What happens to my employees when I sell my business?


What happens to employees and your obligations to those employees on the transfer of business depends on whether the employee is taken on by the new owner and whether the sale of business constitutes a ‘transfer of business’ for the purposes of the Fair Work Act 2009 (Cth) (‘the Act’).

  1. What is a transfer of business?
    A “transfer of business” takes place under the Act if the following requirements are satisfied:
    (1) You terminated the employment of an employee;
    (2) within three months of termination, the employee becomes employed by the new owner;
    (3) the work (‘transferring work’) the employee performs for the new owner is the same or substantially the same as the work they performed for you; and
    (4) at least one of the following connections exists between you and the new owner:
    (a) an arrangement the new owner owns or has use of some or all your assets that relate to the transferring work;
    (b) the work the employee does is outsourced by you to the new owner;
    (c) the work previously outsourced is insourced; or
    (d) they are associated entities (such as a Parent and Subsidiary) .
    Therefore, there is no transfer of business for the purposes of the Act unless at least one employee moves to the new owner and they do transferring work

  1. What happens to employees on a ‘transfer of business’?

2.1. Share Sale Agreement?
In a share sale agreement where the change is to the shareholders and directors of your company, the employees are not terminated, and no assets are transferred therefore does not fall under the ‘transfer of business’ provisions of the Act.

Employees will not need to negotiate a new employment agreement and will keep their existing entitlements including annual and long serve leave, rates of pay and conditions.

2.2 Asset Sale Agreement?
Where the new owner buys the business from your operating entity as an asset sale and falls under the ‘transfer of business’ for the Act, treatment of employees is more complicated.

2.2.1 Transferable Instrument
A transferable instrument is an award, enterprise bargaining agreement or workplace determination .

Where an employee is being transferred to the new owner under a transferable instrument applied, that instrument will continue to apply to their employment with the new owner .

The transferring employees (and new employees under the new owner) will fall under this transferable instrument until terminated, or a new transferable instrument commences .

2.2.2 Annual Leave, Notice of Termination and Redundancy
Except where associated entities, the new owner does not need to recognise the employee’s prior service. Unless otherwise agreed upon in the sale of business contract, you need to pay out these liabilities for transferring employees and for non-transferring employees in accordance with the employee’s respective agreement .

2.2.3 Notice of termination
Regardless of the employee transferring or not to the new owner, the sale of business ends an employee’s position with you. Therefore, you will need to give notice of termination or provide payment instead of notice. If the notice period ends after the transfer of business date, you will still need to pay the rest of the notice period .

2.2.4 Long Service, Sick, Carer’s and Parental Leave
If the employee continues with the new owner, these leaves are automatically transferred to the new owner which cannot be opted out by the sale of business contract.

If the employee does not continue with the new owner, you are obliged to pay these leaves in accordance with the employee’s respective agreement .

2.2.5 Superannuation
Regardless of the employee transferring or not to the new owner, superannuation obligations outstanding at the date of the sale of business cannot be transferred to the new owner and remain with you to pay in accordance with the employee’s respective agreement.

2.2.6 Employees records
You must provide the new owner (upon their request) with all transferring employees records current to the date of transfer. You must also maintain employee records for a period of seven years .

2.2.7 Probation Period
Provided the new owner gave written notice to the transferring employee in advance they do not need to recognise previous employment period towards probation period. An employee must serve this new probation period to be eligible to make an unfair dismissal claim .

Please contact Elamine Lawyers if you require further details or want to discuss your circumstances.

2.2.1 Transferable Instruments
A transferable instrument includes an Award, Enterprise Bargaining Agreement (“EBA”) and Workplace Determination

These ‘transferrable agreements’ will

2.2.2

Firstly, regardless of below, you will be required to give

The new owner does not have an obligation under the Act to recognise entitlements such as redundancy, annual and long service leave, unfair dismissal and notice of termination . Where an employee is not taken on by the new owner or the new owner and employee have entered into a new employment agreement , unless you negotiate otherwise in the sale of business agreement, you are obligated to pay the affected employee their accrued entitlements in accordance with the Act and your respective agreement with the employee.

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