There are many misconceptions about how to treat employees when you are purchasing or selling a business and liabilities can come back to bite you if you are not careful with the drafting of your sale and purchase agreement.
Here are important things to remember:
1. There can be a break between an employee leaving the vendor’s employ and being employed with the purchaser of up to 3 months and they will still be treated as a ‘transferring employee.’
2. If employees are to be employed by the purchaser, they should be so employed on the same terms and conditions as under the vendor’s ownership. Otherwise, the vendor may be liable for payments of notice or redundancy pay.
3. The purchaser needs to make sure what industrial instrument applies to the employees (whether an enterprise agreement, determination, Award or Individual Flexibility Agreement) because this will transfer with them. Not only the transferring employees, but also any new employees subsequently employed by the purchaser, will be covered by it.
4. The purchaser must recognise past service with the vendor with regard to entitlements to:
a) Personal/Carers Leave (Sick Leave);
b) Requests for flexible working arrangements;
c) Parental leave;
d) Long Service Leave.
5. In particular, accrued long service leave (including pro rata) can not be paid out by the vendor and the employee will continue to accrue entitlement as if they had always been employed by the purchaser. This is because the Long Service Leave Act does not recognise a transfer of employment as constituting a break in service.
6. The purchaser can choose whether to recognise past service with regard to:
a) Annual Leave;
c) Notice of Termination.
7. If the purchaser elects not to do so, the vendor must pay to the transferring employee their annual leave entitlements, give the employee notice of termination (or payment in lieu) and pay severance pay, even though the employee has a new job to go to. This is because the employees have to start to accrue their entitlements all over again.
8. The purchaser can elect to make the transferring employee serve a qualification period for the unfair dismissal regime provided the employee is advised of this prior to commencing employment.
9. The vendor must provide to the purchaser the personnel records for the transferring employees.
10. If the business has more than 15 employees, careful consideration of the provisions of the Fair Work Act 2009 relating to redundancy need to be considered by the vendor.
What does this mean for you?
1. Whether you are a purchaser or vendor, you need to ensure that each of these matters have been considered and provided for in the sale and purchase agreement and in the calculation of the purchase price.
2. Each party needs to assure themselves that the other party has complied with their obligations under the agreement.
3. A vendor should consult the employees as soon as possible and actively work to promote their employment with the purchaser.
Remember, there may be an indemnity clause in the agreement but that will not prevent an employee seeking redress for their entitlements at first instance, leaving you to try and recover your losses from the other party at a later date.
Attention to these issues at the time of sale will avoid significant stress and financial heartache, not to mention time away from your business in the future.
For more information please contact:
Ph: (08) 8414 3454
Ph: (08) 8414 3413