If you are buying a business, you might consider retaining the employees from the existing business to work in your new business. Doing so can minimise costs and save you time related to hiring and training new staff. However, the relevant law determines the obligations and responsibilities of both the seller and buyer of a business to current employees. Hence, this article will take you through some key things to consider if you want to hire the employees of a business you are buying.
1. Notify the Employees You Want to Hire
Suppose you purchase a business and decide to transfer employees from the existing business to your new business. In this instance, you need to notify the employees of your intention to conduct such a transfer. Business purchasers typically give the employees set time periods to respond to this notice.
Once the existing employees have agreed to the transfer, you should include a clear list of the current employee entitlements in the sale of business contract. This includes any accrued personal and annual leave you must honour as the new employer.
2. Consider Redundancy Payments
As the new employer, you are not obligated to make redundancy payments for any individuals impacted by the business sale. However, if an employee rejects your offer to continue employment, the old employer may be liable to make redundancy payments.
Employees will not be eligible for redundancy entitlements from their old employer where it can be shown that:
- the new job would have similar terms and conditions to the old job;
- there would have been a transfer of employment if the employee had accepted the position; and
- you, as the new employer, will recognise the length of service the employee has with the old employer.
Redundancy payments vary depending on any award or enterprise agreement applicable to the employees. Where the National Employment Standards (NES) apply, the employees must have worked for the old business for 12 months to be eligible for redundancy pay.
Continue reading this article below the form3. Honour the Employees’ Leave Entitlements
If you are not an associated entity of the business you are purchasing from, you are not obligated to consider an employee’s accumulated annual leave. However, as a new employer, you may choose to carry across employees’ accumulated annual leave.
Notably, if you choose not to carry across accrued annual leave, the old employer is responsible for paying out this amount to employees.
Additionally, you must honour any unpaid parental leave an employee has arranged with their old employer ends. Should you wish to offer employment to an employee who is currently on unpaid parental leave, you must allow them to continue taking their leave until the agreed period with their old employer ends.
4. Provide Notice of Termination
Employees who will not transfer to the new business will be either:
- redundant; or
- terminated per their employment agreement.
To avoid disputes in the future, it is important that all non-transferring employees have their employment contracts terminated correctly and that all entitlements are paid out.
5. Consider the Relevant Enterprise Agreement
It is important to note that any existing enterprise agreement will continue to cover employees who continue working with the new business. Further, the enterprise agreement can also cover new employees who the previous business owner did not employ.
As such, if you are buying a business with an enterprise agreement, you should keep in mind that it is likely to carry over to your employees, irrespective of whether they were transferred employees or newly hired.
6. Adjust the Business Purchase Price
You should account for the cost of existing employees’ continuing entitlements when:
- drafting the sale of business contract; and
- determining the purchase price of the business.
You and the previous owners should also specify a method for calculating the adjustments for contingent entitlements that are yet to accrue, such as long service and personal leave. While these entitlements are difficult to price, they should still be reflected in the purchase price.
Know which key terms to negotiate when buying a business to protect your interests and gain a favourable outcome.
Key Takeaways
These are just some of the considerations to consider when purchasing a business and transferring existing employees. The transfer of an employee can, of course, be much more complex. Some key things to keep in mind when hiring the employees of the business you are buying include:
- notifying of intention;
- redundancy payments;
- annual leave entitlements;
- notice of termination;
- enterprise agreements; and
- adjustments to purchase price.
If you need assistance hiring existing employees from the business you are purchasing, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to our lawyers, who are available to answer your questions and draft and review your legal documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
You can hire the employees of the business you are buying. However, it is important to consider the transfer’s impact on current employees. The Fair Work Act 2009 determines the obligations and responsibilities of both the seller and buyer of a business in relation to current employees.
You must notify the employees of your intention to hire them. Additionally, you should consider what entitlements you must pay out if they do not remain with the business. Payment of these entitlements should be reflected in the purchase price of the business. If you decide to hire the employees, you will need to provide suitable notice of termination.
We appreciate your feedback – your submission has been successfully received.
