The advice in this article is very general, and won’t apply to every situation. While this is relevant for national system employers, please be aware that sole traders and partnerships in Western Australia are not affected by specific provisions.
Alan owns and runs a business selling timber called Woods “R” Us. Alan is negotiating with Barbara for the sale of the tangible and intangible assets. Alan and Barbara’s companies are not associated entities according to corporate law.
Most employees will transfer their employment from Alan’s employment to Barbara’s on the sale of the business.
1. All employers are required to keep certain records about their employees, to document compliance with the Fair Work Act 2009, and other obligations such as superannuation and income tax. When a business changes hands, and employees are employed by the new owner, in this instance Alan is required to give Barbara the employment records.
2. In the situation outlined above, Barbara is required to recognise employees service with Alan for the purpose of personal/carer’s leave’. If one of Alan’s employees has six weeks of accrued personal/carer’s leave at the time of the sale, and is employed by Barbara, and then two weeks later has an accident and needs six weeks off work, it is Barbara who is required to pay the employee six weeks of personal/carer’s leave.
3. In most situations, state and territory legislation about long service leave expressly requires that Barbara would need recognise an employee’s service with Alan for long service leave. In this case, one of Alan’s employees has worked for Alan for 9.5 years at the time of the sale of business, and transfers employment to Barbara. After six months of employment by Barbara (if Woods “R” Us is located in Victoria) the employee will be entitled to take two months of long service leave, paid for by Barbara.
4. Employees are required to serve a minimum employment period (MEP) before they can make a claim that they have been unfairly dismissed. For businesses with fewer than 15 employees, the MEP is twelve months. For businesses with 15 employees or more, the MEP is six months. If Barbara informs employees in writing before employment commences with her that service with Alan won’t count for the purpose of access to the unfair dismissal jurisdiction, then Barbara will have the benefit of a new MEP.
5. Alan can extinguish annual leave, notice of termination, and redundancy if appropriate action is taken. This would mean that Barbara would not take on annual leave liabilities relating to employment with Alan and she would only be required to give notice of termination, or pay redundancy, for periods of service expressly served with under Barbara’s employment.
6. All modern awards, and every enterprise agreement made since 1 January 2010, contain a consultation clause. These clauses require consultation with employees about changes that will have a significant effect on employees. The termination of an employee’s employment is considered a significant effect – and transfer of employment involves the termination of employment with Alan, and commencement of employment by Barbara. ‘Alan would be obliged to consult with employees about the change.’ This involves meeting the employees, giving them information in writing, and giving them a chance to consider their options.
7. Employees cannot be automatically transferred to a new employer, so Barbara would need to formally offer Alan’s employees a position, and they would need to accept the offer for employees to transfer over to Barbara.
8. Transferring employees must have their service with Alan recognised by Barbara for some purposes (see above). Even if Barbara doesn’t employ some employees until up to three months after the transfer of business, she is still required to recognise service with Alan for long service leave, personal/carer’s leave, parental leave, and potentially other entitlements as well.
9. Barbara may decide not to recognise employees’ service with Alan for the purposes of redundancy and Alan may be required to pay redundancy to the employees. However, a transferring employee is not entitled to a redundancy payment if they reject an offer of employment with Barbara that is on similar terms, and recognises service with Alan for the purposes of redundancy. This would only apply if Barbara undertakes that if she makes an employee redundant, she will count service with Alan when determining how much redundancy to pay.
10. Some enterprise agreements are ‘transferring instruments’, so an enterprise agreement that Alan made with his employees will transfer with the employees, even if Barbara has an enterprise agreement that could otherwise cover the transferring employees. This is true even if the agreement has passed its expiry date, because they continue to be enforceable documents until terminated by the Fair Work Commission, or replaced by another agreement.
Buying and selling a business is a complex transaction. Purchasers and vendors need to make sure they have appropriate professional advice before signing contracts.
Emma Watt is an independent industrial relations consultant with almost 20 years’ experience in the timber industry.
Phone: 0411 708 073 or Email: email@example.com