisor may or may not have had the responsibility to check this.
So, even if your supervisor made a mistake, so did the others. However in contrast to your supervisor, those are trained bureaucrats whose job only exist to do things like these and who do this on a daily basis. Hence, I suggest to try to unite against these with your supervisor. Not only do they have no real power over you (not being members of your “boys’ club”), but they also have access to general funds to cover for such mistakes¹.
¹ I witnessed a case where a PhD student got paid too much over a year due to being assigned to the wrong level (i.e., a situation similar to yours) and they did not have to pay back more than legally required (the past few months) nor was this money deduced from the grant that paid them.
Let me summarize the key points of your situation:
- You have an employment contract over the full period of the project at a German university.
- The tariff you're employed under (which should be defined in your contract) stipulates a salary increase after a certain number of years in the same position.
In that case neither you nor your advisor can prevent that you get the salary rise that the tariff agreement stipulates here. The contract can not be changed against your will, and the salary increase can not be ignored. The staff administration of your institution will automatically adjust your salary when it's time to do this, and it will be up to the financial department of your institution, potentially in coordination with your advisor, to find additional money to pay your increased salary. Remember, it's not your advisor who pays you, it's the institution that is employing you.
In fact, while you interpret this to be your advisors fault, the final responsibility is with the financial / personnel department of your institution. They should have verified that the project has enough budget before giving you the contract they have given you. In my experience, all universities I've worked at in Germany were very careful (sometimes overly careful) in getting these things right. Apart from this department having made an error, another reason I can think of is that your advisor might have proposed also another budget for this at the time your employment contract was being prepared, and then they will just make use of that.
My advice for further action would be to do nothing at the moment and to not worry about this. When it's time for your salary increase to come into effect, check that this is indeed adjusted. If this should not be the case, communicate to the staff administration, and ask them why they didn't adjust it. There's no need to get into a discussion with your advisor about this - it's not an issue between him and you.
I think this issue should not be solved on the legal layer, thus, this is no legal advice here.
Is it possible for them to “demote” me to a lower level, part time, or similar?
As far as I know: NO. However, you should have a look into the contract between you and your employer. Usually, it says something like payment according to TVÖD and full-time employment. So they cannot change this simply without your agreement, as far as I know.
This was an error from my advisor. I can imagine that eventually I will have a meeting with the chairing professor and my advisor to discuss this. What can they ask from me? What can they legally ask/demand from me?
It's not about "who made an error". The error has happened and you should try to solve it together. How it can be solved depends largely on your institute's financial situation.
[...] But I also refuse to being taken advantage of, specially since PhD students already work a lot of unpaid overtime, and this would set a terrible precedent for future colleagues. How should I go about dealing with this?
You should not have to bear large disadvantages, that should be your goal. However, you could end up with something like: You work on your project as long as funding is available. After the money has run out, you are (forcefully) shifted to another project that is not even barely related to your research (e.g., some industry project). If that is the only option due to financial shorts in your institute, there might not be much you could do against it.
BUT: Talk to your advisor, talk to your professor, etc. etc. Try to find a solution together. Your main goal must always be to advance in your research and to finish your PhD. In many cases, there may be additional funds available. In some cases this might not be possible, unfortunately. So if your advisor is very satisfied with your research and money is available, he might continue funding your work with other money. If have seen these cases, where the original funding has run out but the professor and/or advisor made it possible for the PhD student to continue and finish the topic. Be prepared to present good results of your work and show that investing additional money is a good idea!