The Fair Work Act contains detailed and complex provisions regarding “transfers of business”, the most common type of which is when a business is bought or sold.
It may not be immediately obvious as to what business sales or purchases has to do with employment law, but there are several obligations that arise in this situation regarding employees affected by the transaction.
Often when a business changes hands the new owner will want to retain some (if not all) of the staff and may consider it is a simple matter of offering the employees the terms and conditions they see fit. They may also want to start the employees’ leave and other entitlements from scratch, rather than having the employees’ entitlements “carry across” with them.
Unfortunately the provisions of the Fair Work Act mean that it is rarely possible to do this and the law imposes strict rules about recognising a transferring employee’s entitlements.
In particular the law operates so that:
- Transferring employees’ personal/carer’s (“sick”) leave balances will always transfer with them to the new employer
- Long service leave balances will also always transfer – the old employer cannot simply pay the leave out
- The new employer can refuse to recognise an employee’s annual leave balance, if they inform the employee in writing before the transfer. In this case the old employer will need to “pay this out”
There are also complex rules around redundancy payments and transfers of business. In essence, if the new employer offers an employee less favourable conditions than they currently receive then the old employer will have to make a redundancy payment to eligible employees – regardless of whether the employee accepts or rejects the offer of the role from the purchaser!
Tips for buyers and sellers
Because the actions of the seller and purchaser can materially affect each other’s position (causing redundancy payments to be payable, making the other liable for leave liabilities, etc) it is advisable that the sale/purchase agreement clearly sets out the obligations regarding staff, such as:
- Details of which employees the buyer agrees to take on
- A guarantee that the new owner will offer them equivalent terms and conditions
- Which entitlements the new owner will or will not be recognising (to the extent that the law allows them any choice in the matter)
It is also usual for the sale/purchase agreement to include a discount from the sale price where the new owner is taking on leave liabilities.
Given the new owner will be “inheriting” many of the employee’s entitlements it is also strongly advisable for the new owner to carry out “due diligence” to check that the employees have been paid correctly and that correct records about leave balances exist.
We have produced a free downloadable guide on the rules around transfers of business. Please don’t hesitate to contact us if you require any assistance in understanding your rights and obligations in this area.
The information provided in these blog articles is general in nature and is not intended to substitute for professional advice. If you are unsure about how this information applies to your specific situation we recommend you contact HR Connect for advice.