Employee Entitlements in Transfer of Business

The sale of a business is a complicated process. Business owners (seller/old employer) have to perform valuations, align all their paperwork, and draft contracts, among other things. They have to think about their employees and whether they will go on to work with the new employer or be terminated altogether. This guide will focus on the transfer of business provisions under the Fair Work Act.

Employee Entitlements in 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

When Does a Transfer of Business Occur?

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).

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.

Transferring Employee from One Business to Another

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

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. Should the transfer of business happen before the 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.