Guarantee of annual earnings and transfer of business

Q&A

Guarantee of annual earnings and transfer of business

Does the new employer of transferred employees have to continue the previous employer’s guarantees of annual earnings that brought them outside of the modern award system?

WantToReadMore

Get unlimited access to all of our content.

Does the new employer of transferred employees have to continue the previous employer’s guarantees of annual earnings that brought them outside the modern award system?
 
This question was sent to WorkplaceInfo for comment.
 
We are a professional engineering company who recently procured the engineering function of a major client (a mining company), who has outsourced its engineering function to our business, with transferring employees commencing employment with us from 1 August 2010.
 
A number of the mining engineers are currently under a guarantee of annual earnings undertaking that was entered into with the old employer earlier this year and, consequently, the provisions of the relevant modern award do not apply to these employees.
 
Their annual earnings are guaranteed at $120,000 pa for a period of 12 months, and the undertaking commenced on 1 April 2010.
 
We understand that their current salary exceeds the high income threshold (including the threshold from 1 July 2010), however, are we required to continue to apply the guaranteed earnings undertakings, or are they now invalid because we are the new employer?
 
The current employer provides non-monetary benefits as part of the guarantee of annual earnings, whereas, we cannot offer such benefits to the transferring employees. What happens in this case?
 
The outsourcing of the engineering function by the current employer to your company would be regarded by the provisions of the Fair Work Act 2009 as a transfer of business.
 
Section 316(2) of the Fair Work Act provides that a guarantee of annual earnings given to an employee by the old employer is treated, if the employee becomes a transferring employee, as if it had been given to the employee by the new employer.
 
The guarantee of annual earnings can be revoked by the employer with the employee’s agreement.
 
Where it is not practicable for a new employer to provide non-monetary benefits to a transferring employee and those benefits form part of the guarantee of annual earnings, the guarantee is taken to be varied so that the transferring employee is entitled instead to an amount of money equivalent to the agreed money value of the non-monetary benefits.
 
The agreed money value of a non-monetary benefit is the value agreed between the former employer and the transferring employee at the time when the guarantee of earnings was given.
 
Where an employee is a transferring employee, s328(2) of the Fair Work Act provides that the former employer will be required to ensure that for the period before termination the employee is paid at the annual rate of the guarantee of earnings.
 
Source: Paul Munro, IR Consultant.
 
Post details