Employee entitlements are an important consideration in any sale or purchase

NB Lawyers – lawyers for employers are assisting a number of clients with business sale transactions.  One of the main considerations by many Employers in Australia who are looking to sell their business is the question around employee entitlements and legal obligations when selling or transferring a business.

There are 2 main situations in a sale.

The first is the sale of shares of the company to a purchaser. This does not trigger a termination of employment event.

On the other hand, if the company itself is sold to another organisation then this will trigger a transfer of employment.  That is, if the purchaser wishes to continue the employment of the employee.  The employee themselves will also have the option of accepting or rejecting any offer of employment.

What is a transfer?

The Fair Work Act 2009 (Cth) states clearly what will be a transfer of business:

  1. The employment of an employee (transferring employee) with the old employer has terminated; and
  2. Within 3 months of that termination, the employee becomes employed by the new employer; and
  3. The work the employee performs for the new employer is substantially the same as the work employed for the old employer; and
  4. At least one of the following connections exits between the old employer and the new employer:
  • The business assets of the old employer are sold/transferred to the new employer; or
  • The old employer outsources its work to the new employer; or
  • The old employer and the new employer are associated entities – meaning in practical terms, either has a controlling interest in the other.

In the instance of a sale of a business if the employees are offered the same or greater terms and conditions of employment and it is agreed to – this will trigger a transfer of employment.  

Option 1 – No offer of employment

The purchaser may not make an offer of employment.

If this occurs, the current employer (the seller) must then pay redundancy pay to the employee as the role is now redundant. The role would officially be terminated upon completion of the sale.

Option 2 – an offer of employment – without recognising prior service

An option for a purchaser is to make an offer of employment for a transferring employee however refuse to recognise prior service.

This will obviously need to be formalised by the sale agreement and letters to the employees explaining this transfer.  This will, in practical terms reset the clock for the purposes of a probationary period and unfair dismissal (minimum employment period exemption) claims.

In this option, the old employer will be responsible for pay out of annual leave and long service accrued and potentially redundancy pay.

Option 3 – Offer of employment with recognition of prior service          

It may well be that the purchaser wishes to recognise prior service. This is usually done in instances where minimum business interruption is required and when key personnel are involved.

All accrued entitlements will then transfer.

The business sale agreement will set out the percentage of the entitlements considered in the purchase price or as a liability.

Bonus – What happens if a transferring employee rejects an offer of employment

If the offer of employment with the buyer and new employer is rejected – the redundancy pay usually owing by the old employer will not be payable.

As long as the offer of employment was made on substantially the same terms and conditions of employment.

Are you looking to purchase or sell your business? Are you looking to grow your organisation by acquiring another business?  – discuss the implications with the lawyers for employers first– give NB Lawyers – Lawyers for Employers a call and we can offer an obligation free consultation to work through some of the steps worth taking.  Reach out via service@nb-lawyers.com.au or +61 (07) 3876 5111 to book an appointment.

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Written By 

Jonathan Mamaril 

Director

NB Lawyers – Lawyers for Employers 

jonathanm@nb-lawyers.com.au 

+61 (07) 3876 5111 

Jonathan Mamaril leads a team of handpicked experts in the areas of employment law and commercial law who focus on educating clients to avoid headaches, provide advice on issues before they fester and when action needs to be taken and there is a problem mitigate risk and liability.  With a core value of helping first and providing practical advice, Jonathan is a sought after advisor to a number of Employers and as a speaker for forums and seminars where his expertise is invaluable as a leader in this area as a lawyer for employers.
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