12 Nov 2009

The Fair Work Act - Transfer of business

The Fair Work Act has changed the way that employment issues are handled during a transfer of business, and done so in a way that will have a significant impact, says Saul Harben.

The Fair Work Act - Transfer of business
Saul Harben, Partner, Workplace Relations

Employment issues are always at the fore when businesses are sold or merged. As with so many other areas of workplace law, the Fair Work Act has changed the way that employment issues are handled during a transfer of business, and done so in a way that will have a significant impact.

The transfer of business provisions under the Fair Work Act have been broadened, meaning that more agreements will travel along with the business.

These rules provide a significant addition to protections for employees, and regulate when - and to what extent - industrial instruments continue to apply to existing employees when the business has been transferred from one entity to another.

In a nutshell, an enterprise agreement will transfer where an employee has been terminated by the old employer, and then becomes employed by the new employer within three months of termination, which is an increase from the two month period under WorkChoices. The employee must perform substantially the same work for the new employer; and there also must be a connection between the new employer and the old employer.

This connection exists if there is a transfer of assets between the new employer and the old employer, or where the new employer is an associated entity of the old employer.

But the big ticket item here is that the relevant connection will now also capture insourcing and outsourcing arrangements.

This means that under the Fair Work Act, businesses will have to consider the transfer of business rules in more circumstances than under WorkChoices. For example, did you know that transferring instruments can even protect certain employees who are hired after the business transfers?

Employers planning to sell or purchase a business should take note of the expanded transfer of business provisions. Under WorkChoices, the instruments from the former employer could only apply for 12 months with the new employer. This restriction no longer applies.

However, Fair Work Australia can make certain orders in relation to a transfer of business. For example, Fair Work Australia could order that a transferring instrument not apply in circumstances where it otherwise would. Also, Fair Work Australia can vary a transferring instrument so that it operates in a manner better suited to that employer's business.

This might be important if you are looking to acquire a failing business. If you are buying the business to turn it around, it may be very difficult if you are saddled with an industrial instrument that had a direct impact on the poor business performance in the first place.

The important thing to take from all this is that instruments will be carried across in more cases, and can apply to more people with no time limit.

This means that before making the decision to buy or sell a business you really should get advice from experienced workplace law practitioners. It is now, more than ever, a crucial factor in considering the viability of any business and seeking advice may uncover many associated costs that you may not have considered.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.