Where a business changes hands it is important to ensure that employees who have accrued entitlements under the former employer will not lose their entitlements during the transfer to the new employer. The transfer of business provisions under the Fair Work Act 2009 (Cth) (‘the Act’) covers situations when there is a transfer of business. The second business owner must recognise the employee’s services when working out most of their entitlements. At the same time, there are also certain entitlements that the employer does not have to recognise.
The sale of any business can impact the employment and entitlements of existing employees. For legal advice and services suited to your needs, contact a LawPath consultant or get in touch with a business lawyer on LawPath.
What are the ‘transfer of business’ provisions?
Under the Act, the transfer of business provisions deal with situations where a business is transferred from one national system employer – such as a company – to another. Following this transfer, there may be an ‘instrument’ – such as an award or an agreement – which is binding on the new employer. The transfer of business provisions seek to protect employees during the transfer of a business from one owner to another, by ensuring that they retain the entitlements they have accrued with their former employer.
When does a transfer occur?
The Act provides that a transfer of business takes place when:
- The employee is terminated under the old employer;
- Within three months after termination the employee is employed by the new employer;
- The work the employee performs for the new employer is the same or substantially the same as the work performed under the previous employer; and
- A connection exists between the two employers.
What is a ‘transferable instrument’?
Following the transfer of business, an ‘instrument’ covering the employee of the former employer may continue to be binding on the new employer. The following may constitute a transferable instrument under the Act:
- An agreement;
- A workplace determination; or
- An award.
The transferable instrument will cover an employee while they are working for the new employer until the instrument is terminated, or until a new instrument is created which can cover the employee.
If you have purchased an existing business, your employees may be covered by a registered agreement with their previous employer under the transfer of business rules. To learn more about your rights and obligations contact a LawPath consultant or get in touch with a business lawyer.
What happens to employee entitlements on a transfer of business?
Generally, where there is a transfer of employment the employee’s service with the old employer should not be broken by the transfer. The new employer must recognise employee service by way of entitlements, including:
- Sick and carer’s leave;
- Requests for flexible working arrangements; and
- Parental leave.
However, there are some entitlements that do not have to be recognised. Under the National Employment Standards, where the new employer is not an associated entity of the old employer, they can decide not to recognise:
- Redundancy pay;
- Annual leave; or
- Unfair dismissal.
As a result, the old employer may have a responsibility to pay the affected employees their accrued entitlements.
If the employee has already received service entitlements from their former employer, that service will not be counted in determining entitlements by the new employer. For example, if an employee has been paid rather than given a notice of termination, any notice of termination by the new employer will not be determined based on service with the former employer.
As an employer or manager of a business, it is important to understand your rights and obligations concerning the records and entitlements of transferring employees. To ensure your compliance with the transfer of business provisions under the Fair Work Act 2009, you get should contact a business lawyer. Alternatively, you can find out more about the transfer of business rules on the Australian Fair Work website.
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