Transfer of business – how it affects entitlements

Analysis

Transfer of business – how it affects entitlements

When a transfer of business occurs, new employers need to be aware that many employment entitlements 'carry over'. This article explains how annual leave, notice of termination, personal leave, redundancy and other entitlements are affected.

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When a transfer of business occurs, new employers needs to be aware that many employment entitlements 'carry over'. 

This article explains how annual leave, notice of termination, personal leave, redundancy and other entitlements are affected.

What is a transfer of business?


The Fair Work Act (s311) defines ‘transfer of business’ if the following requirements are satisfied:
  • the employment of an employee of the old employer has terminated
  • within three months after the termination, the employee becomes employed by the new employer
  • the transferring 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.
Service with one employer will count as service with a second employer in different circumstances depending on the relationship between the two employers.

It is important to determine if the employers are associated entities or not. This can be relevant when determining whether a transferred employee has completed the minimum period of employment to have jurisdiction to have their unfair dismissal application heard by the Fair Work Commission.

Fair Work Act


The Fair Work Act (s22(5)) provides that if there is a transfer of business, any period of service with the first employer counts as service with the second employer. The period between the termination of employment with the first employer and the start of employment with the second employer does not break the employee’s continuous service with the second employer, but does not count towards the length of the employee’s continuous service with the second employer.

There are circumstances where previous service may NOT be recognised, usually with respect to annual leave and redundancy pay. 

The following is a summary of the effect a transfer of business will have on an employee’s employment entitlements under the National Employment Standards.

Annual leave: annual leave is either transferred with an employee to the new employer or, where the employers are not associated entities, the new employer can decide not to recognise an employee’s previous service with the old employer. If the latter circumstance occurs, the old employer would be required to pay the employee their accumulated annual leave on termination of employment.

Personal/carer’s leave: prior service with the first employer counts towards the amount of personal leave (sick leave and carer’s leave) the transferring employee has with the second employer (less the service for any sick leave or carer’s leave taken with the first employer or paid out by the first employer).

Notice of termination: only service with the new employer counts when determining the period of notice of termination to be given by the employer to an employee. Because a transfer of business terminates an employee’s employment with the old employer, the old employer is required to give the relevant period of notice, or payment in lieu of notice.

Parental leave: service with the first employer counts towards determining eligibility for unpaid parental leave, or an employee’s right to request flexible working arrangements under the National Employment Standards. A transferring employee who is taking unpaid parental leave under the Standards at the time his or her employment transfers continues as if there has been no change of employment. He or she retains the right to extend parental leave, etc. – as if there had been no change in employment.

Unfair dismissal (minimum period of employment): unless the first and second employers are associated entities, the second employer is not obliged to recognise prior service with the first employer for calculating the employee’s minimum employment period.This is provided the second employer advises the transferring employee in writing that prior service will not be recognised before he or she commences employment.

Redundancy pay: if the new employer is not an associated entity of the old employer, it can elect to not recognise an employee’s service with the old employer with respect to redundancy pay. The old employer would be required to pay redundancy pay to an employee on termination.

Fair Work Information Statement: there is no obligation on the employer to notify its employees of a transfer of business or what workplace instrument will apply. However, employers have to give every new employee a copy of the Fair Work Information Statement before, or as soon as possible after, they commence in the new job. The statement explains the effect of the transfer of business on an employee’s entitlements.

Long service leave


Generally, an employee’s long service leave conditions, such as transmission of business, are determined by the relevant state or territory long service leave legislation. Generally, service with an old employer is counted as service with the new employer, although this may be subject to certain qualifications, particularly if there is a break between termination by the old employer and transfer to the new employer.

It should be noted the Fair Work Act (s113A(2)) preserves terms in an agreement made prior to the Fair Work Act (and its replacement) which provide that an employee’s service with an employer during a specified period does not count as service for the purpose of determining whether the employee is qualified for long service leave, or the amount of long service leave to which the employee is entitled.

Transfer of employment


The recognition of service rules also apply to a ‘transfer of employment’ scenario, where an employee takes up employment with an associated entity within three months. In a transfer of employment, it does not matter whether the employee performs the same or substantially the same work for the new employer.

The bottom line: When buying an existing business, the new employer should be aware that an employee’s service with the previous employer may be recognised when determining total service for the purposes of calculating an entitlement under the National Employment Standards or the relevant state or territory long service leave legislation.
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