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Transfer of Business

Frequenty Asked Questions

Transfer of Business

I sell my business and the new owner offers to recruits my employees on the same terms and conditions. The new owner refuses to recognise service of transferring employees for the purposes of unfair dismissal laws, so that he has a full 6 months to see if he wants to keep the employees. Am I exempt under s 122 of the FW Act from making redundancy payments to transferring employees?

Probably not, because a condition for that exemption is that the new employer recognises prior service with the old employer.

I acquire a factory and recruit its production workforce. The factory workers are covered by an enterprise agreement. I already have a current enterprise agreement that covers the work of the transferring employees. Which agreement do I have to observe for the transferring employees?

The enterprise agreement that covered the workforce of the factory you have purchased, until you make and implement a new enterprise agreement.

I agree with an employee to transfer his employment from a subsidiary to a holding company but only on terms that the subsidiary company payout his annual leave upon transfer. Is that agreement effective?

No. The new employer in a transfer of employment situation can only decide not to recognise the transferring employee’s service with the old employer for the purposes of annual leave where the transfer of employment is between non-associated entities. The old employer could only cash out annual leave immediately before the transfer, subject to Fair Work Act rules (see section 94). If that occurs lawfully, then because the transferring employee has already had the benefit of annual leave calculated by reference to a period of service with the old employer, the new employer does not need to count that service when calculating the employee’s entitlement (section 22(6)).

I take over a gym and recruit the staff. However rather than recruit the staff to work in the gym I’ve taken over, I recruit them to work in another gym on the other side of town. Do I have to recognise the periods of service the employees had with the old operator?

No. The transferring employees have to either use the assets you acquired from the old employer, or there has to be some other relationship between the assets and their work, in order for the FW Act transfer of business provisions to apply.

On Monday I take over a Victorian café business and employ the wait staff and use the equipment left behind by the outgoing operator who ceased trading the previous Friday. I have not had any communication with the outgoing operator or anyone on his behalf. Do I have to recognise the periods of service the employees had with the old operator?

Only in respect of long service. In respect of other service-based entitlements the absence of any arrangement between the old operator and you permitting your use of the old operator’s assets means the FW Act transfer of business provisions will not apply.

I plan to retrench more than 15 employees who are not union members or covered by an award or enterprise agreement. Do I have an obligation to consult with employees?

No, but the Fair Work Commission may create that obligation. A union with relevant coverage over the employees being retrenched, or the employees themselves, can apply to FWC for orders requiring that consultation (section 531 Fair Work Act). The union can make this application even if it does not have any actual members affected by the retrenchments.

The enterprise agreement I made under the Fair Work Act does not contain a consultation procedure. Does that mean no procedure applies?

No. If an enterprise agreement does not include a consultation term, a model consultation term prescribed by the Fair Work Regulations (Regulation 2.09, Schedule 2.3) is taken to be a term of the agreement.

My organisation is proposing workplace change that is permitted by a modern award, but is still likely to have a significant effect on employees covered by the award, do I have to comply with the consultation procedure in that award?

No. Where the award makes provision for alteration of any of these matters an alteration is deemed not to have significant effect. For example, under the Clerks-Private Sector Award the employer can change the days on which a part-time employee works by giving one week’s notice of the change (clause 11.4).

e have bought a new business and are keeping some of their old employees. Do I need to issue a new Fair Work Information Statement to these employees?

Yes. The Fair Work Information Statement contains information about how transfers of business can affect an employees’ employment entitlements.

What will happen if I don’t consult with my employees about organisational change generally?

It depends what the change is, and whether your employees are covered by a modern award or enterprise agreement.

Award/Agreement covered employees:

Non-compliance with a consultation obligation arising under a modern award or enterprise will expose an employer to legal claims from either affected employees, a union representing those employees or the Fair Work Ombudsman.

In 2010 the Federal Court fined QR National $249,600 for its failure to comply with its enterprise agreement obligation to consult with employees about changes to employment arrangements flowing from its plans to privatise some of its operations. The relevant unions brought that proceeding. The evidence showed that the failure to consult did have a material impact on affected employees.

Award/Agreement free employees:

Whilst it is considered best practice to consult with employees about major workplace change, it is not necessarily an obligation set in place by the FW Act for those employees who are award and/or agreement free. Failing to consult with your employees in some situations (e.g. mergers with other companies, or acquisitions of other companies) may be a practical and deliberate necessity, particularly if there is a chance that confidential merger negotiations may be affected, or jeopardised as a result. On the other hand however, and in other less sensitive circumstances, failure to consult with employees may erode the trust which has been established between employer and employee and could have negative impacts on your business. These may include lowered morale, motivation and engagement.

What does “associated entity” mean?

Entity means a natural person (e.g. Bill Bloggs), a body corporate (e.g. BB Pty Ltd), a partnership (Bill Bloggs and Sons) or a trust (Bill Bloggs as trustee for the Bill Bloggs Family Trust).

Section 50AAA of the Corporations Act 2001 (Cth) defines associated entities. An entity is associated with another entity if they are members of the same corporate group, or if one entity has a certain degree of control over the other. For example, 2 companies are associated entities if one controls the composition of the board of another, such that the second company is a subsidiary of the first.

The control might also arise in other ways, such as under a business loan agreement by one individual to another which requires that the lender approve all significant financial and operational decisions that the borrower makes as part of his or her business. By reason of this control, the borrower and the lender are associated entities.

What does transferable instrument mean?

The Fair Work Act (FW Act) provides that certain industrial instruments are “transferrable” in a transfer of business situation and continue to apply to employees who transfer from the old employer to the new. Some examples of these “transferrable instruments” include:

  • Enterprise agreements
  • Awards
  • Workplace determinations
  • Individual flexibility agreements
  • Guarantee of annual earnings
  • Australian workplace agreement and ITEA.

Why do I need to know about transfer of business laws?

HR practitioners need to be across transfer of business provisions in order to manage the liabilities of their organisation appropriately and provide support and advice to key leadership about the risks and advantages of this form of change. Whilst it will vary from business to business as to whether HR professionals are directly involved in managing the process of planning transfer of business situations (be it a take-over, business sale, merger or otherwise), HR professionals will inevitably be responsible for managing the effects on employees which are triggered by such change, including; recognition of employment entitlements such as continuity of service, redundancy, long service leave and consultation obligations.

What is a transfer of business?

A transfer of business occurs if a number of conditions are satisfied. These are set out by the Fair Work Act and include:

  • There is a national system employee employed by a national system employer
  • The employee ceases employment with the first employer (the old employer) and becomes employed by another national system employer (the new employer) within 3 months after ceasing employment with the old employer (transferring employee)
  • The work the transferring employee performs for the new employer is the same, or substantially the same, as the work the employer performed for the old employer (transferring work).
  • There is a relevant connection between the old employer and a new employer. Relevant connections include:
    • Transfer of assets;
    • Outsourcing;
    • Insourcing; and
    • Associated entity relationship.

In order for the transfer of business provisions to apply, there must be at least one employee who has transferred from the old employer to the new employer.

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