In Australia, selling and transferring a business is very common. Business owners may wish to sell or transfer an existing business for personal reasons — for example, no longer wanting to continue running it — or for commercial reasons.

Transferring ownership of a business can involve many issues. For example, how to complete tax-related obligations, how to pay off all expenses and bills, how to notify relevant parties about the transfer or sale of the business, how to transfer leases and licences, and how to transfer assets and other business records.

When a business is sold or transferred, what happens to its employees? Does the transfer of the business mean they can be made redundant at will, and does it mean their jobs will be lost? Today we will discuss what rights employees of the original employer have when a business is transferred.

Under what circumstances does a business transfer occur?

1. The employee’s employment with the original employer has been terminated; and

2. Within 3 months of the termination, the employee is employed by the new employer; and

3. The work the employee performs for the new employer is substantially the same as the work performed for the former employer; and

4. There is at least one of the following connections between the old employer and the new employer:

– The 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.

If a business is transferred or sold, the new employer must, when calculating existing employees’ entitlements, recognise their service with the old employer, including:

1. Sick leave and carer’s leave

The new employer cannot choose whether to recognise the employee’s service with the old employer. Accordingly, the new employer must recognise all accrued, untaken personal leave that the employee accumulated with the old employer.

2. Requests for flexible working arrangements

3. Parental leave

Other entitlements

However, there are some entitlements that the new employer is not required to recognise. These include:

1. Redundancy

Where the new employer and the old employer are not associated entities, the new employer may choose not to honour the employee’s redundancy entitlement from the old employer. In that case, when the business is transferred or sold, the old employer must pay the employees their redundancy entitlement on termination of their contracts.

2. Annual leave

In relation to employees’ annual leave, two scenarios may arise:

The new employer may choose whether or not to recognise the employee’s service with the old employer.

If the new employer chooses to recognise the employee’s service, all accrued, untaken annual leave will transfer with the employee to the new employer. The old employer does not need to (and should not) pay out the accrued, untaken annual leave before the employee is employed by the new employer.

If the new employer chooses not to recognise the employee’s service with the old employer, then the old employer must calculate and pay out the accrued, untaken annual leave before the employee is employed by the new employer.

3. Long service leave

In certain circumstances, the new employer may not be required to recognise the employee’s service with the

old employer when calculating long service leave entitlements.

4. Unfair dismissal

In certain circumstances, the new employer may not recognise the unfair dismissal entitlements the employee had with the old employer.

This may occur where:

– the employee is a transferring employee

– the businesses are not associated entities, and

– the new employer has, in writing, informed the employee before the new employment commences that this entitlement from the old employer will not be recognised.

5. Notice of termination

Even if the new employer does not recognise the employee’s entitlements with the old employer, the old employer still needs to honour them to the employee.

In summary…

What happens to employees when a business is transferred or sold?

Generally, when a business is sold or transferred, employees may have two paths:

The new employer may choose to continue offering employment to these employees, in which case the employees can be transferred to the new employer to continue working;

a. The new employer does not recognise the employee’s service with the old employer.

The old employer must pay out:

Annual leave

Long service leave

Redundancy pay

However, the new employer must recognise the employee’s:

personal/sick leave, carer’s leave, parental leave, and requests for flexible working arrangements, etc.

b. The new employer recognises the employee’s service with the old employer

Under certain conditions, all of the employee’s entitlements will transfer to the new employer.

2. If the new employer is unwilling to offer them employment, the old employer must end the employees’ contracts in accordance with the law.

Generally, if the employees’ contracts need to be ended, the old employer must give written notice to the employees and settle their wages and other payments. The old employer must also pay out annual leave, redundancy pay, long service leave, and so on.

Finally

In Australia, when transferring a business, how to “place” existing employees or settle their various entitlements is very important. Australian law gives employees many protections, and both parties to a business transfer need to take particular care in how they handle their employees during the transfer and give them the rights to which they are entitled. If you have any legal questions, you can consult our lawyers.