The decision to buy or sell a business is one that comes with a myriad of considerations and compliance implications. Key among these are the employment implications for the staff of the current or selling operator, and their positions post sale or transfer. This area is complex and will require the assistance of a lawyer, however ACAPMA has developed a Transfer of Business Guide to assist businesses in understanding the broader employment implications and options to better inform these discussions with their legal representatives.
Transfer of Business
It is very common for the arrangements at a site to change, and for the parties to consider that there is a change in management, not a transfer of business. However the Fair Work Act applies a very specific test to establish whether, for the purposes of the employees involved, there has been a Transfer of Business, and all parties must understand this detailed area. Failure to appropriately handle any transfers could result in serious penalties.
The test of whether a business is transferring under the Fair Work Act is under section 311(1) of the Fair Work Act, a Transfer of Business occurs from one entity (the old employer) to another entity (the new employer) when;
a) The employment of an employee of the old employer is terminated (this can be for any reason including resignation)
b) The employee joins the new employer within three months of the termination from the old employer
c) The work the employee performs for the new employer is the same, or substantially the same as the work they performed for the old employer
d) There is a connection between the old employer and the new employer
A connection between the old employer and the new employer exists in a number of situations, including when there is an arrangement between the old employer and the new employer, such as when the new employer owns or has beneficial use of some of the old employers (tangible or intangible) assets.
Continuity of Service
Also relevant is section 384(2)(b), which provides that, unless the new employer expressly states otherwise before a transferring employees starts work with the new employer, the employee’s service with the old employer must be recognised for the purposes of determining whether that employee has completed the minimum employment period required before the employee is eligible to bring an unfair dismissal claim, long service leave claim or redundancy payment claim.
“This is an element that regularly causes issues for businesses, where the old business has in fact paid out all annual leave and yet because the new business has not specifically stated that, despite the work location being the same, for the purposes of all entitlements accrual, engagement commences from the date of employment with the new business” explains Elisha Radwanowski, Executive Manager for Employment and Training for ACAPMA.
“We often see new businesses run into trouble because the staff are casuals, so they assume that, because there are no paid leave entitlements to ‘transfer’ there is no need to specifically state that those entitlements are not transferring…but this overlooks the important element of Long Service Leave for casuals. Without a clear termination from the old business and clear new start with specific notice that old business service will not be recognised, the new business will be forced to recognise all service for the purposes of all entitlements, including long service leave for casuals” stated Elisha.
When buying a business that you intend to run with some or all of the current staff there are standard items to consider such as; will all assets and stock move to ownership of the new business in entirety or will some be removed? Are some of the assets under control or ownership of a third party?
Will you be transferring the employees, recognising the service and the entitlements for all employees?, or will the employees be terminated by the selling, paid out all of their entitlements and then offered employment with your new business?
- If employees will transfer with the business it is important that this is communicated to the employees and that the buying business obtains information about staff engagement dates and other pertinent employment documents from the selling business.
- If the employees will be terminated by the selling business it is important that as the buying business you receive assurances from the selling business that all entitlements were paid out. In addition any letter of offer to the employees would need to reflect that the employee may have worked at the location before but for the purposes of all employment entitlements the date of commencement with the new business.
This may seem like a simple decision, however it is important that throughout the sale negotiations the full cost and implication of each choice is well understood, as there are complicating factors that may impact the ongoing cost to the buying business.
One of the areas that a buying business needs to understand when deciding the treatment of employees as part of the transfer is the requirement to transfer the employees current employment instrument.
If the employees will transfer with the business and they are currently covered by an employment instrument that employment instrument transfers with the employee. The employee can only be moved to the new businesses employment instrument if it is demonstrated that the employee would be better off overall under the new businesses employment instrument. This area has ongoing implications and in the case of the employment instrument being an Enterprise Agreement, there could be 4 years or more of managing multiple employment instruments in the workplace, as new staff would not be able to be engaged under the transferred employees Enterprise Agreement.
When Selling a Business
When you are the party that is selling the transferring business all of these considerations get flipped. There is still a requirement for there to be clear understandings regarding staff to ensure that your business is protected. If all staff are transferring then redundancy will not apply, however, if only some of the staff are transferring there may be redundancies applicable in some circumstances. Similarly if the employee entitlements are transferring over to the new business, the selling business should have recognition of this on an employee by employee basis, to combat any queries that may arise in the intervening years. Typically a letter or contractual clause that notes the employees name, start date, calculation date, leave type and dollar amount carried into the new business.
ACAPMA has released a Transfer of Business Guide to assist Members with understanding the broader context and approach with respect to employment considerations of a Transfer of Business.
“This is a common, but complicated legal area, and Members will need to discuss their approach with their legal representative, but the ACAPMA Guide provides the background and practical information to help Members make the best use of time with their legal representatives, as well as templates and examples to make this difficult area more accessible” explains Elisha.
“Members should reach out to firstname.lastname@example.org to request a copy of the Guide” continues Elisha.
Here to Help
ACAPMA members can access resources and can call ACAPMA for advice and support by contacting the employment professionals via email@example.com. HR Highlights are general information for you to consider and do not constitute advice on your specific situation
Elisha Radwanowski BCom(HRM &IR)
Executive Manager Employment and Training