Masterclass; Fair Work implications of sale of business Part 6
In my last post in this series, I dealt with the statutory redundancy implications for those staff who are dismissed as part of the sale of a business by their employer as a vendor.
Statutory redundancy entitlements under the Fair Work Act are only enjoyed by the employees of non small business employers (for the meaning of which see sec 23) and employees whose period of continuous service is more than 12 months (sec 121), and may also be excluded by a modern award, although that is rare.
Critically though, sec 120 of the Fair Work, provides that where an employee in that situation is entitled to be paid redundancy pay, the employer who is the vendor may apply to the Fair Work Commission for the amount to be reduced if either the employer obtains other acceptable employment for the employee or the employer cannot pay the amount.
There is significant case law about the latter which I will not take the reader to in this series. On the Fair Work Commission’s website it can be located in the decisions search engine with the key words “redundancy” and “incapacity to pay”. And see as an example a fine analysis in DRW Investments Pty Ltd (2016) FWC 461 delivered 22 January 2016 per Sams DP
In FBIS International Protective Services (Aust) Pty Ltd v Maritime Union of Australia  FCAFC 90, a Full Federal Court reviewed a decision on the part of a full bench of the Fair Work Commission to quash a decision of a single member who had concluded that an employer had taken sufficient steps to obtain employment for its employees such that it was relieved of his obligation to pay redundancy pay.
In Colola Pty Ltd as Trustee for the Briggs Family Trust (2016) FWC 290 delivered on 21 January 2016 Richards SDP said “On my construction of the above judgment, an employer would essentially need to “acquire” or “get” offers of employment for its surplus or redundant employees in order to “obtain” the employment for the purposes of s.120 of the Act.”
This is indeed incongruous because, technically, where a vendor of a business obtains “other acceptable employment” for staff who are retrenched as part of the transaction, (which of course includes “acceptable employment’ with the purchaser but only if the vendor is instrumental in obtaining that employment) the vendor’s liability to pay the statutory redundancy is only extinguished or reduced upon a successful application to the Commission. I would suggest that where, as is more common than not, it is a term of the transaction between the vendor and the purchaser that the vendor’s staff (or any specified proportion of them) are terminated and then re-hires seamlessly by the purchaser, it will not be generally known that the vendor still has a hurdle to jump in the Commission to be relieved of the obligation to pay statutory redundancy.
And if the employees’ conditions with the purchaser do not match those which prevailed with the vendor it is difficult to see how the alternative employment is likely to be regarded by the affected employees as “acceptable’ whether or not it occurs because of the endeavours of the vendor.
The foregoing explanation of implications of the sale of a business where there is a dismissal of an employee and the offer of the same job with the purchaser is apt for most such transaction, and it is for the Commission to decide whether an offer if alternative terms with the purchaser is “acceptable” and is the result of the efforts of the vendor.
Where the identity of the employee changes but not by the employment being terminated by the vendor
However what is the situation if an employee’s employment is not terminated by the vendor but is “transferred” to the vendor? I have already explained that a contract of employment is a contract for the provision of personal services and is not assignable except with the fully informed consent of the employee. Strictly, it is not the employment which is transferred but the benefit to the employer of the contract, known technically as a chose in action.
Although a messy way of doing it, there seems absolutely no reason why the sale of a business cannot include the transfer, with the express consent of the employees, of the benefit to the vendor of the contracts of employment, from the vendor to the purchaser. In this event, there will be no “termination of employment” by the vendor which triggers an entitlement to redundancy pay under sec 119, unless a court concludes, in a test case yet to be brought, that the transfer constitutes a “termination of employment”. I do not believe that a court is likely to reach that conclusion unless the relationship comes to an end by the effective repudiation of it by the vendor, in the sense which is inherent in a constructive dismissal.
In my view, if the identity of the employer changes by a trilateral arrangement between the vendor and the purchaser, with the fully informed consent of the employee, which it can reasonably be assumed will only be given if the employee is satisfied that his or her service with the vendor will be honoured by the purchaser, then the redundancy provisions of the Fair Work Act will not be invoked. The employee will become an employee of the purchaser entirely seamlessly, and all of the employee’s accrued entitlements (and thus liabilities to the purchaser) will simply transfer across.
I have now dealt with the redundancy implications of the sale of a business involving (a) no change in the legal identity of the employer and (b) a change in the identity of the employer by a change to the identity of the employer by (i) an employee having his or her employment terminated by the vendor and re-hired by the purchaser on comparable conditions (it is down to the Commission technically) and (ii) an employee gaining a new employer by having his or her employment “transferred” from the vendor to the purchaser, which can only occur with the consent of the employee, who in the absent if consent will remain an employee of the vendor or be dismissed and entitled to statutory redundancy.
It is thus a myth much believed by the legal profession that the law is as simple as saying that if a purchaser gives an undertaking to the vendor and the employees that it will honour previous service with the vendor, then that is an end to the matter, and the transaction merely needs to make allowance for the financial implications of the assumed liability.
What other employee entitlements are affected by the sale of a business? To be coninued.