When a business is sold, it can be a time of uncertainty and change for the employees. Whether their employment will continue with the new owner, what will happen to their accrued entitlements, and how the transfer process works are common concerns.
Understanding employee rights and obligations during a transfer of business is crucial for both employers and employees. This article will explore what happens to employees when a business changes hands, including the different types of business transfers, employee entitlement considerations, employer obligations, and the process of transitioning staff to the new owner.
Understanding Transfer of Business Types and Their Impact on Employees
When a business is sold, the impact on employees can vary depending on the type of transfer that occurs. The two main types of business transfers are share sale transfers and asset sale transfers. Each type has different implications for employees in terms of their employment status, entitlements, and obligations.
Share Sale Transfer of Business
In a share sale transfer, the company’s shares are sold to a new owner, but the employing entity remains the same. This means that the employees’ employment contracts, entitlements, and accrued benefits remain unchanged. The new owner takes over the existing employment arrangements, and the employees continue working for the same company, albeit under new ownership.
Key points about share sale transfers and employees:
- Employees’ employment contracts remain intact
- Accrued entitlements, such as annual leave and long service leave, are carried over
- Continuity of service is maintained for the purposes of entitlements and redundancy
- The new owner assumes responsibility for the employees from the date of the share transfer
Asset Sale Transfer of Business
In an asset sale transfer, the business assets are sold to a new owner, and the employees are terminated by the old employer. The new owner has the option to offer employment to the existing employees, but there is no automatic transfer of employment.
If the new owner decides to employ the existing staff, they can choose to:
- Recognise the employees’ prior service for the purposes of entitlements
- Offer new employment contracts with different terms and conditions
- Not recognise certain entitlements, such as annual leave and redundancy (subject to certain conditions)
If the new owner does not offer employment to the existing staff, the old employer must terminate the employees and pay out their entitlements, including redundancy if applicable.
Key points about asset sale transfers and employees:
- Employees are terminated by the old employer
- The new owner can choose to offer employment to the existing staff
- The new owner can decide which entitlements to recognise
- If the new owner does not offer employment, the old employer must pay out entitlements and redundancy (if applicable)
Understanding the type of business transfer is crucial for both employers and employees, as it determines the obligations and entitlements of each party. Seeking professional advice from an employment lawyer or workplace relations specialist can help navigate the complexities of a transfer of business and ensure compliance with legal requirements.
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Employee Entitlements During a Transfer of Business
When a business is sold, employee entitlements can be a complex issue. The new employer must recognise certain entitlements, while others are optional. Understanding these entitlements is crucial for both the seller and the buyer during the transfer process.
Entitlements the New Employer Must Recognise
The new employer is required to recognise several key entitlements for transferring employees, including:
- Sick leave: Accrued sick leave balances must be carried over and recognised by the new employer.
- Parental leave: Employees who are on or eligible for parental leave must have this entitlement recognised by the new employer.
- Flexible working arrangements: Any existing flexible working arrangements, such as adjusted hours or work-from-home agreements, must be honoured by the new employer.
These entitlements are protected under the Fair Work Act 2009 and cannot be disregarded during a transfer of business.
Optional Entitlements for New Employers
However, there are some entitlements that the new employer can choose not to recognise, such as:
- Annual leave: The new employer can decide not to recognise accrued annual leave balances. In this case, the old employer must pay out any outstanding annual leave entitlements to the transferring employees.
- Redundancy: If the new employer is not an associated entity of the old employer, they can choose not to recognise employees’ service for the purposes of redundancy entitlements. The old employer would then be responsible for paying any redundancy entitlements owed to employees.
It’s important for both the seller and buyer to clearly negotiate and agree upon which entitlements will be recognised and which will be paid out by the old employer.
Long Service Leave Considerations
Long service leave entitlements can be complex during a transfer of business. In most cases, the new employer must recognise employees’ prior service for long service leave purposes.
However, there are some exceptions. If an employee was not entitled to long service leave under an agreement as of December 31, 2009, and a new agreement made on or after January 1, 2010 states that prior service does not count, then the new employer may not have to recognise that service.
It’s crucial for both parties to carefully review any applicable awards or agreements and seek legal advice to ensure compliance with long service leave obligations.
Obligations to Your Employees During the Sale
Notice of Termination Requirements
When selling your business, you have an obligation to provide notice of termination to your employees. The required notice period depends on factors such as the employee’s length of service, employment contract, and the applicable modern award or enterprise agreement.
Employers must provide written notice of termination, delivered in person or sent to the employee’s last known address. The notice should clearly state the date of termination. Alternatively, employers can choose to provide payment in lieu of notice.
It’s important to note that certain employees, such as casuals or those on fixed-term contracts, may not be entitled to notice of termination. However, it’s best practice to communicate openly with all employees about the sale and any potential impacts on their employment.
Communication and Consultation
Clear and timely communication is crucial when selling your business. Keeping your employees informed can help manage uncertainty, maintain morale, and ensure a smooth transition.
Consider holding a meeting to announce the sale and explain what it means for the business and the employees. Be prepared to answer questions and address concerns. Follow up with written communication outlining key information and any steps employees need to take.
In some cases, modern awards or enterprise agreements may require employers to consult with employees about major workplace changes, such as a business sale. This consultation process involves providing relevant information to employees, giving them an opportunity to express their views, and considering those views before making a final decision.
Employment Termination Payments
When employment is terminated due to a business sale, employees may be entitled to various termination payments. These can include:
- Outstanding wages and accrued leave entitlements
- Redundancy pay (if the employer is not a small business)
- Long service leave (depending on the employee’s length of service)
- Notice period payments (if notice is not worked)
It’s essential to calculate these entitlements accurately and ensure they are paid out in a timely manner. Seek professional advice if you’re unsure about your obligations or need assistance with the calculations.
Remember, even if employees are transferring to the new business owner, you may still need to pay out certain entitlements depending on the sale arrangements and whether the new owner recognises previous service. Clear communication and careful planning can help ensure a smooth transition for both the business and the employees.
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Employee Transfer Process
Transfer to New Employment
When a business is sold, employees may be transferred to the new owner as part of the sale process. This transfer involves several key steps:
- The seller must provide the buyer with detailed information about each employee, including their start date, applicable award or agreement, pay rate, accrued leave entitlements, and any other relevant details.
- The buyer will review this information and determine which employees they wish to retain in the business after the sale. They may choose to offer employment to all, some, or none of the existing staff.
- The seller is required to formally terminate the employment of all staff, even those who will be transferring to the new owner. This involves providing written notice of termination and paying out any entitlements owed up to the date of the sale, such as wages, accrued annual leave, and redundancy pay if applicable.
- The buyer will then make offers of employment to the selected staff, specifying the terms and conditions of their new employment. This offer should clarify which entitlements and years of service will be recognised and carried over from their previous employment.
- If the employee accepts the offer, their employment with the new owner will typically be considered continuous, with recognition of their prior service for leave entitlements and other benefits as agreed.
It’s important for both the seller and buyer to communicate clearly with employees throughout this process, providing them with accurate information and reasonable notice to minimise disruption and uncertainty.
Employee Records and Documentation
During a transfer of business, the seller is obligated to provide the buyer with comprehensive records relating to transferring employees. This documentation is critical to ensure the smooth transition of employment arrangements and to enable the new employer to fulfil their legal obligations. Key records that must be supplied include:
- Employment contracts or letters of offer
- Position descriptions outlining roles and responsibilities
- Pay records showing wages, salaries, allowances, and superannuation contributions
- Leave records detailing accrued entitlements such as annual leave, personal/carer’s leave, and long service leave
- Hours of work records, including timesheets and rosters
- Performance reviews and disciplinary records
- Work health and safety incident reports and workers’ compensation claims
- Training and qualification records relevant to the employee’s role
The buyer, as the new employer, is required to keep these employee records for a minimum of seven years, in line with record-keeping obligations under the Fair Work Act. Failure to maintain accurate and complete records can result in penalties for the employer.
In addition to transferring physical records, it’s advisable for the seller and buyer to meet and discuss any important information or context relating to employee performance, disputes, or future commitments that may not be apparent from the formal documentation. This can help ensure a smooth handover and avoid unexpected issues down the track.
By carefully managing the transfer of employee records and prioritising clear communication, the seller and buyer can minimise disruption for transferring employees and set the business up for ongoing success under new ownership.
Conclusion
Selling a business involves numerous considerations regarding the rights and obligations of employees. The outcome for employees largely depends on the type of business sale, whether it’s a share sale or an asset sale, and the decisions made by the new owner regarding existing staff.
In a share sale, employees typically continue their employment under the same terms and conditions. However, in an asset sale, the new owner has more flexibility in deciding whether to retain employees and which entitlements to recognise. Regardless of the sale type, the previous employer must provide appropriate notice and pay out certain entitlements upon termination. Open communication, adherence to legal requirements, and careful negotiation between the buyer and seller are key to ensuring a smooth transition for all parties involved.
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