Many businesses across Australia are bought and sold every year, and it is common for existing employees to continue working in the same role after the sale. There are several legal considerations to be aware of, for both employers and employees, when a change in ownership occurs. This also holds true in respect of many of the ordinary dealings of business, including outsourcing, that lead to a shift in businesses’ operational requirements. The obligations of past employers and new employers can shift depending on the relationship between the entities, and this can affect employee entitlements and service recognition.
Transfer of Employment and Transfer of Business
A transfer of employment can occur in a number of circumstances including within a transfer of business. Because of this, it is important to understand the distinction between the two concepts. A transfer of employment of a national system employee arises where a person becomes employed by a second employer within three months of the termination of the employee’s employment by a first employer, and the first and second employers are associated entities. Alternatively, a transfer of employment can arise during a transfer of business, as defined under the Fair Work Act 2009 (Cth) s 311, if the entities are not associated.
A transfer of business arises if the new employment begins within 3 months of termination of the old employment, the transferring work is substantially the same as the work performed for the old employer, and there is a connection between the old employer and the new employer under one of the various sets of conditions set out in s 311 of the Act – these include but are not limited to outsourcing of work, insourcing, and transfers of assets, which take transferring work from employer to employer.
Employee entitlements and the right to recognition of continuous service will differ in each case.
When a transfer of employment occurs, and the following conditions are met:
- The new employer is an associated entity of the old employer, and
- An employee becomes employed by the new employer within 3 months of their termination by the old employer (Watson v Oliver-Ramsay Group Pty Ltd  FWC 221);
the new employer must recognise an employee’s service such as sick and carer’s leave, parental leave and requests for flexible working arrangements as well as the employee’s service with the old employer for the purposes of redundancy and annual leave entitlements, leading to a continuity of service between employment with the old and new employer.
However, this is not always the case.
For example, where there is a transfer of business leading to a transfer of employment, a new employer who is not an associated entity of the old employer when the transfer occurs has the right to choose not to recognise an employee’s past service with the old employer for the purposes of redundancy entitlements and annual leave accruals when offering that employee a new job. It is the obligation of the old employer, on termination, to pay out those entitlements to the employee in those circumstances.
However, it is important to be aware that an employee is not entitled to redundancy pay if the offer of employment from the transferee employer is rejected and:
- The terms and conditions of the new job are similar to those of the old job;
- The new employer recognizes the employee’s service for the purposes of accrued redundancy entitlement; and
- If the new job had been taken, there would have been a transfer of employment.
What is an “associated entity”?
The Fair Work Act 2009 (Cth) makes frequent mention of associated entities, as you will note from the foregoing. It relies on the definition in s 50AAA of the Corporations Act 2001 (Cth) as to what this term means. Per that legislation, two entities may be associated where the associate and principal (old employer) are related bodies corporate; the principal controls the associate (new employer); the associate has a qualifying investment in the principal; or a third entity controls both the principal and the associate.
Transfer of Business
When a transfer of a business occurs, workplace instruments (transferable instruments) that covered employees of the old employer may continue to cover those employees who are now employed by the new employer. Transferable instruments can include; an agreement (such as an enterprise agreement approved by the Fair Work Commission, collective agreement etc); a workplace determination; a named employer award; individual flexibility arrangements; and a guarantee of annual earnings.
If a transfer of employment has not taken place, an employee may be entitled to redundancy. If an employee questions their termination of employment, they may lodge an unfair dismissal claim. An unfair dismissal case cannot be made if the dismissal was a case of genuine redundancy. A case of genuine redundancy includes;
- Due to changes in the operational requirements of the business, the employer no longer requires the job to be performed by anyone; and
- There has been compliance by the employer with any modern award obligation or enterprise agreement.
Transfer of business between non-associated entities
Every case is different and will turn on its own special circumstances.
If ever you are not sure about the transitioning of employees either out of your business or to another business, you should seek legal advice specific to your situation.