Managing employee entitlements on a sale of business

October 14, 2024
Business Law

This article outlines the obligations and choices available to the new employer, highlighting scenarios where previous service recognition may or may not apply. It explains how these decisions impact accrued leave, redundancy payments, and dismissal protections, helping businesses understand their options and obligations during the transition.

On a sale of business, the new employer must recognise a transferring employee’s period of service with the old employer for the purpose of:

long service leave
personal / carers leave
notice of termination
superannuation

On a sale of business, the new employer can make a choice about whether the new employer will recognise a transferring employee’s period of service with the old employer for the purpose of:

annual leave
redundancy
unfair dismissal

BUT ONLY IF the old employer fails to address continuity of service in the sale contract process for dealing with the transfer of employees from old employer to new employer or the sale contract specifically provides that the new employer does not have to recognise period of service of the transferring employees with the old employer.

1. Annual leave

If the new employer chooses not to recognise prior period of service for annual leave purposes because the new employer does not want to have the transferring employees taking annual leave on the new employer’s watch:

the new employer inherits the transferring employee without any accrued annual leave, which is what the new employer may want because it means that the employees will not be taking accrued annual leave on the new employer’s watch; and
a transferring employee’s accrued annual leave is paid out by old employer on completion of the sale of business from old employer to new employer.

2. Redundancy

If the new employer chooses not to recognise prior period of service for redundancy pay purposes because the new employer does not know what of the transferring employees the new employer wants to retain after taking on the transferring employees after completion of the sale and so wants to have the right to terminate the transferring employees without redundancy pay issues:

the new employer inherits the transferring employee without any period of service for redundancy purposes;
if the old employer is a small business employer with less than 15 employees, the old employer does not have to pay, and the employees will not receive a redundancy payment from old employer due to new employer’s choice not to recognise period of service with old employer (this is because redundancy pay does not apply to a small business employer);
if the old employer has more than 14 employees and an employee has less than 12 months continuous service with the old employer, the old employer does not have to pay, and the employees will not receive a redundancy payment from old employer due to new employer’s choice not to recognise period of service with old employer.

However, if the old employer has more than 14 employees and an employee has less than 12 months continuous service with the old employer and the new employer recognises the period of service for redundancy purposes, a redundancy payment will be required if:

the job offer from the new employer to the transferring employees is not otherwise on terms and conditions substantially similar and overall no less favourable to those of the old job; and
there would have been a transfer of employment if the employee had accepted the offer.

However, if the old employer has more than 14 employees and an employee has 12 months or more continuous service with the old employer and new employer chooses not to recognise the employee’s service with the old employer for redundancy pay, the employee will be entitled to a redundancy payment not matter what.

3. Unfair dismissal

If the new employer chooses not to recognise prior period of service for unfair dismissal purposes because the new employer does not know what of the transferring employees the new employer wants to retain after taking on the transferring employees after completion of the sale and so wants to have the right to terminate the transferring employees without cause so as to avoid unfair dismissal issues the new employer inherits the transferring employee without any period of service for unfair dismissal purposes, so when the transferring employee starts employment with the new employer, the transferring employee’s period of service for unfair dismissal purposes starts at 0 and the minimum employment period before their unfair dismissal rights will kick in again will be:

12 months, if new employer has less than 15 employees (including the employees already in the employment of new employer); and
6 months, if new employer has more than 14 employees (including the employees already in the employment of new employer).

However, if the employee does not accept the offer of employment by new employer, a redundancy will arise immediately on completion as the offer of employment will not be on terms and conditions substantially similar to and considered on an overall basis to be no less favourable than the employee’s terms and conditions of employment with the old employer.

Disclaimer
The information in this article is general in nature and is not intended as legal advice. You should not do or fail to do anything in reliance on information in it. We do not accept any responsibility for any loss that you suffer if you do. You should seek professional advice before you do anything about the issues set out in this article.

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