Masterclass; the fair work implications of a sale and purchase of a business Part 1

Caveat emptor is Latin expression which loosely interpreted means “Let the buyer beware”. Although not strictly speaking analagous to the risk assumed by the reader of a free blog post, nevertheless I should warn anyone contemplating reading the series of posts of which this is the first, which deals with the legal implications which attend the transfer of a business by sale from a vendor to a purchaser, that the material is very dry and in some cases very technical. However I set out on the venture, not with any expectation that the series wold contribute to any comprehension on the law of the subject, but because it seems to me that no other detailed analysis has been published on-line by anyone who is legally trained. Furthermore there are some errors published on the regulators’ web-sites, and even those who drafted the Fair Work Act failed in my opinion to understand the difference between what happens in practice in the sale of a business and what the Act throws around rather carelessly as a transfer of business.
Accordingly, you have been warned.
The fair work implications of sale/purchase of business Part 1
Most Australian employers and employees understand that when the owner of a business which employs people changes hands, there are implications for both the old and the new employer, and the employees, caused by the transaction.
Before the Fair Work Act, which came into operation on 1 January 2010, the most relevant issue was whether or not the transaction, viewed from the perspective of the employees was seamless, in which case the transaction was normally deemed to be what was called a transmission of business which preserved most of the employees’ accrued entitlements including to accrued long service leave. There was no national redundancy system, and the impact of a change of ownership of a business on most employees was thus reasonably insignificant. It is true that some employees did have access to redundancy rights and entitlements, but they were conferred in the main by a limited number of federal awards (which were very widely avoided by individual and collective workplace agreements under the Howard government’s WorkChoices regime) and an idiosyncratic and inconsistent series of State based industrial instruments.
On 1 January 2010 the first Rudd government, under then Minister Julia Gillard, enacted the national fair work system which we know today, which not only legislated away the relevance of what by then remained of the State based industrial relations systems (for example as I write the Western Australian system, which like that of Queensland, is all but dead, certainly a shadow of their former selves) by relying upon a somewhat tortuous and extravagant view of the corporations and external affairs powers in the Australian Constitution). This system introduced a national set of minimum employment standards for all Australians employed by trading companies (ie almost all Australian employees) in specific provisions of the Fair Work Act and the National Employment Standards which were enacted in that Act.
Many of these workplace rights and obligations, which for the first time included a national system of mandatory redundancy entitlements plus a new unfair dismissal regime both of which are directly affected by length of employment and various other workplace entitlements which accrue depending upon length of service, are affected by a change in the ownership of a business which has employees. While the legal implications of a change of ownership in or of an employer were not completely irrelevant pre 1 January 2010 (they were always of relevance to State based long service leave systems), the Fair Work Act has raised the importance significantly to the point where they are a point of focus to Australia lawyers who advise clients who are involved in the sale and purchase of businesses.
This series of posts will deal with those legal implications which arise from the sale of a business from one employer covered by the national fair work legal system (national system employer) to another national system employer. In the last of the forthcoming posts in this series I will deal with transactions between sole traders, and between a sole trader and a national system employer.