Managing people

Transfer of business 

There are many employment issues to deal with when a business is transferred from one employer to another. Read about all the things you need to do. 

The transfer of business provisions under the Fair Work Act 2009 apply where a business is transferred from one national system employer to another. This includes some insourcing and outsourcing arrangements and covers some changes of employer within corporate groups.

It means the transfer provisions under the Fair Work Act are based on the transferring of activity and an employee or employee going with that activity. There is no transfer of business for the purposes of the Fair Work Act unless at least one employee moves to the new employer. 

The intention of transfer of business provisions is to ensure the service of all employees who follow the business or activity are deemed to be unbroken by the transfer, and the period of service which the employee has had with the previous owner of the business is to be deemed service with the new owner. 

Provision is made in the Fair Work Act to protect the accrued entitlements of employees during a transfer of business.  

 When a transfer occurs 

 Section 311 of the Fair Work Act provides that there is a transfer of business if each of the conditions in ss311(1)(a)-(d) are satisfied, which are: 

  • one or more employees is terminated from the first employer 
  • the employee(s) become(s) employed by the second business within 3 months doing substantially similar work 
  • the work that the employee performs for the new employer is substantially the same as that performed for the old employer, and 
  • there is a connection between the two employers. 

Associated entities 

 Section 50AAA of the Corporations Act 2001 (Cth) defines an “associated entity” of another entity (the principal) in the following circumstances: 

  • the associate and principal are related bodies corporate 
  • the principal controls the associate 
  • the associate controls the principal and the operations, resources or affairs of the principal are material to the associate 
  • the associate has a qualifying investment in the principal, has significant influence over the principal and the interest is material to the associate 
  • the principal has a qualifying investment in the associate, has significant influence over the associate and the interest is material to the principal 
  • a third entity controls both the principal and the associate and the operations, resources or affairs of the principal and the associate are both material to the third entity. 

Control 

 The word “control” is defined in s50AAA of the Corporations Act to mean when one entity controls another when the first entity can make decisions that determine the financial and operating policies of the second entity. 

Transfer between non-associated entities 

 Service with one employer (first or old employer) will count as service with another employer (second or new employer) that is not an associated entity of the first employer if the employee is a transferring employee in relation to a transfer of business from the first to the second employer. 

The following would be considered a connection between the two employers in a transfer of business situation: 

  • there is a transfer of some assets from one employer to another 
  • there is the outsourcing of work from one employer to another, which can occur regardless of whether any assets change hands 
  • there is an “insourcing” of work from one employer to another 
  • there is a transfer of employment between associated entities as defined in the Corporations Act 2001 [Cth].  

Section 311(3)(b) of the Fair Work Act states that there is a connection between the old employer and the new employer if the new employer or associated entity owns or has the beneficial use of some or all of the assets (whether tangible or intangible) that the old employer or associated entity owned or had the beneficial use of and that relate to, or are used in connection with, the transferring work. 

Transfer of assets: arrangement 

 Section 311(3) of the Fair Work Act provides one of the conditions of a transfer of business that must be satisfied is that there is a connection between the old and new employer as described in any of ss311(3-(6) of the Act. That is, there must be an arrangement between the new and old employer for “the beneficial use of assets” of the old employer “that relate to, or are used in connection with the transferring work”. The word “arrangement” is not defined in the Act, but the Explanatory Memorandum to the Fair Work Bill 2009 states that “arrangement” is intended to be interpreted “broadly”. 

 The relevant authorities on determining the meaning of “arrangement” propose that, while not legally enforceable, it requires: 

  • that there be communication between the parties to the arrangement, and 
  • that the parties must reach some understanding, and 
  • that there is some expectation that each of the parties will behave in a particular way. 

An arrangement is not an expectation that a party will behave in a particular way and it cannot be contrived. It requires some substance. 

Non-associated entities – transfer of assets 

In a case before the Fair Work Commission (FWC), an employee worked for the old employer in a café. The business was purchased by the new employer. The employee worked three shifts for the new employer doing the same work before he was dismissed. 

The FWC held that there was a transfer of employment because there was a transfer of business between the old employer and the new employer. There was a connection between the old employer and the new employer as the transfer of business involved a transfer of assets. Further, as the new employer had not informed the employee in writing that his previous service would not be recognised, the employee’s service with the old employer counted as service with the new employer.  Hill v Sahir T/A Cafe Moderno at Fountain Gate [2013] FWCA 668 (30 January 2013) (austlii.edu.au)

New employer ceased to outsource work 

In a case before (then) Fair Work Australia, the employee worked for the old employer, which provided labour to the new employer. After two years, the new employer ceased to outsource work to the old employer. The old employer terminated the employee’s employment, and she was employed by the new employer but dismissed after about three weeks. 

The employer was found to be a transferring employee in relation to a transfer of business. There was a connection between the old employer and the new employer because the new employer had ceased outsourcing work to the old employer. The employee was not informed in writing by the new employer that previous service with the old employer would not count as service with the new employer, and therefore it did not count. See Thorne v Jura Australia Espresso Pty Ltd [2012] FWA 4954

No relevant connection between employers 

 In a case before (then) Fair Work Australia, the employee worked as a security guard for the old employer, which provided site security under contract. A tender process resulted in the new employer being awarded the contract. The employee was offered employment with the new employer but was dismissed the following month. It was held that there was no connection between the employers, and therefore no transfer of business. As such, service with the old employer did not count as service with the new employer. Szybkowski v Monjon Australia Pty Ltd t/as Monjon Australia Pty Ltd [2010] FWA 7321 (17 September 2010) (austlii.edu.au)

In another case before the Fair Work Commission, the employee had been employed by the old employer to work at a hotel. The old employer operated the hotel under a lease with the owners. The old employer abandoned the lease, and the owners leased it to the new employer. The new employer employed the employee to perform the same duties but later dismissed her. On appeal, it was found there was no connection between the old employer and the new employer because there was no evidence of a transfer of assets in accordance with any arrangement between the employers.  Appeal by John Lucas Hotel Management Services [2013] FWCFB 1198 (22 February 2013) (austlii.edu.au)

Intangible assets 

 Intangible assets are defined as identifiable non-monetary assets that cannot be seen, touched or physically measured, which are created through time and/or effort and that are identifiable as separate assets. There are two primary forms of intangibles — legal intangibles (eg trade secrets, customer lists, copyrights, patents, and trademarks), and competitive intangibles such as knowledge activities (eg know-how, collaboration activities, leverage activities, and structural activities). Legal intangibles are known under the generic term intellectual property and generate legal property rights defensible in a court of law. 

No beneficial use of assets – no transfer of business 

In a case before Fair Work Australia involving a jurisdictional point regarding the employee’s period of employment, it was determined that leaving some electrical appliances and a procedures manual did not satisfy the requirements that the arrangement entered into by the employers was not a beneficial use of assets, so no transfer of business occurred.  Zabrdac v Transclean Facilities Pty Ltd [2011] FWA 4492 (25 August 2011) (austlii.edu.au)   

Work performed 

Under 311(1)(c) of the Fair Work Act, the transferring employee must perform the same, or substantially the same, work for the new employer as he/she performed for the old employer. It is intended that this provision not be construed in a technical manner. It recognises that, in a transfer of business situation, there may well be some minor differences between the work performed for the respective employers. However, the requirement is satisfied where, overall, the work is the same or substantially the same — even if the precise duties of the employees, or the manner in which they are performed, have changed. 

This section of the Act relates to the similarity in the actual work performed by the transferring employee. While the work of the companies, the employee’s title and precise duties may have changed, if the overall work performed for both employers is substantially the same, a transfer of business occurs.  Farrugia v Building Technology Integrators Pty Ltd [2011] FWA 1285 (14 March 2011) (austlii.edu.au)   

Instruments that may transfer

Section 312 of the Fair Work Act defines the meaning of a “transferable instrument” as either:  

  • an enterprise agreement approved by the Fair Work Commission 
  • a workplace determination 
  • a named employer award. 

The term “named employer award” means: 

  • a modern award (including a modern enterprise award) that is expressed to cover one or more named employers 
  • a modern enterprise award that is expressed to cover one or more specified classes of employers (other than a modern enterprise award that is expressed to relate to one or more enterprises [similar businesses under the same franchise]). 

 Each of the following is a transferable instrument: 

  • an enterprise agreement approved by the Fair Work Commission 
  • a workplace determination 
  • a modern award 
  • a notional agreement preserving a state award 
  • a named employer award (a modern award that commences from 1 January 2010 that expressly covers one or more named employers) 
  • preserved redundancy provisions (in certain circumstances, if the transfer occurred before 31 December 2009) 
  • individual flexibility arrangements 
  • guarantee of annual earnings to high-income employees, with the second employer required to comply with the remaining period of the guarantee of annual earnings transfers. 

Enterprise agreement – new employer 

 Under s313 of the Fair Work Act, an enterprise agreement that already covers the new employer would NOT cover a transferring employee who is covered by a “transferable instrument”, eg an enterprise agreement with the old employer. This is referred to in the Act as the default position. 

 In order for the company’s enterprise agreement to apply to the transferring employees, the employer would need to make an application to the Fair Work Commission as set out in s318, seeking an order that the company’s enterprise agreement should apply to transferring employees. 

In deciding whether to make the order, the Fair Work Commission must take into account the following: 

  • the views of the new employer and the employees who would be affected by the order 
  • whether any employees would be disadvantaged by the order in relation to their terms and conditions of employment 
  • if the order relates to an enterprise agreement – the nominal expiry date 
  • whether the transferable instrument would have a negative impact on the productivity of the new employer’s workplace 
  • whether the new employer would incur significant economic disadvantage as a result of the transferable instrument covering the new employer 
  • the degree of business synergy between the transferable instrument and any workplace instrument that already covers the new employer (eg the enterprise agreement) 
  • the public interest. 

It may be difficult to convince the FWC that the company’s enterprise agreement applies to the transferring employees if there is a significant reduction in their wages.   

 Industrial instruments which do not transfer 

 A modern award covering the transferring employee at the first employer does not transfer to the second employer. In many instances the same modern award will cover the same work at the second employer, but not in all cases.

Sometimes, the second employer will be covered by a different modern award or an enterprise award.  

Previous service and entitlements 

Section 22(5) of the Fair Work Act provides that if there is a transfer of business, any period of service of the employee with the first employer counts as service with the second employer; and the period between the termination of the employment with the first employer and the start of employment with the second employer does not break the employee’s continuous service with the second employer, but does not count towards the length of the employee’s continuous service with the second employer. 

 The prior service with the first employer is counted for: 

  • the amount of annual leave the transferring employee has with the second employer (less the service for any period of annual leave taken with the first employer or paid out by the first employer) 
  • the amount of personal leave (sick leave and carer’s leave) the transferring employee has with the second employer (less the service for any sick leave or carer’s leave taken with the first employer or paid out by the first employer) 
  • the amount of notice of termination the transferring employee is entitled to from the second employer (less the service for any period of notice given by the first employer or paid out in lieu by the first employer) 
  • the amount of service that the employer has with the second employer for determining eligibility for unpaid parental leave, or an employee’s right to request flexible working arrangements under the National Employment Standards 
  • the amount of service that the transferring employee has with the second employer for determining when the employee’s minimum employment period ends (for access to unfair dismissal claim rights) 
  • the amount of service the transferring employee has with the second employer for calculating redundancy pay if the employee is made redundant by the second employer (less any service for which redundancy pay was paid by the first employer). 

The recognition of service rules also applies to a “transfer of employment” scenario, where an employee takes up employment with an associated entity within three months. In a transfer of employment, it does not matter whether the employee performs the same or substantially the same work for the new employer. 

Exceptions  

Recognition of service with the first employer does not apply with respect to annual leave or redundancy pay under the National Employment Standards where the transfer is between non-associated entities if the second employer decides not to recognise the employee’s service with the first employer. 

Unless the first and second employers are associated entities, the second employer is not obliged to recognise prior service with the first employer for calculating the employee’s minimum employment period provided the second employer advises the transferring employee in writing that prior service will not be recognised before he or she commences employment. 

If the employee has already had the benefit of the entitlement the amount which was calculated on the period of service with the first employer is not counted when calculating service with the second employer. 

A transferring employee who is taking unpaid parental leave under the National Employment Standards at the time his or her employment transfers continues as if there has been no change of employment. He or she retains the right to extend parental leave, etc – as if there had been no change in employment. 

No obligation to employ 

Where there is a transfer of business under the Fair Work Act the second employer is not compelled to employ someone who would be a transferring employee if he or she was employed by the second employer. Refusing to employ someone in these circumstances does not breach the general protections in the Act. 

Fair Work Information Statement 

Any new employee must receive a Fair Work Information Statement from the employer. It must contain an explanation of the effect on an employee’s entitlements when he/she is subject to a transfer of business. 

Employment records 

The Fair Work Regulations 2009 contains provisions that specify the obligations of employers regarding the records of transferring employees. The old employer is required to transfer the employment record for each transferring employee at the time the connection between the two employers occurs, ie when the transfer of assets occurs, when the work is outsourced or insourced or, for associated entities, when the employee is transferred. If the transferring employee becomes an employee of the new employer after the transfer, the new employer must ask the old employer to provide them with the employee’s records and the old employer must give those records. These records must be kept by the new employer for seven years.

When one employer is not a national system employer 

The National Employment Standards applying to notice of termination and unpaid parental leave, and the additional consultation requirements applying to terminations of 15 or more employees, apply to State system employers as well as national system employers. 

However, there is no “transfer of employment” under the Fair Work Act when either the first or second employer is a State system employer. Industrial instruments do not transfer from the first to the second employer and prior service, except as it affects notice or parental leave, does not carry across by legislation. (The second employer may choose to recognise prior service). 

Where both employers are State system employers there may be rules in the State legislation covering the transmission of business or transfer of employment which preserve prior service or transfer industrial instruments. 

Referral of industrial relations powers 

Where an unincorporated business was bought by an incorporated business after 1 January 2010 (date of referral of industrial relations powers by State governments – except Western Australia) the previous state award will transfer with the employees.  

From 1 January 2011, the relevant modern award applied to the relevant employees. 

Amending the transfer – Fair Work Commission orders 

The second employer, or a transferring employee, may apply to the FWC for an order that a transferring award or agreement will not cover transferring employees or that an enterprise award or agreement which covers the second employer will cover the transferring employees. 

Under  s317 and 318 of the Fair Work Act, in the case of a transfer or likely transfer, the FWC may order: 

  • the transferable instrument does not cover the transferring employees or second business 
  • another enterprise agreement or named employer award which covers the second business covers the transferring employee(s). 

Applications to the FWC may be made by: 

  • the second business or likely second employer 
  • a transferring employee or someone likely to be a transferring employee of the second business 
  • a union covered by the enterprise agreement or named employer award. 

The FWC can also order that a transferable instrument does not apply to non-transferring employees undertaking transferred work, or that it does. 

In determining an application, the FWC will take account of: 

  • views of the new employer or a person likely to be the new employer 
  • employees likely to be affected 
  • whether any employees would be disadvantaged by the order in relation to their terms and conditions of employment 
  • the business interests of the second business 
  • the nominal expiry date of the relevant enterprise agreement 
  • the degree of business synergy between the transferable instrument and any workplace instrument that already covers the new employer 
  • the public interest. 

It may also alter or clarify a transferable instrument in its operation at the second employer. 

Long service leave  

Although long service leave is referred to under the National Employment Standards, the source of entitlement for most employees is the relevant State or Territory long service leave statute, which would usually specify the requirements and obligations on a new employer when transmission of business occurs. 

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