Transmission Of Business Under WorkChoices

The Federal Government's new workplace relations laws, introduced by the Workplace Relations Amendment (WorkChoices) Act 2005, came into force amid much fanfare on 27 March 2006.

WorkChoices substantially amends the Workplace Relations Act 1996 ("the WRA", or the "used to be a far shorter Act" Act), and now the WRA runs to a James Joyce’ esque two volumes and 1300 plus pages.

The Explanatory Memorandum on its own was 13 pages longer than the original version of the WRA.

The new WRA certainly has a big job though. It is estimated that some 75-85% of Australian employees are covered by the new regime.

This includes:

• virtually all Victorian employees given the Victorian government's referral of its workplace relations powers to the Commonwealth in 1996;

• Commonwealth employees;

• waterside and maritime workers;

• flight crews;

• Northern Territory and Australian Capital Territory employees; and

• most significantly, employees of constitutional corporations in all states.

Employees that are not subject to WorkChoices and the WRA tend be those who aren’t in Victoria, and who work for unincorporated businesses, state public services and partnerships.

Whatever one thinks of the new look WRA and the WorkChoices Amendments, there is no doubt it represents considerable change to our system of workplace and industrial law in Australia.

It standardises much of our industrial law, brutalises existing awards and the Unions with it, impacts heavily on agreement making and industrial action, as well as setting the basic entitlements for employees of the majority of Australian employers.

It also impacts on termination of employment.

It has been described as the most significant piece of industrial reform ever in Australia.

This presentation focuses on the amendments brought about by WorkChoices in circumstances where there is a transmission of business.

This can be a surprisingly hard question to answer.

For the uninitiated, a transmission occurs where a person (the "new employer") becomes the successor, transmittee or assignee of the whole, or a part, of a business of another person (the "old employer").¹ The relevant provisions are now found in Part 11 of the WRA 1996.

Determining whether there has been a transmission as defined by the legislation can be a vexed question.

As with most new legislation, judicial consideration of the previous statutory regime is still very relevant.

In PP Consultants Pty Ltd v Finance Sector Union (2001)² the High Court took a narrow approach in relation to transmission of business provisions, at least so far as the private sector is concerned.

The majority, consisting of Gleeson CJ, Gaudron, McHugh and Gummow JJ, formulated a three stage test to determine whether succession had occurred.

Whilst not viewed as a wildly helpful test by some, PP Consultants has been faithfully applied in a number of subsequent decisions: Stella Call Centres Pty Ltd v CEPU (2001)⁴, CFMEU v Henry Walker Eltin Contracting Pty Ltd (2001)⁵, Geelong Grammar v CFMEU & AWU (2003)⁶.

The Court

In March 2005, the High Court asked two questions when determining a radiology company was not the successor of another business, and therefore the employees were not entitled to severance payments under the award; Minister for Employment and Workplace Relations & Gribbles Radiology Pty Ltd v Health Services Union of Australia [2005] HCA 9.

The Court identified two things that needed to be considered:

• identifying in this case exactly what was meant by "the business of part of the business of the former employer"; and

• identifying what part of the former business was now being enjoyed by the new employer.

The Court concluded that the bare fact the business activity pursued was identical was not a sufficient basis to reach a conclusion that a transmission had occurred.

There was no need for a transaction to occur between the employers. However, to be a successor to the business, or part of the business, the new employer must "enjoy" some part of the former employer’s business.

Federal industrial relations legislation has provided for the continuing application of federal awards for employees upon the transmission of a business since 1914.⁷ These provisions were designed to stop an employer from avoiding award obligations by simply transferring the business operations to another legal entity unconnected to the award.

Employers were obviously at it back then, as well.

The legislation was later expanded to include collective bargaining agreements as well as awards.

In the period prior to the commencement of WorkChoices, the state of the law was such that the purchaser of an established business became immediately bound by any awards or agreements that bound the old employer, regardless of whether any pre-existing employees transferred with the business.

Both transferred and new employees were covered by any pre-existing instruments and the purchaser would be bound for the life of the instrument.

In 2004, this position became slightly more flexible due to amendments made to the Workplace Relations Act 1996. The amendments gave the Australian Industrial Relations Commission ("AIRC") the power to rule that the purchaser of a business was no longer held to the terms of the outgoing employer’s certified agreement. Alternatively, the Commission could order that a pre-existing agreement was only binding to a specified extent or for a specified period. ⁸

Ultimately, the circumstances in which the AIRC could make such an order remained quite limited. The legislation required the parties to the certified agreement and the incoming employer to consent to the proposed order, or required the Commission to be satisfied that the majority of employees would consent.

An order could be made where employees desired to remain covered by the existing agreement but the new employer did not, however only in two situations; firstly, if the AIRC was satisfied that any variation would not disadvantage the employees by reducing their overall terms and conditions, or secondly, if the variation was part of a reasonable strategy to manage a short-term crisis and to assist in the revival of the business.

The transmission of business provisions under WorkChoices continue to support the basic notion that pre-existing employee terms and conditions should continue to apply to those employees that remain with a transmitted business.

However, the legislation purports to provide far more flexibility for the purchaser of a business to change pre-existing employee conditions. This flexibility is brought about in four ways:

• Firstly, only the inherited employees remain covered by pre-existing awards or agreements;

• Secondly, the purchaser and any inherited employees have the option of entering into new arrangements on their own terms;

• Thirdly, any pre-existing awards or agreements that are brought by inherited employees will only remain in force for a 12 month transmission period; and

• Finally, the AIRC has been given broader powers to make orders that a business is no longer bound by an award or agreement.

We can look at each of these four changes below.

Unlike before, transmitted awards and agreements under WorkChoices only apply to the transferred employees at the new business. Employees who commence working at the business after transmission are not covered by pre-existing awards or collective agreements.⁹

The purchaser can therefore negotiate the conditions of employment with any new employees.

As a consequence, the provisions allow the new owners of the business to avoid being bound by any pre-existing awards and agreements by deciding not to take on any of the old business’ employees. This would be easier for some businesses than others, depending on the level of skill and training required by the various job descriptions, and on the labour market at the time.

The new provisions carefully define "transferred employees" as a person who was employed by the old employer immediately prior to transmission and then becomes employed by the new employer within two months of transmission. This means that the new employer cannot delay employment and claim an employee is "new" to avoid the application of the employee’s old conditions.

There are also anti-avoidance provisions, discussed below, which further extend the definition of "transferring employee" and as a result limit the definition of "new employee".

Pursuant to the WorkChoices transmission of business rules, purchasers of established businesses now have the option to make employment arrangements on their own terms with the employees they "inherit".¹⁰

Such arrangements, whether in the form of an AWA or a collective agreement, could be made immediately upon transmission, or at any later time. Upon coming into effect, these new agreements would override the terms of any pre-existing agreement or award. Note however, that an AWA made prior to transmission can only be overridden by another AWA after transmission, not by a collective agreement.

Presumably, the new agreement would need to offer employees conditions equal to or better than their existing conditions for them to have any incentive to enter the new agreement.

Perhaps the most significant change brought about by the WorkChoices regime is the introduction of a "maximum life" for transmitted agreements and awards. The Act states that 12 months after the business has been transmitted (the "transmission period"¹¹), the new employer will no longer be bound by any transmitted AWA, collective agreement or award in relation to a transferring employee.¹²

After the 12 month transmission period has expired, any transferring employees that remain will need to negotiate a new agreement, if they have not already done so. Alternatively, they will be covered by any other instrument of the employer applicable to them (e.g. a collective agreement the employer has made subsequent to transmission), or in the case of no such instrument, by the minimum conditions as described in the Australian Fair Pay and Conditions Standard ("the AFPCS").

Transferring employees that were covered solely by the AFPCS with the old employer will remain covered by it after transmission. The 12 month transmission does not apply to the conditions of the Standard, which applies universally.

Despite the twelve month transmission period, Division 4 of Part 11 provides that the AIRC can make an order limiting the time or the extent to which the new employer will be bound by a pre-existing collective agreement, or indeed can order that the new employer will not be bound by the collective agreement at all.¹³ Similarly, the amendments provide that any transmitted award is only binding subject to any order of the Commission.¹⁴

An order under Division 4 can be sought both prior to an anticipated transmission by the outgoing employer, or by the new owner after the purchase has been completed.¹⁵

This might be of particular interest to outgoing business owners, who may wish to make their business more attractive for sale by taking action to ensure employee conditions will not transmit to the new owners prior to putting the business on the market. Alternatively, they might seek such an order once negotiations with prospective purchasers are underway.

An application to the AIRC can also be made by the transferred employees or their union after the transmission.

The powers of the AIRC are therefore similar to in the 2004 amendment, discussed above. However, unlike the provisions that existed prior to WorkChoices, the Commission is no longer specifically required to make any particular considerations, such as whether the employees consent to the proposed order or whether the changes would disadvantage employees.

Technically, this should mean an employer has a greater chance of making a successful application to the AIRC for such an order under the WorkChoices regime than in the past, although the realistic effect might be minimal.

The provisions do require an employer making an application for an order to take reasonable steps to give written notice to employees and unions, and the AIRC must give all relevant parties the opportunity to make submissions in relation to the application for an order.

It is worth noting that the AIRC is expressly confined to limiting the application of a transmitted award or agreement, and therefore cannot make an order extending the transmission period.¹⁶

The new legislation includes so-called anti-avoidance provisions designed to prevent employers from attempting to avoid the twelve month transmission period when taking on pre-existing employees.

Under the Act, the "transferring employee" definition extends beyond employees who transfer directly from the old employer to the new employer. Any employee who was terminated because of "operational reasons" in the final month of the old employer being in control of the business who then commences with the new employer in the first two months after transmission will not be considered a new employee. Instead, they will be deemed to be a transferring employee, and despite their break in employment they will be entitled to employment under the conditions of their old agreement or award.¹⁷

Therefore, the provisions to some extent limit both outgoing and incoming employers from taking advantage of the fact that new employees will no longer be covered by existing awards and agreements after the transmission of a business.

Part 11 also includes provisions relating to employee leave entitlements upon the transmission of a business. The provisions are designed to allow for a "clean break" when a business changes hands, so accrued entitlements do not usually transfer from an old employer to a new employer.

However, parental leave is considered an exception to this general rule. After transmission, the new employer takes over liability for any transferring employee’s parental leave entitlements.¹⁸ Where the new employer takes on the old employer's liability for parental leave under the Australian Fair Pay and Conditions Standard, any entitlement to parental leave will be unaffected by the transmission of business. This will be the case even where a transferring employee is on parental leave at the time of transmission.

In addition, the transfer of other accrued employee entitlements is possible in certain circumstances. The Act permits new and old employers to agree for the new employer to assume liability for particular entitlements or for entitlements generally upon transmission of the business.¹⁹ Of course, if such an agreement is not reached, the old employer would remain liable for those accrued entitlements.

A new employer must take reasonable steps to inform transferring employees about the terms and conditions of their employment within 28 days of transfer by providing written notice.²⁰ The notice must:

• Identify the AWA, collective agreement or award ("the transmitted instrument") that applies to the employee;

• State that the employer is bound by the transmitted instrument, and remains bound until the end of the transmission period unless the instrument is earlier terminated or ceases to be in operation;

• Specify the date the transmission period ends;

• Specify the kinds of instruments that may replace the transmitted instrument;

• Identify the source of the terms and conditions that the employer will be bound by or the employer intends will apply after the transmitted instrument ceases to have effect (e.g. the Australian Fair Pay and Conditions Standard, or a new collective agreement).

If the notice identifies any binding collective agreement or award, then the employer must give the transferring employee a copy of the instrument along with the notice. This requirement will not apply if the notice gives instructions to the employee as to how a copy of the instrument can be easily obtained.

Notice will not be required if the new employer and the transferring employee enter into a new collective agreement or AWA replacing the transmitted instrument within 14 days after the time of transmission.²¹

Having been given to the employee, the notice must also be lodged within 14 days with the Employment Advocate, who will issue a receipt for lodgement.²² Civil penalties apply for failure to give notice as specified.²³

The new transmission of business rules attempt to clarify some of the complexities of selling a business by spelling out the new owner’s obligations in greater detail.

They also seek to give the new owners of a transmitted business greater freedom and flexibility by allowing them to more readily change employee terms and conditions with ones that suit their business needs. At the very least, the incoming employer will know that they will only be bound by agreements entered into by the previous owners for a maximum of 12 months.

The new provisions could potentially be invaluable to business owners looking to sell their business, as prospective purchasers will be attracted with the knowledge that they will not be infinitely bound by previous agreements. This could feasibly result in higher purchase prices for the sale of businesses.

Will this really occur?

Despite the new rules, employers should continue to be aware that pre-existing agreements may have more lasting consequences for the new employers than might first be inferred.

It can be anticipated that any new employees would have an expectation that their employment conditions would not significantly differ from those of the transferred employees, and therefore the existing conditions are likely to form the backdrop against which negotiations for any new employee’s conditions are made.

Likewise, transmitted employees and their unions are likely to insist that the transmitted terms and conditions continue beyond the 12 month transmission period, and negotiate replacement agreements on that basis.

Like much of the WorkChoices reform, the effect of these changes is still too early to call and whether purchasers will be able to truly take advantage of these new provisions remains to be seen.

One suspects that if the purchaser takes the opportunity to pursue more mutually beneficial, flexible working conditions with their new employees, the changes will be a success. If the changes are used as means to reduce existing working conditions, then probably not.

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.