Transfer of business

What constitutes a transfer of business?

Part 2-8 of the Fair Work Act 2009 (Cth) provides for the circumstances in which a transfer of business can occur.

There will be a transfer of business from an old employer to a new employer if:

(i)          the employment of an employee of the old employer has terminated;

(ii)        within 3 months after the termination, the employee becomes employed by the new employer;

(iii)      the transferring employee performs the same, or substantially the same, work for the new employer as he or she performed for the old employer;

(iv)       there is at least one of four connections between the old employer and the new employer.  The four connections are: an asset transfer; an outsourcing; an insourcing; or that the new and old employers are associated entities.

The connections

This connection requires that, in addition to the matters in (i) to (iii) above being satisfied:

  • there is an arrangement between the old and new employers (or their associated entities)
  • under the arrangement, the new employer owns or has the beneficial use of some or all of the assets that the old employer used in relation to (or in connection with) the transferring work.

Outsourcing

This connection requires that in addition to the matters in (i) to (iii) above being satisfied, the old employer outsources work to the new employer. This will cover a situation, for example, where A (the old employer) outsources some of its work to B (the new employer) and B engages some of A’s employees to continue performing the work. This connection will apply irrespective of whether there is a transfer of assets between the old employer and the new employer. This connection is only intended to apply to the initial outsourcing of work and not the situation where work that has already been outsourced is retendered. In other words, it could apply when A initially tendered the work to B but would not apply if A retenders the work and awards the new contract to C rather than B [s 311].

Insourcing

The intention of this connection is that a transfer of business occurs where a new employer decides to in-source the work previously done by the transferring employee of the old employer [s 311].

New and old employers are associated entities

This connection requires that the new employer is an associated entity of the old employer. The definition of ‘associated entity’ is the same as that used in the Corporations Act 2001(Cth). This connection is intended to cover some corporate restructures (for example where a company transfers some of its employees from one part of the company to another) [s 311].

The general transfer of business rules

The transfer of business provisions in Part 2-8 set out the default rules that apply to the coverage of transferable instruments (for example an enterprise agreement that has been approved by the Fair Work Commission, a workplace determination or a named employer award) when a transfer of business occurs.

Rules for transferring employees and new employers

The default rules provide that a transferable instrument that covered the old employer and a transferring employee immediately before the employee’s employment was terminated covers the new employer and the transferring employee. The intention of this rule is that a transferring employee should continue to have the benefit of their existing workplace instrument.

This means, for example, that an enterprise agreement or named employer award that already covered the new employer would not cover a transferring employee who is covered by a transferable instrument [s 313].

Rules for new non-transferring employees of new employer

These rules have the effect that a transferable instrument covers a non-transferring employee of the new employer in certain circumstances. It allows new employees who are not transferring employees and to whom no other instrument applies to be covered by the same workplace instrument as the transferring employees [s 314].

Role of Fair Work Commission

The Fair Work Commission will have powers to make orders on application, in relation to transfers of business. For example, the Fair Work Commission may order that a transferable instrument cover existing or new employees of the new employer, not just transferring employees. The Fair Work Commission may also order that the transferable instrument not cover the new employer and the transferring employees.

In deciding whether to make such orders, the Fair Work Commission must take into account a range of matters including the views of the new employer and the relevant employees, whether any employees would be disadvantaged by making  the order, and the financial position of the new employer [ss 317-320].

Protections for transferring employees

The transfer of employment provisions in the Fair Work Act 2009 (Cth) protect employee entitlements in a broader range of corporate restructuring, including outsourcing/in-sourcing arrangements.

On a transfer of employment a new employer will be required to recognise employees’ service with the old employer when calculating certain National Employment Standard entitlements (for example personal/carers leave, parental leave and the right to request flexible work arrangements).

If the new employer and the old employer are not associated entities the new employer has a choice whether to recognise an employee’s prior service and their associated annual leave and redundancy pay. If the new employer does not agree to recognise service, the old employer must pay out these entitlements.

The new employer must inform transferring employees of any change to entitlements, including the requirement for a new minimum employment period for unfair dismissal. If the employer fails to inform the transferring employees in writing, previous service for the minimum employment period is recognised and the employees will not be required to serve out a new minimum employment period.

Where an employee is transferred to an employer that is an associated entity of the previous employer, the employee’s service with the previous employer will be deemed to be continuous for the purposes of service-related National Employment Standard entitlements and the unfair dismissal minimum employment period.

Further terms and conditions that are derived from an instrument may also transfer in a transfer of employment. Transferable instruments include enterprise agreements (whether or not in operation) that have been approved by the Fair Work Commission, workplace determinations and named employer awards. An employer or an employee will be covered by a modern award if they are included in the specified class, so there is no need to include provisions providing for the transfer of modern awards that operate on an industry basis.

Transfer of business  :  Last Revised: Fri Aug 31st 2012
The content of the Law Handbook is made available as a public service for information purposes only and should not be relied upon as a substitute for legal advice. See Disclaimer for details. For free and confidential legal advice in South Australia call 1300 366 424.
Link to sa.gov.au - find what you're looking for

© Legal Services Commission - All Rights Reserved
Funded with the support of the Governments of Australia and South Australia Website by CeRDI