If you are buying or selling a business you should be aware of
the new privacy law reforms and how they impact on the due
diligence process which is conducted to enable buyers to examine
the business of the seller.
The Australian Law Reform Commission ("ALRC") has
released its final report titled 'For your information:
Australian Privacy Law and Practice' ("Final
Report"), recommending, amongst other things, the removal of
the employee records exemption and the small business exemption
from the Privacy Act 1988 (Cth) ("the Act").
Should the government remove the employee records exemption,
employee information would come under the protection of the Act.
This has implications for vendors and purchasers buying or selling
a business, who disclose and collect a number of different types of
personal information about employees in the process of due
It is anticipated that the small business and employee records
exemptions will be removed in the second stage of legislation, to
be implemented by the government within the next 18 months.
Removal of Exemptions for Small Businesses
The ALRC proposed removing the exemption in the Act for small
businesses. Currently, the small business exemption applies to
businesses, non-profit bodies and unincorporated associations with
an annual turnover of less than $3 million.
This will mean that small businesses previously exempt from the
operation of the Act, will now be subject to privacy laws.
Removal of Employee Records Exemption
The ALRC recommended that the employee record exemption be
removed as an employee's record contains a significant amount
of personal information, including sensitive information.
Under the employee records exemption, the acts and practices of
an organisation are exempt from the operation of the Act if they
are directly related to a current or former employment
relationship1. Therefore, under the existing law, the
employee records exemption may apply to exempt the disclosure of
employee records by a vendor organisation during the potential sale
of its business.
There is some concern that removing the employee records
exemption would impede the due diligence process.
In its Final Report, the ALRC considered that the removal of the
employee records exemption would not hinder the ability of
organisations to buy and sell businesses. It remains to be seen if
the Privacy Commissioner adopts the same view. In order to protect
employee's personal information it has been suggested that:
vendors should provide aggregate, non-identifiable information
about employees to a prospective purchaser, thereby not
constituting 'personal information' under the Act; and
potential purchasers should inspect records as opposed to
recording employee's details, which would not constitute
'collection' of the personal information under the
It is also arguable that disclosure of personal information to a
potential purchaser of a business is directly related to the
primary purpose of collection, and within the employee's
Vendors and purchasers of a business should watch these
developments carefully to ensure that due diligence under the
proposed new laws do not breach privacy obligations. This will take
on greater importance under the new laws because there will be
enhanced reporting2 and enforcement powers3
of the Office of the Privacy Commissioner.
Accordingly, processes for disclosing and collecting employee
information in a due diligence process may need to be reviewed.
1 Sections 7(1)(ee), 7B(3) of the Act
2 Chapter 51 of the Final Report
3 Chapter 50 of the Final Report
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.
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On 12th November 2016, new laws will commence to protect small businesses from unfair terms in standard form contracts.
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