Transferring employees and their entitlements

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Whether selling or purchasing a business, members should know their rights and responsibilities regarding transferring employees.

What is a ‘transferring employee’?

Under the Fair Work Act 2009 (Cth), an employee is a ‘transferring employee’ where:

• The employee’s employment has been terminated, and • The employee is re-employed with the new employer within 3 (three) months after the termination, and • The work is the same, or substantially the same, as the work the employee performed for the old employer.1

This means that if you purchase a business and hire an employee within 3 months of their termination by their previous employer, they are considered a transferring employee for the purposes of the Act. Check your transfer of business contract

Your transfer of business contract should contain clauses dealing with transferring employees. The contract may require the vendor to terminate all employees and pay out all remuneration and entitlements. It may also indemnify the purchaser against claims that arise as a result of those terminations.

If you are uncertain about your obligations and responsibilities in the transmission of the business contract with regard to employees, MGA TMA can assist you.

Selling a business

If you are selling your business, you must consider what will happen to your old employees. While you are not required to notify your employees of an imminent transfer of business, you must still provide the correct period of notice.

Depending on the contents of your transfer of business contracts, employees may transfer to the purchaser if the purchaser agrees. You may be required to terminate the employees, providing the correct notice and paying out entitlements, including outstanding wages and allowances, annual leave and applicable loadings, and long service leave.

If you have 15 or more employees, you may also be required to make redundancy payments to terminated employees. Purchasing a business

If you are purchasing a business, you may have the option to select which employees you would like to transfer to your new business. This should be set out in the transmission of the business contract for clarity between all parties. The contract can also state whether the employees retain their annual leave entitlements or whether the vendor is to pay the purchaser a portion of the transferring employees’ entitlements.

Additionally, you should keep in mind that if the transferring employees were covered under a specific Enterprise Agreement, Award, or Individual Flexibility Arrangement, this instrument would cover you and the employee. 2

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Recognising service and unfair dismissal

Even where an employee is a ‘transferring employee’, they still may be protected from unfair dismissal once they begin employment with you.

If you accept transferring employees and you are not an associated entity of the vendor, you may choose not to recognise their service with the old employer. This must be:

• In writing; and • Given to the employees prior to the start of their employment in your business; and • Must state specifically that the employee’s period of service with the old employer will not be recognised. 3

This means that the employee’s period of service essentially resets – but with regards to unfair dismissal provisions only.

Please note that this may not affect the employee’s entitlement to long service leave or unpaid parental leave.

We understand that a transfer of business can sometimes be complicated. Please contact our Employment Law team on 1800 888 479 option 1 or email legal@mga.asn.au for further information.

1 Fair Work Act 2009 (Cth) s 311. 2 Ibid S 313. 3 Ibid s 384(b). Photo by RODNAE Productions from Pexels

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