OP, that is a terrible choice to have to work with. One I've never had to deal with, since most promotions I've gotten were that - more pay but more responsibility and work. If you're getting the latter two but not the former, then that is just crappy of the company.
As being someone who manages other peoeple, I can tell you that if you give an employee a yard, they take a mile. What most people here hate to admit is that the same works for management sometimes.
My advice, like others have said is to accept the position for the time being and cut bait ASAP. If you have an exit interview, explain to them that the only reason you accepted the "promotion" was because they threatend your livelyhood - and now you have the opportunity to repay the favor.
Their are jerks in every level of employment, small business owners are not exempt.
On a side note, I am very surprised we havent seen the, "Just suck it up," response more today.
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