Masterclass; fair work implications of sale of business Part 5

Masterclass; Fair work implications of sale of business Part5

In this the final instalment of my posts about the legal implications of the sale and purchase of a business, I will deal with the most common commercial transaction in this context, namely a sale of a business which results in a change the identity of the owner and of the employer of the staff.
The purchaser may insist, as part of the negotiations, with a reasonably dramatic effect upon the purchase price payable that the vendor terminates the employment of some or all of the staff before or at the point of sale.
Alternatively, although much rarer, the purchaser may decide to purchase the business and then terminate the employment of some staff.
The impact upon the employees may differ depending upon which of the above applies, and which of the employee’s entitlements we are considering.
Redundancy
Where an employee’s employment is terminated because of a business decision made as part of a transaction to sell a business by a national system employer to another national system employer, (the overwhelming majority of such transactions in Australia) the provisions of the Fair Work Act dealing with statutory redundancy entitlements are invoked because by definition the resulting dismissal is “at the employer’s initiative because the employer no longer requires the job done by the employee to be done (sic) by anyone”; see sub-sec 119(1). This also applies to dismissals caused by the insolvency or bankruptcy of the employer. Quite how a national system employer, which by definition is a trading corporation, can become “bankrupt”, that being a legal term applicable to an individual person who presumably would if he or she was an employer be a sole trader, is another question for another day.
Most vendors will endeavour to entice the purchaser of a business to either offer new employment to all of some of the staff for both compassionate and financial reasons.
Sec 119 then sets out a table of mandatory redundancy entitlements payable which are calculated depending upon the employee’s length of service. Curiously, that entitlement is equivalent to 16 weeks if the employee has between 9 and 10 years’ service, but only 12 weeks for service in excess of 10 years. The answer is an assumption which is made by the Fair Work Act to the effect that an employee who has been employed for at least 10 years will have been deemed to have been rewarded by long service leave. Whilst this might ordinarily be correct, it is not invariably so.
It is also worth observing at this point, particularly for HR and Payroll personnel who subscribe to this blog, that in very many cases, perhaps even most Australian employees, an employee’s service for calculating the start date of service for redundancy entitlements will be 1 January 2010 or later because the Far Work Act is not retrospective in operation and will not provide an entitlement to statutory redundancy based on service before 1 January 2010 unless the employee concerned had an accruing entitlement under some other industrial instrument at that time and which covered service before 1 January 2010.
So for those staff of the vendor who lose their jobs as a result of having their employment terminated by the vendor as part of the sale of business process, the redundancy entitlements will be calculated as above.
To be continued