Transfer Of Business Under The Fair Work Act 2009 (Cth)

Article by Sally Woodward and Jessica Caban

One of the more controversial aspects of the upcoming Fair Work Act 2009 (Cth) (Act) is the proposed changes to the law governing transfer of business (formerly referred to as transmission of business under the Workplace Relations Act 1996 (Cth) (WR Act)) and the implications for companies who participate in such a transfer from 1 July 2009.

The Act makes the following significant changes to the rules that currently govern transfer of business arrangements under the WR Act by:

• introducing a test to determine whether a transfer of business has occurred, which will significantly expand the current test which has developed under case law;

• removing the 12 month "transmission period" introduced by Work Choices so that enterprise agreements that transfer to the new employer can continue to apply indefinitely; and

• introducing a risk (that had been eliminated by Work Choices) that an enterprise agreement that transfers to a new employer can cover work performed by employees who are subsequently employed in the new employer's business to perform similar work.

When will a transfer of business take place for the purposes of the Act?

There is a transfer of business for the purposes of the Act if:

• employees of the old employer become employed by the new employer within three months after their termination by the old employer;

• the work that the employee performs for the new employer is substantially the same as the work they carried out for the old employer; and

• there is a connection between the old employer and the new employer established by:

This new definition will significantly increase the circumstances in which a transfer of business will occur for the purposes of the Act. A transfer will occur where an employee moves from one associated entity (which will include, but is a much broader concept than, related bodies corporate) to another to perform substantially the same work, even if there is no corresponding transfer of assets.

Importantly, a transfer will also occur in an outsourcing or insourcing situation, provided that the employess are offered, and accept, employment with the new employer, doing substantially similar work, and that they commence employment with the new employer within three months of termination of employment with the old employer.

Effect of transfer

Following a transfer of business under the Act, the transferring employees will be covered by the old employer's enterprise agreements (and named employer awards if applicable) indefinitely, until the enterprise agreements or awards are terminated or replaced in accordance with their terms and the appropriate legislation.

The Act also provides that after the transfer of business has taken place, new employees of the employer who are directed to perform work that was previously performed by the employees for the old employer (that is, "transferring work") will also be covered by the old employer's enterprise agreements (and named awards if applicable) in circumstances where the new employer has no enterprise agreement or named award capable of applying to the employees performing the transferring work.

This raises the difficult situation of a new employer potentially being bound by different enterprise agreements in relation to employees performing the same work. If enterprise agreements (and named employer awards) of the old employer and the new employer are both capable of covering the work, then:

• the enterprise agreement (and named employer award) of the new employer will prevail in relation to non-transferring employees, that is employees; and

• the enterprise agreement (and named employer award) of the old employer will prevail in relation to transferring employees.

Fair Work Australia

Fair Work Australia (FWA) will have a role in determining the application of enterprise agreements (and named employer awards) of the new employer to transferring employees, and whether enterprise agreements (and named employer awards) apply to non-transferring employees.

It is possible to apply to FWA for orders that the old employer's enterprise agreements (and/or named employer awards) do not continue to apply to transferring employees after the transfer of the business. Applications to FWA may be made by transferring employees, unions covered by enterprise agreements, unions entitled to represent the interest of employees covered by an award, or the new employer. In deciding whether to make any relevant order, FWA must take into account:

• the views of the employer and affected employees, and any disadvantage that may be suffered by them;

• whether the relevant enterprise agreements have reached their nominal expiry dates;

• whether the transferable instrument would have a negative impact on the productivity of the new employer's workplace;

• whether the new employer would incur significant economic disadvantage as a result of the transferable instrument covering the new employer;

• the degree of business synergy between the transferable instrument and any workplace instrument that already covers the new employer; and

• the public interest.

Similarly, applications may be made by employees if the new employer does not recognise that enterprise agreements have transferred.

FWA may also make an order varying enterprise agreements to:

• remove terms that are not capable of meaningful operation because of the transfer of business (for example participation in the old employer's share or product discount plan);

• remove ambiguity or uncertainty about how a term of the instrument operates; or

• enable the transferable instrument to operate in a way that is better aligned to the working arrangements of the new employer's business. The Government has, for example, stated that FWA may consider it appropriate for transferring employees to keep their entitlements to pay and allowances, but modify the span of hours clause in a relevant agreement so the transferring employees can be better integrated into the new employer's business.

This may permit applications to be made by new employers to seek variation to, for example, defined benefits superannuation fund obligations which are no longer capable of meaningful operation under the new employer.

In deciding whether to make the variation, FWA must, again, take into account the six factors set out above.

Conclusion

The Act's transfer of business provisions represent a significant change to the current law governing transmission of business arrangements. It is vital that all companies are aware of these provisions as they will apply to all transfers of business from 1 July 2009.

Would you like to know more?

Deacons will be holding seminars nationally in June on the Fair Work Act, where we will present a detailed analysis of the new Fair Work Act and provide a written summary of the new laws, allowing quick navigation through the changes.

The following table outlines the dates and times of these sessions around the country. Please keep an eye out for a copy of your invitation in the coming days.

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.