Do accrued sick leave liabilities pass to the new employer in sale of business?
The National Employment Standards under the Fair Work Act provide for employees to accrue 10 days of personal/carer’s leave (often referred to as sick leave) for each year of service and that an employee’s entitlement to paid personal/carer’s leave accrues progressively during a year of service according to the employee’s ordinary hours of work, and accumulates from year to year; sec 96. However contrary to what some believe, the NES do not mandate that accrued sick leave is paid out on termination of employment. Furthermore accrued personal/carer’s leave cannot be cashed out unless an applicable modern award or enterprise agreement makes provision accordingly.
Does an entitlement to accrued untaken sick leave travel with an employee if there is a sale of the business?
The answer depends upon whether the transaction constitutes a “transfer of employment” within the meaning of sec 22 of the Act. Sub-sec 5 of that section of the Act provides that if there is a “transfer of employment” in relation to a national system employee (ie an employee whose conditions of employment are covered by the Act and the NES, which is the case for most Australian employees) “any period of service of the employee with the first employer counts as service of the employee with the second employer”.
What, then, is a transfer of employment? The answer is found in sub-sec 22(7) of the Act which provides that
“There is a transfer of employment of a national system employee from one national system employer (the first employer ) to another national system employer (the second employer ) if:
(a) the following conditions are satisfied:
(i) the employee becomes employed by the second employer not more than 3 months after the termination of the employee’s employment with the first employer;
(ii) the first employer and the second employer are associated entities when the employee becomes employed by the second employer; or
(b) the following conditions are satisfied:
(i) the employee is a transferring employee in relation to a transfer of business from the first employer to the second employer;
(ii) the first employer and the second employer are not associated entities when the employee becomes employed by the second employer.
Note: Paragraph (a) applies whether or not there is a transfer of business from the first employer to the second employer.”
(** The expression “transferring employee” is rather unnecessarily defined in sec 12).
Most sales of businesses are effected by either the purchaser acquiring the shares of the vendor in which case the identity of the employer does not change and the transaction will be seamless to the employees’ entitlements or the purchaser will acquire the assets of the business and there will be a change to the identity of the employer, in which case the above provisions have the effect that if the transaction satisfies the definition of a “transfer of employment”, the employees’ accrued personal/carer’s leave will be uninterrupted by the transaction.
Slightly different consequences however apply to accrued annual leave and redundancy entitlements if the vendor and the purchaser are non-associated entities; see secs 91 and 122.
*** Sec 310-316 of the Act also deal with the transfer of instruments in a transfer of business. These provisions are concerned with formal industrial relations instruments such as enterprise agreements, workplace determinations and named employer awards.