28/10/2009

The Fair Work Act which came into force on 1 July 2009 substantially changed the rules in regard to the transfer of a business and the employment entitlements of transferring employees.

 

Consideration should always be given to employees of a business if the business is being transferred (including a sale of the business).

 

Under the old legislation (Work Choices) the law focused on whether there was a “transmission of business”.  Under the old law, a transferring employee:

 

“(a) (was) employed by the old employer immediately before the time of transmission; and

 (b) the person:

(i)         ceased to be employed by the old employer; and

(ii)         became employed by the new employer in the business being transferred; within 2 months after the time of transmission.”

 

Under Fair Work Act, the government has removed the term “transmission of business” and replaced it with “transfer of business” with the focus shifting to the type of work conducted by the employee prior to and after the transfer of business to determine the employee’s entitlements.  The test is whether the employee is performing the same or substantially the same tasks for the new employer.

 

Section 311 of the Fair Work Act defines a transfer of business like this:

 

“(1)  There is a transfer of business from an employer (the old employer) to another employer (the new employer) if the following requirements are satisfied:

 

(a)     the employment of an employee of the old employer has terminated;

(b)     within 3 months after the termination, the employee becomes employed by the new employer;

(c)     the work (the transferring work) the employee performs for the new employer is the same, or substantially the same, as the work the employee performed for the old employer;

(d)     there is a connection between the old employer and the new employer as described in any of subsections (3) to (6). “

 

The definition of “transfer of business” captures a far greater number of transactions than would have been caught by Work Choices.

 

Sub-sections 311(3) to (6) describe the circumstances of a transfer of business to include:

 

·            Transfer of assets from old employer to new employer (eg – sale of business);

·            Old employer outsources work to new employer;

·            New employer ceases to outsource work to old employer; or

·            New employer is associated entity of old employer.

 

An employee who transfers employment in the above circumstances will be deemed to be a “transferring employee”.

 

Where a transferring employee was covered by an enterprise agreement (approved by FWA), a workplace determination or a named employer award with the old employer, those conditions will continue with the new employer.  Those employment conditions may also cover new employees engaged by the new employer if they perform the same duties and there is no other industrial instrument covering that work.

 

As part of the Fair Work Act, Fair Work Australia has powers to make orders in regard to transferring employees and the continued conditions.

 

In regard to a purchase of business it is therefore important that potential purchasers consider what if any industrial instruments will be transferred with the transfer of business.  If industrial instruments are being transferred then a comparison needs to be done between those entitlements and the industrial instruments which already apply to the purchaser’s business. 

If you are considering a “transfer of business” or to discuss the employment law implications for any transferring of employees contact David Nicoll at Townsends Business & Corporate Lawyers (02) 8296 6222.