'Successor' liable for employment liabilities of departing employer

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'Successor' liable for employment liabilities of departing employer

Source: Australian Business Ltd A recent Federal Court case has shown that 'successor' employers should investigate the possible employment liabilities when moving into a business.

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Source: Australian Business Ltd

 

A recent Federal Court case has shown that 'successor' employers should investigate the possible employment liabilities when moving into a business. Federal workplace relations law provides that a business that comes within the term 'successor' to another business can be required to provide the same employment conditions as the previous employer. In a case which sheds some more light on this grey legal area, the Court decided that there was no need to show a direct business transaction between the departing employer and the new employer. The critical element is that the business has, in fact, been 'taken over' in the broad (not technical) sense of that term.

See: Health Services Union of Australia v Gribbles Radiology Pty Ltd [2002] FCA 856 (5 July 2002).

Background

The effective controlling party (the Clinic) determined which business was to provide the medical imaging service at the Clinic. The decision of the Clinic to enter into a contract with a new company, in place of the previous provider, had the effect of transferring the business of providing medical imaging services at the Clinic from the previous provider to the new company. 

Four radiographers employed by the old business claimed redundancy and other benefits after the business came under the control of the new company.

Employer bound

Justice Gray ruled:

'In my view it is the approach …taken by the Full Court in North Western Health Care Network v Health Services Union of Australia FCA 897 (1999) 92 FCR 477 that I am bound to follow.

'If the Court were to take a technical approach, and to hold that some direct transaction between the two employers were necessary to satisfy s149(1)(d), the object of the provision would be evaded easily. For instance, it would be a simple matter for the first employer to transfer the right to conduct the business to a third party, not an employer, who could then transfer it to the new employer. There would be no direct transaction between the two employers, but the result would be precisely the same as if there had been. The presence of a third party cannot of itself exclude a factual situation from amounting to a succession, assignment or transmission. The use of the word "successor" in s 149(1)(d) suggests that there is not a need for a direct transaction. It is possible, even in the technical sense of the word, for one person to be the "successor" of another without any direct transaction between them.'

Unfair to new employer?

Justice Gray went on to say:

'It might be considered that rendering the respondent liable to make payments of severance pay to the four radiographers on the basis of their previous service with [the previous business] involved some unfairness to the respondent. It must be remembered that the respondent was under no obligation to employ those persons. No doubt it received real practical benefits from taking on a ready-made workforce. It had the benefit of the experience, qualifications and known availability at particular times of those persons. It is not unfair to regard it as having acquired obligations to those persons in relation to severance pay, along with the benefits received from engaging them.'

The Court ordered a token $50 penalty, and ordered the new supplier to pay severance pay and underpayment to each radiographer.

 

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