Long service leave entitlements on a transfer of business

NATIONAL

Purchasing or selling a business is not as simple as agreeing on a figure. Whether you are the vendor (old employer) or the purchaser (new employer), there are consequences as to the entitlements and liabilities for employees working for the old employer.

Both permanent or casual employees will be accruing a right to long service leave once they are employed, although an employer should start to prepare financially for continued accumulation after a period of five years. If there is a transfer of business, the accrued long service leave entitlement liability will move to the new employer. Consideration must also be given to other entitlements such as annual leave, sick leave and redundancy.

The rules for long service leave entitlements are currently contained in state and territories laws. In all states and territories, full time, part time and casual staff start accruing long service leave from the date they commence employment. However, they are generally only entitled to take long service leave after working between 7 and 10 continuous years for the business.

Section 22(5) of the Fair Work Act 2009 confirms that continuous service for long service leave purposes is not broken if an employee is dismissed by their former employer and re-engaged by their new employer. This is also confirmed by the long service leave legislation in each state of Australia. This means that their long service leave will continue to accrue irrespective of the transfer of business or change of employer, and their previous service counts towards their total period of continuous service.

Therefore, upon a transfer of business, the liability for transferring any employees’ long service leave automatically transfers to the new employer, regardless of whether or not they were compensated for taking on this liability, or if the new employer was informed of the outstanding long service leave entitlements prior to settlement. There is generally a provision in the contract of sale that the payment for long service leave will be part of the negotiated settlement deal, but only if the employee has been employed for at least five years.

It is therefore crucial when negotiating a sale of business that the employee entitlements to long service leave are fully disclosed and considered as part of the transaction. Otherwise new employers may be held liable to pay employees significant amounts for their long service leave without any way to claim that amount back.

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