An employer may choose to sell their business for a multitude of reasons; maybe they are ready for a change or have been presented with an attractive offer! Either way, we need to consider what will happen to the current employees, including their entitlements and their record of employment. The Fair Work Act 2009 (Cth) outlines the requirements that must be met when transferring the business. Additionally, the agreement negotiated between the current owner to the prospective owner may also stipulate extra details. Business Kitz have created this blog to clarify some details in regards to what occurs to employees when a business is sold.
What is a business transfer in the selling of a business?
In order to understand what happens when an employer sells their business, it is necessary to understand what occurs when a business changes ownership. A sale of business is also known as a transfer of the business. According to the Fair Work Act, this occurs when the following events take place:
1. An employee’s position with their previous employer is terminated;
2. Within three months of termination, the employee commences a new role with their new employer, which is ‘substantially’ or the ‘same’ work as what they completed with their previous employer; and
3. There must be a ‘connection’ between the previous and new employer through either an arrangement that involves the new employer taking ownership of some or all of the previous employer’s assets for work related purposes. Or the previous employer outsources their employees to the new employer.
Importantly, the nature of a ‘connection’ is not limited to these situations, there are several ways in which this can occur. The Corporations Act 2001, provides that a connection must involve a interaction where one company has a controlling interest in another company. For example, the new employer in the sale of a business will have a controlling interest in its operation of their website.
How are transfer instruments involved when a business is sold?
When an employer is selling their business, a key aspect is to consider is the transferable instrument. A transferable instrument is an agreement that covers the employees of the old employer. The purpose of these agreements is to ensure that the employee’s entitlements are maintained throughout the transfer of the business. For example, a transfer instrument may be an enterprise agreement, awards, workplace determinations, or other arrangements. The instrument will apply for the period of time where the employee is completing ‘transfer work’, and will be terminated once the new employer commences the transfer of the employees.
What about employee entitlements?
During the process of an employer selling their business, many employees will enquire about their entitlements. There may be uncertainty as to whether their previously accrued annual leave, carers leave, flexible arrangements, and long service leave will be recognised by the new employer. As stated above, the answer to this question depends on the agreement between the two parties involved in the sale. Usually the new employer will recognise the entitlements of the new employer.
Upon the commencement of the employee’s new job, the employer needs to provide the employee with a statement from Fair Work, that explains the effect of the transfer of business on the employee’s entitlements. The entitlements have to be compliant with the National Employment Standards, which covers 11 minimum entitlements such as the maximum weekly hours and annual leave. In circumstances where the employees are casual, they are only entitled to some of the National Employment Standard (NES) entitlements. However, there are situations where the new employer may not recognise previous employees as they are not considered to be the associate entities. Therefore, as they are not transferring into the new employers, they may not be entitled to the NES entitlements.
Could I be made redundant if my employer sells their business?
In some situations where there is a transfer of business, the current role of the employees may be made redundant by the new employer. When an employer chooses to sell their business, the new employer may decide the current job being completed by the employee is not needed in the future. It then becomes the obligation of the previous employer to pay redundancy to the employee, upon termination of their employment. Employers must also provide the employee with the appropriate termination notice or make a payment in lieu of notice.
Importantly, a redundancy needs to be genuine. This means that the new employer must follow the dismissal requirements. These requirements are stipulated in the registered agreement between the employer and employee about the conditions of the employment, such as an enterprise agreement. This needs to be done so the employee cannot make an application for unfair dismissal. A genuine dismissal cannot occur when the new employer gets someone else to do their job instead of them, and considering the circumstances, the employer could have reasonably given the employee another position within the business or with an association.
Is the website transferred in the sale of a business?
It is common in the sale of a business that the transfer of a website may be considered as a transferable asset through the term of the contract. However, unlike the other assets in the transfer of ownership, a website cannot be transferred through a contract. In Australia, the ownership of a domain name must be transferred through the legal process. As a result, many businesses forget to engage the party to properly transfer the ownership of the domain name. Importantly, all changes in the ownership of domain name removes the existing time frame on the current registration of the name. Therefore, it is paramount that the new owner of the domain name renews the registration of the name after the transfer of ownership, in order to reset to the registration’s time frame.
If you require any assistance selling your business, you should seek legal advice. Our sister company, Legal Kitz can assist with all employment related matters. Additionally, our subscription plan offers access to any legal, commercial or employment document you will need as a business owner. Check out our subscription plan here, or book a FREE 30-minute consultation to see if it is right for you.