If you are buying a business, it’s important to consider what impact this transfer will have on current employees. The Fair Work Act 2009 (Cth) determines the obligations and responsibilities the seller or buyer has for current employees.

A buyer who decides to transfer employees from the existing business to the new business needs to provide notice to the employees it wishes to transfer. The employees are usually given set time periods to respond to this notice.

Once the existing employees have agreed to be transferred to the new business, a clear list of the employee entitlements including, but not limited to, any personal and annual leave, should be set out in the sale of business contract.

Redundancy

If an employee rejects the new employer’s job offer, they will not be eligible for redundancy entitlements from the old employer. However, if this were the case, the old employer would need to be able to show that:

  • the new job would have similar terms and conditions to the old job; and
  • there would have been a transfer of employment if the employee had taken the job.

Annual Leave

If the new employer is not an associated entity of the old employer, they are not obliged to take into regard an employee’s accumulated annual leave. However, the new employer can decide whether they want to carry across an employee’s accumulated annual leave. If this does not happen, the old employer is responsible for paying out any accumulated annual leave. Generally, this is done in the form of an adjustment to the purchase price at the time of settlement.

Notice of Termination

Employees that are not being transferred to the new business will either be made redundant or terminated in accordance with their employment agreement.

To avoid disputes in the future, it is important that all non-transferring employees have their employment contracts terminated correctly, and all entitlements are paid out.

Conclusion

These are just some of the considerations a buyer, “the new employer”, needs to consider if they want to hire a current employee of the business. The transfer of an employee can, of course, be much more complex. For example, when a buyer wants to continue hiring an employee but wants to place them in another position with a lower salary. If you do decide to hire existing employees as part of your business purchase, it would be important to seek the advice of an experienced employment lawyer to ensure you are complying with the law.

Priscilla Ng

Next Steps

If you would like further information on any of the topics mentioned in this article, please get in touch using the form on this page.