Understanding Employee Entitlements During a Business Transfer

Navigating the complexities of employee entitlements during a business transfer is critical for employers to ensure compliance with Australian law.

This comprehensive guide aims to clarify the key aspects and practical steps involved in such scenarios.

What is a Transfer of Business?

A transfer of business occurs when a business or part of it is bought, sold, outsourced, or when employees are transferred within a corporate group.

Under the Fair Work Act 2009, specific rules govern the handling of employee entitlements in these situations.

Recognising when a transfer of business happens is crucial because the new employer must acknowledge certain employee entitlements, such as accrued personal leave, regardless of preference.

Asset Sale vs. Share Sale

Asset Sale: Involves Business A purchasing Business B’s assets and employing Business B’s staff, leading to a change of employer.

Share Sale: Business A buys Business B’s shares, taking over the business and its employees. Here, employees remain under the same employer, and no transfer of business occurs under the Fair Work Act.

Criteria for Transfer of Business

A transfer of business is identified when:

• The employee’s previous employment has ended.
• The employee’s work remains the same under the new employer.
• Employment with the new employer begins within three months of termination.
• One of four connections between the old and new employers exists (outlined below).

Four Connections Between Employers

1. Transfer of Assets: Sale or transfer of business assets.
2. Associated Entities: Employers control each other or share a common controlling entity.
3. Outsourcing Work: Transferring specific work to another entity.
4. Ceasing to Outsource Work: Bringing previously outsourced work back in-house.

Employee Entitlements

Transferring Entitlements

Certain entitlements automatically transfer, such as:

• Personal/carer’s leave accruals.
• Length of service for eligibility for unpaid parental leave and flexible working requests.

For entitlements like annual leave and redundancy pay, different rules apply based on whether the employers are associated entities.

Redundancy Pay

Entitlement to redundancy pay can arise if:

• The new employer does not offer employment.
• The new employer chooses not to recognize prior service (non-associated entities).

Record-Keeping Obligations

Employers must transfer employee records during a business transfer. This ensures the new employer has complete details of start dates, leave balances, and other critical information to avoid future disputes.

Practical Tips for Employers

• Early planning: Start planning for the transfer early and ensure all employees are notified of their entitlements.
• Employee Consultation: Engage with employees as early as possible to discuss potential changes in their working arrangements.
• Clear Communication: Inform employees in writing if any entitlements will not be recognized by the new employer.
• Adjust Purchase Price: Reflect the liabilities of accrued leave in the purchase price negotiations.

By understanding and following these guidelines, businesses can effectively manage employee entitlements during a transfer, ensuring legal compliance and minimizing disputes.

How We Can Assist

At The Breakthrough Office, we specialize in providing tailored HR solutions to support not-for-profit organisations during business transitions. Our expert team offers professional advice, tools, and protection to ensure a smooth transfer process. Contact us today for personalised assistance.