The sale of a business is a complicated process. Business owners (seller/old employer) must perform valuations, align all their paperwork, and draft contracts, among other things. They must think about their employees and whether they will go on to work with the new employer or be terminated altogether. During a sale or restructuring or even takeover, there are complicated situations and processes to undergo. Business owners have to think long term about the implications of a sale or transfer of business.
In this guide for employers, we discuss the transfer of business provisions under the Fair Work Act. We also briefly visit the idea of transfer of employment and what it means for employees and employers.
Please note that the information provided below is general in nature and does not constitute as legal or financial advice. If you need help regarding transfer of business, consult a professional.
Transfer of business
Old employers who are planning to sell their businesses have limited options when it comes to managing their employees. Employees can transfer to the new employer if the new employer chooses to offer them ongoing employment or the old employer must end their employment. But the law requires that employers fairly treat employees through the change by:
- Providing notice.
- Finalising payments (inclusive of any notice and redundancy pay owing).
The Fair Work Act 2009 requires old employers to provide employees with official notice in writing, irrespective of whether the employees’ transition to the new employer or cease working with the business.
Transfer of business provisions under the Fair Work Act
A transfer of business happens when all the following criteria are met, as specified in the Fair Work Act:
- When the employment contract between the transferring employee and old employer ends.
- When the new employer hires the transferring employee within three months of termination.
- When the transferring employee essentially does the same work for the new employer as they did for the old employer.
One or more of the following connections between the new employer and old employer must exist:
- Old employer’s business assets are transferred or sold to the new employer.
- The new employer and old employer are associated entities.
- The old employer outsources its work to the new employer.
- The previously outsourced work is insourced.
The transfer of employment happens in two cases, where the transfer is between associate entities or non-associated entities. The former involves related bodies corporate or where the new employer controls the old employer (and vice versa).
Associate entities
An entity may be an associate entity of another entity (the principal) in the following circumstances:
- The associate and principal are related bodies corporate.
- The principal controls the associate.
- The associate controls the principal and the operations, resources or affairs of the principal are material to the associate.
- The associate has a qualifying investment in the principal, has significant influence over the principal and the interest is material to the associate.
- The principal has a qualifying investment in the associate, has significant influence over the associate and the interest is material to the principal.
- A third entity controls both the principal and associate and operations, resources or affairs of the principal and the associate are both material to the third entity.
Transfer of employment between associate entities
Any service with one employer (the first or old employer) will count as service with another employer if certain conditions are met:
- The second employer is an associate entity of the first employer.
- The employee becomes employed by the second employer within 3 months of their employment being terminated by the first employer.
Transfer of employment between non-associate entities
Service with one employer (the first or old employer) will count as service with another employer (second or new) that is not an associate entity of the first employer, if the employee is a transferring employee in relation to transfer of business from the first employer to the second employer.
Transferrable instrument
When a transfer of business occurs, specific industrial instruments that covered employees of the old employer may continue to do so when the employees transition to the new employer. These instruments include:
- Enterprise or Individual flexibility Agreements.
- A workplace determination.
- Guarantees of actual earnings.
However, applicable modern awards do not transfer across.
Orders can be sought from the Fair Work Commission to prevent a transferrable instrument from transferring.
These workplace instruments will cover the transferring employee even as they work under the new employer until it’s terminated or until a new job instrument starts, which can cover the transferring employees.
Transfer of employment
Once all the above requirements are met, the new employer must consider the period of service that the employee in question has had with the old employer when figuring out most of their entitlements with the new employer, including:
- Parental leave.
- Request for flexible working arrangements.
- Personal/carer’s leave.
If the new employer is an associated entity or recognises the service, then the employee’s transfer to the new employer with all entitlements and continuous service recognised. There is no termination of employment.
The new employer must give notice in writing to the employee that it will not recognise service prior to the commencement of the employee’s employment with the new employer for this exception to apply. Previous service will usually still count for the purposes of calculating long service leave depending on the relevant state legislation.
Exceptions
Certain exceptions exist when it comes to continuous service. In situations where the new employer isn’t an associated entity of the old employer, he or she may choose not to recognise a transferring employee’s previously accrued service for the purposes of redundancy pay, annual leave under the National Employment Standards (NES), or unfair dismissal.
In this case, the old employer must pay the employee redundancy pay, notice, and accrued annual leave on termination.
The transferring employee may not be entitled to redundancy pay if they turn down the job offer from the new employer and:
- The new employer acknowledges their service with the old employer.
- The terms and conditions are similar to their previous employment with the old employer.
- The employee’s acceptance would have resulted in a transfer of employment.
Unfair dismissal
Under the Fair Work Act, a transferring employee is protected from unfair dismissal where service is recognised and where they have served the “minimum employment period” with the old employment at the time of their dismissal, and when at least one of these apply:
- The total of their yearly earnings is less than the high-income threshold.
- An enterprise contract applies to the employee regarding their employment.
- A modern award covers the transferring employee.
Things to remember for employers
Transferring a business can be a stressful experience for employees.
Communication comes in handy during this phase of change. As the transfer is ending the employee’s employment, old employers must provide notice or payment in lieu of notice to all staff. Consider having staff meetings or 1-2-1 meetings so that the employees are aware of the transfer of business.
Should the transfer of business happen before an employee’s notice period elapses, the old employer should still pay the remainder of the notice period to their employees even if they continue to work for the new employer.
Simplify your business with Peninsula
A business will undergo many changes in its lifetime. Sometimes it may include the sale or transfer of a business. Handling your responsibilities as a business owner and employer may become trickier during these situations. Are you aware of the duties you have during transfer of employment? What do you do with new employees in these situations? Peninsula is here to help you. Call our expert team.
This article is for general information purposes only and does not constitute as business or legal advice and should not be relied upon as such. It does not take into consideration your specific business, industry or circumstances. You should seek legal or other professional advice regarding matters as they relate to you or your business. To the maximum extent permitted by law, Peninsula Group disclaim all liability for any errors or omissions contained in this information or any failure to update or correct this information. It is your responsibility to assess and verify the accuracy, completeness, and reliability of the information in this article.