What Happens to Employee Entitlements When The Business Is Sold?

Working for a business which changes hands can be a confusing time for the current employees. They may feel nervous about the state of their employment and have questions about what will happen to the recognition of their service and the entitlements they have accrued so far. The good news is that there is a simple answer because when a business’ ownership is transferred, the employers only have two options with regard to their employees. Here is how a business can deal with service and entitlements when changing hands.

The first option: Ending the employment relationship

If an employer wishes to, it may legally terminate a worker’s employment when the business is changing hands. If the employer chooses to terminate the employment of any of its workers it must provide written notice and the employee’s entitlements will be paid out in line with current legislation and their award (if covered by any).

The second option: Transfer of employment

If the employer chooses to transfer the employees across to the new business they must also provide their employees with written notice in line with the Fair Work Act.

Transfers can happen between associated entities or non-associated entities, and it will depend on the relationship between the former and new employer as to whether or not the employee’s recognition of service and their entitlements accrued with their former employer will count with their new employer. It is, therefore, important to understand the difference between associated entities and non-associated entities.

What is an associated entity?

Associated entities are covered in detail in the Corporations Act 2001. In layman’s terms, they are businesses or other entities which are in some way connected, such as both being entities under the same parent company.

For two companies to be considered as ‘associated entities,’ one entity must be in control of the resourcing, operations and business affairs of the other entity if that entity has a qualifying investment in the other, or if both of the entities are controlled by a third entity.

Under what circumstances can employment be transferred between associated entities?

There are two conditions which must be met in order for an employee’s service with one employer to count as service with another employer:

1. the new employer must be considered an associated entity of the worker’s first employer; and
2. the employee has just three months from the date that their employment is terminated by their first employer to become employed by their second employer.

Under what circumstances can employment be transferred between non-associated entities?

An employee’s previous service and entitlements can only be transferred between non-associated entities if their own employment is also being transferred as part of a transfer of business. For this to occur, the transferring employee must be dismissed from their first employer and then employed by their new employer within a span of three months, into a role in which they will perform work which is largely the same as the work they performed for their first employer.

In addition to the employee being dismissed by their first employer and re-hired by their new employer, one of the following must exist between both employers for a transfer of a business to occur:

• the first employer’s business assets are transferred or sold to the new employer; or
• the new employer undertakes work which is outsourced by the first employer; or
• the new employer insources work which was previously outsourced.

If you are concerned about your service and entitlements because your employer is changing hands, or you are an employer who is transferring their business and you want to know how to transfer your employees’ service and entitlements to the new business our experienced employment lawyers can assist.