Australia: What happens when my employer sells the business?

When a business is sold, one of the key questions which needs to be addressed is, what happens to the employees still working in the business and their accrued entitlements? This question is a complex one and largely depends on the agreement made between the parties on sale of the business.

However, the Fair Work Act 2009 (Cth) sets out requirements that need to be satisfied during a transfer of business with respect to the employment relationship. This article provides a quick snapshot of the "must knows" when an employer sells a business.

When does a transfer of business occur?

A transfer of business is affected once the following are satisfied:

Firstly, the employment agreement between the old employer and employee must be terminated. If the employee's role still exists within the new business and the employee will be transferring across, he or she must, within 3 months of that termination, become employed by the new employer. Where an employee is transferring over to the new business, there must be a connection between the two entities which could include:

1. The sale or transfer of the assets of the business;
2. Outsourcing of work from the previous employer to the new employer; or
3. The previous employer/entity and the new employer/entity are related entities.

Where a connection is established and existing employees are transferred across to the new business, the work the employee performs for the new employer ought to be substantially the same as the work undertaken for the old employer.

Employees who will not transfer to the new business

If the employee's role is no longer available, for example he or she has been made redundant. Appropriate steps must be taken to provide notice of termination and appropriate consultation for redundancy.

Notice of termination

For those employees whose employment is not transferring across to the new business, their position will be terminated with the previous employer. In this instance, the previous employer must provide the employee with appropriate notice of termination or, make payment to the employee in lieu of notice. Employers must make sure to take all the necessary steps in providing notice in the same way they would to make sure the employee has been terminated fairly.

Redundancy

Redundancy is a common component associated with the sale of a business. This is because, upon sale or transfer, the new employer can elect to not recognise an employee's service with the old employer. Unless otherwise agreed as a part of the terms of sale or transfer, the previous employer is responsible to pay redundancy to the employee upon termination. If, however, the employee is offered a role with the new employer and the role is reasonable - a similar role which recognises the employee's prior service, and he or she rejects the offer, the employee will not be entitled to receive redundancy pay.

Employees transferring to the new business

If the business assets of the previous employer are sold/transferred to a purchaser which is not an associated entity of the previous employer, with respect to existing employees, the purchaser has the option to:

1. not offer them employment; or
2. offer employment, but without recognition of the employee's prior service; or
3. offer employment and recognise the employee's prior service.

Recognition of entitlements

In circumstances where an employee is transferring across to the new business and continuing in his or her role, the new employer must recognise that employee's service with the previous employer in relation to the following entitlements:

1. sick and carer's leave;
2. requests for flexible working arrangements;
3. parental leave; and
4. long service leave.

However, a new employer has the option not to recognise the following entitlements of a transferring employee if they notify the transferring employee of same: Annual leave

If the new employer is an associated entity, the annual leave which has accumulated with the previous employer will be carried across.

Where the employers are not associated entities, the new employer can decide not to recognise an employee's service with the previous employer. They would need to inform the transferring employee of this in writing. Should this be the case, the previous employer is obligated to pay out the employee's untaken but accrued annual leave for the period the employee worked for the previous employer.

Long service leave

In Victoria, a new employer is required to recognise a transferring employee's service with the previous employer for the purposes of long service leave unless a registered agreement applicable to that business and its employees states otherwise. In other words, this means that the transferring employee's period of service with the previous employer will usually count towards that employee's entitlement to long service leave.