Australia: Employee entitlements in the sale of a business

The ramifications of not being aware of the obligations regarding and/or not correctly dealing with employee entitlements can be costly.

In brief: The ramifications of not being aware of the obligations regarding and/or not correctly dealing with employee entitlements can be costly (even if only taking into account the ultimate dollar value of the entitlements).

What you need to know:

  • Generally, where there is a transfer of business in accordance with the Fair Work Act 2009 (Cth) (FW Act), an employee's service with the old employer (the vendor) counts as service with the new employer (the purchaser). However there are exceptions to this general rule.
  • Separate statutory principles apply to each of annual leave, personal leave, redundancy pay and long service leave.
  • Clear agreement as to how the employee entitlements will be dealt with in a sale of business should be reached prior to completion and clearly set out in the sale of business contract.

Dealing with employee entitlements (such as annual leave, personal leave, long service leave and redundancy pay) in a sale of business can be tricky.

Read on for a brief description of how to deal with annual leave, personal leave, long service leave and redundancy pay in a sale of business.

Is there a transfer of business?

The first thing that should be considered when determining how to deal with employee entitlements in a sale of business is whether there is a transfer of business as described in section 311 of the FW Act.

Section 311 of the FW Act provides that there is a transfer of business if:

  • the employee's employment with the old employer (the vendor) has been dismissed;
  • within three months after the termination, the employee becomes employed by the new employer (the purchaser);
  • the 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; and
  • there is a connection between the old employer and the new employer (i.e. there is a transfer of assets from the old employer to the new employer; the old employer outsources work to the new employer; the new employer ceases to outsource work to the new employer; and/or the new employer is an associated entity of the old employer).

If there is not a transfer of business as described in section 311 of the FW Act, an employee's service with the old employer (the vendor) will not count as service with the new employer (the purchaser). Therefore, the old employer would simply deal with accrued annual leave, personal leave and redundancy pay in the same way that it would if it was an ordinary redundancy situation and the new employer would not need to recognise the employee's service with the old employer for the purposes of accrued annual leave, personal leave and redundancy pay.

If there is a transfer of business as described in section 311 of the FW Act, accrued annual leave, personal leave and redundancy pay should be dealt with is follows.

Annual Leave

In a transfer of business, accrued annual leave entitlements can be dealt with in one of two ways:

  1. If the new employer is not an associated entity of the old employer and the new employer is not recognising service for annual leave purposes, the old employer should pay out all accrued annual leave. As a result, the accrued annual leave entitlements will not transfer with the employee to the new employer; or
  2. If paragraph number 1 above does not apply, accrued annual leave entitlements will transfer with the employee to the new employer.

Personal Leave

In a transfer of business, accrued personal leave entitlements cannot be paid out by the old employer and must therefore transfer with the employee to the new employer.

Redundancy Pay

Section 122(1) of the FW Act provides that in a transfer of business, redundancy pay entitlements can be dealt with in one of two ways:

  1. If the new employer is recognising service with the old employer for redundancy pay purposes, the employee is not entitled to be paid redundancy pay when his or her employment with the old employer terminates (generally at completion). As a result, the employee's service with the old employer counts as service with the new employer for redundancy pay purposes; or
  2. The new employer, provided it is not an associated entity of the old employer, can choose to not recognise an employee's service with the old employer for redundancy pay purposes and the old employer will be required to pay redundancy pay to the employee upon termination (generally at completion).i

Long Service Leave

In Victoria, long service leave is governed by the Long Service Leave Act 1992 (Vic) (LSL Act).

The LSL Act provides that where a business is sold and an employee remains with the business, or has less than a three month break between being dismissed by the old employer and being employed by the new employer, the new employer becomes responsible for the employee's long service leave entitlement.

Long service leave cannot be paid out on transfer of business (section 74 of the LSL Act provides that it is an offence to give or receive payment instead of an employee actually taking the break from work). As such, in a transfer of business, service with the old employer will count as service with the new employer for the purposes of long service leave.

Conclusion

It is important for employers to be mindful of the extent of, and how to deal with, employee entitlements in a sale of business. As such, all details regarding employee entitlements should be provided during the due diligence stage so that the parties can have meaningful discussions, and reach agreement, regarding how employee entitlements will be dealt with in the sale of business.

Footnote

iNote: In accordance with section 120 of the FW Act, the old employer may be able to apply to the Fair Work Commission to have the amount of redundancy pay varied on the basis that the old employer arranged other acceptable employment for the employee with the new employer.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Madgwicks is a member of Meritas, one of the world's largest law firm alliances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.