Buying a Business?
You are here:The Fair Work Act will significantly change the employment conditions that apply when an employee 'transfers' in their employment to a new employer, where they are employed within 3 months.
Background
As a result of employer concerns about employment conditions (under awards and workplace agreements) of employees transferring to the new employer in outsourcing and business sale situations, Work Choices introduced a new set of rules whereby the transferring industrial instruments only applied to the new employer for a maximum of 12 months. New employees (i.e. not employed by the former owner) of the new employer were not affected by these transmission obligations and the industrial instruments that otherwise applied to the new employer, applied to the new employees. These obligations then also applied to the 'transferring' employees after the 12 month transition period.
There were also extensive notification requirements on both the new and old employers. The new employer was required to spell out the expected employment conditions that the employees would be working under.
Fair Work Introduces 'Transferring' Employment
An entirely new approach has been taken under the new Act to come into effect from 1 July 2009. Instead of a 'transmision of business' as required under Work Choices (and before Work Choices) to trigger the transmission of an employee's former employment instruments to their new employment, the broader concept of a transfer of business will be sufficient.
If there is a transfer of business, then an enterprise agreement or a 'named employer' award - but not awards generally - will also transfer to the new employer to cover the work done by the transferring employee, plus any new employee not covered by any other award or agreement (a named employer award is a modern award that is expressed to cover one or more named employers).
A transfer of business occurs if -
- an employee of the old business is employed by the new employer within 3 months of the employee's termination;
- the employee performs substantially the same work in their new employment as they did with their former employer; and
- there is a legal connection between the old and new employer (for example, there was a transfer of assets or an outsourcing or insourcing arrangement).
No More 12 Month Limit
The transferring instrument will transfer indefinitely until replaced by a new workplace agreement, for example. The old transferring instrument will also apply to new (non-transferring) employees performing the same transferring work. Orders may however be sought from Fair Work Australia to alter the industrial instruments so that it better fits the operation of the enw enterprise.
Notice Provisions
As indicated above, Work Choices introduced extensive (and complex) notification requirements on both the old and new employer (mainly on the new employer). These provisions have not come across into the new FW Act.
Other Changes
As well as entitlements under enterprise agreements, service with the previous employer will also count towards certain service-related entitlements for a transferring employee. These include personal / carer's leave and an entitlement to parental leave. For annual leave and redundancy pay, the new employer has a choice of whether to recognise the prior service, as under Work Choices. If not, then the former employer will be responsible for paying out these entitlements.
ER Strategies Comment - these arrangements are often a consequence of commercial considerations, with adjustments made to the purchase / sale price of the business to account for who takes over the obligation to account for the employee entitlement. Whilst ER Strategies can provide general advice on the employment consequences in this area, the financial consequences of not getting this aspect right can be great and we therefore also recommend the use of lawyers experienced in mergers and acquisitions to assist in drafting the appropriate sale agreement and advising on contractual obligations.
Unfair Dismissal Protection
On a transfer of business, a transferring employee's service with the prior employer will count towards qualifying periods for taking an unfair dismissal action unless the new employer expressly informs the employee in writing of the requirement for them to serve a new minimum 'probationary' qualifying period of employment. Where the new and old employers are associated entities, then the employment will be considered to be continuous (i.e. the new employer cannot require the employee to serve a new period of 'probation'.
ER Strategies comment: Clear as mud? Give us a call to discuss what these provisohns mean for you. We specialise in making the compex, simple!
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