Fair Work implications of sale of business Part 4
Sale of business where there is no change in the identity of the employer (for example by the purchaser acquiring the vendor’s shares)
From the employees, this will likely be a seamless transmission with no effect upon existing accrued contractual and statutory entitlements. Of course it is quite possible that the purchaser will want to introduce structural, cultural and operational changes which might affect the employees’ conditions, but the purchaser will have the same rights to do so as the vendor had.
Transfer of business between associated or related entities
Although it would be unusual for there to be a sale of a business (as distinct from a cosy transfer for strategic objectives) between related or as the Fair Work Act describes them “associated” entities, this topic would not be complete unless I acknowledge that the Act does deal with a transfer of a business between related entities. Although this may be a case of borrowing from Peter to pay Paul, there are many perfectly legitimate occasions when corporate restructures, whether to meet market expectations, gain a tax advantage or to take advantage of a strategic business opportunity involve the identity of the employer changing, but only amongst associated legal entities. The Act uses the definition of “associated entity” found in the Corporations Act.
A transfer of employment for the purposes of the Act in these circumstances occurs when there is a transfer of employment between associated entities and an employee becomes employed by the second employer not more than 3 months after the termination of the employee’s employment with the first employer.
In this event sec 22 of the Act deems any period of service with the first employer to count as service with the second employer and that any period between does not break the employee’s continuous service (but the broken period does not count as actual service); sec 22(5). Sub-sec 22(6) serves to avoid double dipping if the employee has had the benefit of the entitlement from the first employer.
Transfer of business between non-associated entities (ie at arms’ length)
This by far and away the most common way in which a business is sold and purchased and is bread and butter for commercial lawyers. It ordinarily involves the sale of the business as a going concern, in its entirety, which involves a transfer from the vendor to the purchaser of all of the assets and liabilities of the business. I do not know the statistics but I would hazard a guess that the overwhelming number of these transactions have the vendor terminated the employment of the workforce and the purchaser offering new employment to all or many of the staff. The purchaser may be an existing business or a new start up. Either way, there are substantial implications for the new employer and the staff affected.
What are the practical implications of such a transaction? To be continued.