Transmission of business and WorkChoices


Transmission of business and WorkChoices

With heightened business activity the issue of transmission of business comes to the fore. When a business 'changes hands' through a transmission, the buyer may be unsure as to what benefits and entitlements are carried over from the previous employer and become the liability of the new employer.


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With heightened business activity the issue of transmission of business comes to the fore. When a business 'changes hands' through a transmission, the buyer may be unsure as to what benefits and entitlements are carried over from the previous employer and become the liability of the new employer.

While WorkChoices did not change the nature of the transmission provisions in a general sense, there are some details that differ from previous provisions.

Like all matters relating to the purchase of a business, the liability for inheriting previously accrued employment entitlements should be identified as part of the due diligence process prior to purchase.

This article looks at the legal obligations imposed on both the 'transmittor' and the 'transmittee' employer. Decisions by superior courts have also changed the meaning of what type of business changeover constitutes a transmission of business.

What is transmission?

Under WorkChoices, provision is made to protect the accrued entitlements of employees during a 'transmission, succession or assignment' of a business.

The most common scenario is the purchasing of an on-going business where the nature of the business remains unchanged. However, decisions by the superior courts have expanded on the interpretation of what constitutes a 'successor, assignee or transmittee'.

Identical activities

Transmission does not usually occur unless the activities performed by the new employer are in substance identical in character with the business, or a distinct part of the business, of the old employer.

This means that 'outsourcing', which may involve engaging a new employer to provide services that are merely ancillary to the first employer's business, will not lead to the industrial instrument or instruments that applied to the first employer binding the new employer.

These decisions would suggest that even if the duties and working conditions of employees of a transmittor and transmittee are identical, transmission of business may not necessarily occur unless the activities performed by the new employer are in substance identical in character with the business, or a distinct part of the business, of the previous employer.

The courts rely on a distinction between between activities that form part of the business of the original employer, and activities that facilitate the employer's business. Unfortunately, these decisions have created considerable uncertainty among employers.


Under WorkChoices, where a business or part of a business transmits to a new employer, if no employee accepts employment with the new employer, then the relevant industrial instruments will not transfer to the new employer. In this case, the employees of the transferring business that do not transfer will be entitled to a pay out of all their relevant entitlements, such as annual leave and long service leave.

Industrial instruments

Where an employee does accept employment with the new employer, the industrial instruments that cover the employees of the transferring business will transmit to the new employer. The transmitted industrial instruments will only apply to the transferred employees at the new business.

Normally, in any transmission of business the transmittee will offer the employees a new contract of employment, but the transmittee assuming certain obligations.

For example, the transmittee would assume the obligation to have regard to the whole period of service the employee has had with the business, including that with the transmittor, for the purposes of calculating an entitlement to such conditions as long service leave, annual leave, personal/carer's leave, notice of termination and (possibly) redundancy pay.

Information from employer

Where employees accept employment with the new employer, the new employer must provide them with information about their terms and conditions of employment within 28 days of the transfer.

The employer's notification to an employee must include information about what instruments can replace or exclude a transmitted instrument, the source for the terms and conditions that the employer intends to apply, the matters that are dealt with by the transmitted instrument, and when the transmitted instrument ceases to bind the employee.

The new employer must lodge this notice with the Workplace Authority within 14 days after the notice is given to the employees.

The new employer and employees will be able to negotiate agreements (including varying an existing agreement) to override the transferred industrial instrument or instruments.

Preservation of entitlements

There can be issues with respect to the continued operation of an employee's industrial instrument when part or all of a business is sold.

The following is a summary of the some of the implications a transmission of business has on the relevant industrial instrument and entitlement.

Pre-WorkChoices industrial instruments

This type of industrial instrument would include a pre-reform Federal award, NAPSA, pre-reform certified agreement, pre-reform AWA and a preserved State agreement. Generally, in these circumstances, the industrial instrument applicable under the previous employer applies to the new employer and any transferring employees.

This transferred industrial instrument will have a maximum period of application of 12 months, unless the pre-WorkChoices instrument is terminated or replaced, in the interim, by a new workplace agreement.

In the absence of a new workplace agreement, after 12 months the employees will be covered by whichever of the employer's industrial instruments is capable of applying to them, eg the employer's existing award or agreement.

Leave entitlements

The Standard provides for minimum entitlements with respect to annual leave, personal/carer's leave and parental leave. An employee accrues an entitlement to each of these forms of leave based on their continuous service with the employer.

With respect to annual leave and personal/carer's leave, which employer is liable for entitlements accrued under the Standard will vary depending on the circumstances of the transmission.

A new and old employer may agree to transfer some, all, or none of these entitlements to the new employer, therefore liability for entitlements accrued under WorkChoices depends on those arrangements.

Any arrangement would need to be in writing and must be completed before the transmission of business occurs. However, in the case of parental leave, the liability automatically transfers to the new employer.

This means service with the old employer counts as service with the new employer for the purposes of the parental leave Standard. The old employer is required to notify the new employer of those employees likely to be, or who are on, parental leave.

The treatment of leave entitlements accrued prior to WorkChoices will depend on the terms of the applicable pre-WorkChoices industrial instrument, relevant State/Territory leave legislation or contract of employment.

In the case of long service leave, the transmission of business provisions will continue to be determined by the provision in an applicable pre-reform Federal award (if provided), or the relevant State/Territory long service leave statute.

Australian Pay and Classification Scales (APCS)

The APCS, which includes the minimum award wage and any classifications, casual loading, frequency of payment of wages and award coverage, will continue to apply indefinitely, and are not subject to the restriction of a maximum period of 12 months with respect to a pre-WorkChoices industrial instrument.

The APCS, including the casual loading, is subject to variation, from time to time, by the Australian Fair Pay Commission.

Redundancy provisions

Provisions in pre-WorkChoices industrial instruments usually state that where there has been a transmission of business, the service of an employee with the previous employer shall count as service in calculating the employee's total length of service, in the event the employee is subsequently made redundant by the new employer.

This will result in an employee receiving a larger redundancy payment on the subsequent termination of employment.

Re-engagement after transmission

A number of cases have occurred where an employer has sold the business or the business has gone into liquidation, and the subsequent employer re-hires the same employees, but proposes a different industrial instrument (usually an AWA) as a condition of re-employment.

In this situation, an employer should be aware that the transmission of business provisions under WorkChoices, regard an employee terminated by the first employer and subsequently re-engaged by the second employer within two months, is deemed to be covered by the industrial instrument the employee was employed under with the previous employer, ie pre-reform Federal award, NAPSA or pre-WorkChoices agreement.

Similarly, an employee terminated for operational reasons within one month of the time of transmission and re-engaged by the subsequent employer within two months, must be re-engaged under the previous industrial instrument. Service with the first employer also counts as part of the employee's total service with the subsequent employer.

Employers should note that offering inferior conditions of employment as a prerequisite to re-employment may contravene the agreement-making provisions under WorkChoices that invalidate an agreement made under duress or coercion of an employee to obtain agreement.

New probation period

A common question from an employer who has purchased a business is whether an employee who transfers from the previous employer to the new company is subject to a new probation period for the purposes of unfair dismissal laws.

A new employer is usually unfamiliar with the workforce, therefore a new probation period for transferred employees may seem appropriate to determine suitability to their new employment.

In considering this issue, industrial tribunals have usually determined that a new probation period is appropriate provided the transferring employees were informed prior to being re-hired by the new employer that a probation period would apply.

The reasoning behind this interpretation is that the WRAct focuses attention on the period of employment with 'the employer' - in this situation, meaning with the new employer.

In addition, WorkChoices provides that an employee must have completed a six month qualifying period with the employer before a claim of unfair dismissal could be heard before the Australian Industrial Relations Commission.

Once again, industrial tribunals have usually determined that the qualifying period re-commences with the new employer, the transferred employee having to complete six months service with the new employer before the unfair dismissal laws under WorkChoices apply.


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