Transfer of Business Considerations Regarding Employees Caitilin Watson, Partner

Employees for Sale

Overview Transfer of business – what happens to employees? • How does it impact on employees’ continuity of service once they transfer to the new employer, • What entitlements transfer with the employee? • What entitlements can be left behind? • What can the incoming purchaser do to manage its relationship with employees?

Transfer of Business: What is it? Fair Work Act 2009 section 311: transferring employee or transfer of business

When does a Transfer of Business occur? The first three criteria under section 311(1) are as follows: The employee’s employment with the old employer must have terminated; Within 3 months of the termination, the employee must have become employed with the new employer; and The employee’s work with the new employer must be the same, or substantially the same, as the work performed with the old employer.

When does a Transfer of Business occur? (Cont.) The last criterion for a Transfer of Business is that there must be a connection between the old employer and the new employer (within the type described in section 311(3) – (6)), summarised as follows: There is a transfer of assets from the old employer to the new employer; The old employer outsources work to the new employer; The new employer ceases to outsource work to the old employer; or The new employer is an associated entity of the old employer.

Reminder – Associated Entities Section 50AAA of the Corporations Act 2001, including the following: If the entities are related bodies corporate; If the first entity controls the second entity; If the first entity has a qualifying investment in the second entity, the first entity has significant influence over the second entity and the interest is material to the second entity.

So what? A Transfer of Employment affects employment entitlements in the following ways: Continuity of service Redundancy pay Annual leave

What happens when there is a Transfer of Business? (Cont.) Unfair Dismissal eligibility Notice of termination f. Long service leave

Reminder check for EBA / Modern Awards Transferable Instruments: Some employees are covered by instruments such as enterprise agreements or a workplace determination. Those instruments may continue to apply to transferring employees once they transfer to the new employer. Modern Awards (which set the minimum entitlements in various industries) will apply in accordance with their own terms.

Example

Key tips Due diligence should include employees of the business; In particular, the new employer should consider whether any transferring employees are covered by a ‘transferrable instrument’; The new employer should consider seeking an adjustment to the business’ purchase price for specific entitlements; The old employer should ask whether service will be recognised by the new employer; Seek advice.