This can be a very confusing area for employers particularly as the requirements of State VS Federal are different in a number of areas. This is the first of two articles that deals with this area.
Federal (National) System Employers.
In the Federal system where a business is sold and the buyer takes on the existing employees of the old employer this is referred to as ‘transfer of business’.
There are very specific criteria which will clarify whether the new employer is a ‘related entity’ or a ‘non related entity’ of the old employer. Such matters are dealt with in Section 311 of the Fair Work Act and the rights of ‘transferring’ employees.
There are no specific requirements laid down – as there is in the State – to buyers and sellers in relation to informing employees of the sale of the business and how this is likely to affect them. However all the Modern Awards have very specific wording in relation to major workplace change and significant effect which deals with an employer’s obligations to consult with their employees – employers should refer to their applicable Award as to these requirements.
Sellers
Redundancy Payments
Otherwise known as ‘severance payments’ – in general terms Federal employers with less than 15 staff are not obliged to make additional payments to staff where employment is being terminated prior to continuing with a new employer when the business is being sold. However, some Modern Awards have very specific requirements with regard to the making of additional redundancy (severance) payments regardless of total staff numbers employers need to check their applicable instruments to be certain of their legal obligations.
Severance payments are calculated on years of continuous service with a business and can be up to a maximum of 16 weeks payment so employers need to be very aware of the underlying costs of redundancy when selling their business.
Notice of Termination
Whether or not the new employer is taking on the employment of existing employees the ‘seller’ must still formally terminate their employees’ employment by giving due and proper ‘Notice of Termination’. The State and Federal systems are the same in this respect and dependent on service an employer may have to provide up to 5 weeks notice or payment in lieu of notice to employees.
Notify Centrelink
Where the employment of staff is being terminated and they are not continuing with the new employer then a ‘Separation Certificate’ will need to be completed for the employee’s use with Centrelink. This form details the reasons for the employment termination and should be processed and handed to the employee as soon as practicable.
Annual Leave
Accrued annual leave can be paid out by the seller prior to the transfer date – service starts again with the new employer from the date of transfer of the business. The new employer may choose to recognise prior service and accept the transferring employee’s accruals and therefore agreement would need to be reached on the monies that would otherwise be payable. Where annual leave is paid out leave loading should also be calculated and applied to the monies payable by the old employer (the seller) unless a ‘flat rate’ inclusive of leave loading was being paid.
Personal (Sick/Carer’s Leave)
In the Federal system the new employer must recognise prior service from the old employer in relation to Personal Leave. A fair and equitable agreement may need to be managed where a transferring employee has built up a considerable accrual of leave credits in this respect. Personal Leave entitlements are generally not paid out upon termination of employment.
Long Service Leave
Employment service with the old employer carries over to the new employer; the seller may have to ‘compensate’ the buyer for any likely monetary obligations, particularly where a pro rata entitlement to LSL is close to maturing (ie upon the completion of 7 years continuous service).
Parental Leave
Employment service with the old employer carries over to the new employer and counts as service with the new employer for the purposes of Parental Leave.
Buyers
The buyer of a business is not obligated to take on the employees of the seller. If the buyer does not employ the seller’s employees then the buyer has no obligation to them.
Where the buyer does take on the employees of the seller then they are generally obliged to recognise prior service for the purposes of LSL, Personal Leave and Parental Leave.
It is important that buyers and sellers carry out their due diligence with respect to paid leave liabilities and obligations when negotiating a sale or purchase. The Fair Work Ombudsman can retrospectively carry out investigations into nonpayment of entitlements etc going back over 6 years so an error today can still result an action and cost later.
Not sure of your obligations? Call us to discuss.