WorkChoices Rules When Buying a Business

It is an every day commercial reality that business people buy and sell their companies. There are many advantages in buying a pre-established business, namely that you inherit a company that is presumably successful or has the potential to make a profit if operated effectively. A business may also have a hard earned reputation, contact with various suppliers and an excellent location.

Somewhat unsurprisingly one of the greatest problems associated with buying or selling a business is what to do with staff. Some staff may have been working in the business for a substantial amount of time and may understandably feel nervous about dealing with a new boss. The outgoing owner may also feel that their loyalty should be rewarded, and may want to ensure that their position is protected and maintained by the new boss.

The new Part 11 of the WR 1996 introduced by WorkChoices, subsequently provides for a series of rules that apply to people who buy business within Australia and guarantees that the entitlements of previous employees are protected under the Act.

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Which Employees Are Protected By The Act?

In essence this Part is designed to ensure that a new employer (buyer of the business) honours the obligations assumed by the business under the old employer (seller of the business) to the following employees:

• Any employee who was employed by the old employer immediately before the business was transferred/sold and who is now employed by the new employer within 14 months of when the business was sold.  This definition is used to prevent an employee from avoiding the operation of the business transference rules by delaying the employment of an employee of an old employer.
• An employee who was employed by the old employer 1 month before the sale, whose employment was terminated by that employer for genuine operational reasons, and who is later re-contracted by the new employer to work in the business. However, this only applies to an employee who is re-contracted by the new employer within 2 months of when the business was transferred.

An employee will be dismissed for operational reasons when the reasons given for their termination was that it had to be done for the economic viability of the business or as part of a technological or structural reform. Accordingly, the transmission of business rules outlined below would extend to a situation where the old employer made employees redundant in anticipation of a transmission of the business and the new employer employs those employees.

A new employer may choose to re-contract with that employee because they want to expand the business or reverse some of the reforms introduced by the previous owner.

Therefore, in reality depending on the nature and content of a relevant industrial instrument- a new employer will be obligated to provide the above defined employee’s of the acquired business with the same rate of pay, and any other entitlements that the old employer agreed to provide to their employees.

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Will A New Employer Be Bound By An AWA That Was Signed By The Old Employer?

A new employer will be automatically bound by the terms of an AWA that was signed by the employees of a business and the old employer for 12 months after the business has been transferred.

However, a new employer will not be bound by that AWA if:

• The AWA is terminated by mutual agreement between the new employer and employee. Nonetheless, a new employer is not able to take unilateral to terminate an AWA.
• The AWA ceases to be in operation because it is replaced by another AWA between the new employer and the transferring employee.

The new employer will no longer be bound by the AWA 12 months after the business has been transferred.

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Will A New Employer Be Bound By An AWArd That The Old Employer Was A Respondent To?

As mentioned above, to be covered by an AWArd, an employee must work for a company that is either specifically or a member of an association which is a respondent to an AWArd.

A new employer who buys a business will automatically be subject to an AWArd for 12 months after the business has been transmitted into their name if the old employer was specifically or a member of an association which was a respondent to an AWArd; and the employees of that business was an applicant to the AWArd.

However, a new employer will cease to be bound by the AWArd if:

• the AWArd is revoked by the AIRC.
• there ceases to be any employees employed in the business that are eligible to be protected by the business transference rules. Thus, any new employees who were employed by the business will not necessarily be covered by the AWArd, but may be on the AFPC or an AWA.
• both the new employer and the employee enter into an AWA.

At the end of 12 months after the business has been transmitted, it is up to the discretion of the new employer and the employee to decide whether they want to continue with the AWArd, enter into an AWA or rely on the AFPC.

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Do New Employers Need To Honour Entitlements Accrued By Employees Under The AFPC?

An employee will be covered by the AFPC when they are not covered by either an award or workplace agreement.

If the business involves a type of employment in which an APCS applies, a new employer will be automatically bound by the APCS, exactly like the old employer was.

Similarly, a new employer is also obliged to honour any rights an eligible employee (re: a transferring employee) may have to parental leave, of which the old employer was liable to provide, immediately before the transmission of the business. Therefore any hours of worked completed for the old employer by the employee should be taken in account in calculating that employee’s entitlement to parental leave. If an employee is already on parental leave, and the new employer has been provided notice in relation to that employee, then the new employer is obligated to accept that employee back to work at the end of their leave.

It is responsibility of the old employer (vendor) to give the new employer (buyer) notice about any of their employees’ entitlement to parental leave. The courts are instructed to be very strict on old employers who fail to give notice and may impose a fine of up to $33,000 on defaulting employers. 

As to other entitlements (e.g. paid annual leave and long service leave) a new employer will only be obligated to accept the liability of an old employer to provide entitlements to eligible employees if they have signed an agreement in writing that the new employee will assume that liability.

If such an agreement exists, then on having the business transmitted the new employer becomes liable for any entitlements that had been accrued through service provided by the employee for the old employer.  Under the Act, such an agreement does not need to specify each individual entitlement, but can be drafted in such a way as to broadly apply to all entitlements which an old employee was obligated to provide to an employee. 

If no such agreement exists, a new employer will not be liable to provide for eligible employees’ (transferring employees) entitlements. In this case, the old employer will have to pay out any outstanding amounts an employee may have to paid annual leave and that employee will have to start again, and work the necessary hours under the new employer to have entitlements to paid annual leave/long service leave etc. An old employer who does not make the requisite payment may have to compensate their employees, as well as pay a fine of up to $33,000.

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Does A New Employer Need to Inform Transferring Employees That They Are Bound By The Old Employer’s Obligations?

Under s 602 of the WR 1996 a new employer is obligated to take reasonable step, within 28 days of assuming control to provide any transferring employees with a written information sheet confirming that:

• the employer will be continuing to be bound by an AWA/award/AFPC standard in the same way that the old employer was, for at least 12 months.
• specify what other options an employee may have and what types of instruments (e.g. an award, AWA, etc) which either party may be interested in.

Again the courts are instructed to take this obligation very seriously and a new employer is obligated to lodge a copy of this information statement with the OEA, as proof that they have provided that notice.  A new employer who does not provide such notice may be subject to a fine of $33,000.

Legal penalties aside, it is advised that incoming employer address transferring staff anyway to answer any concerns they have about the transfer and to ensure that each party is happy and secure in their own position. This help foster an open and trusting environment in which productivity can be maximised.

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