Fair Work implications from a sale/purchase of business Part 3
In the two previous posts about this issue, I have pointed out that the sale of a business which has employees may or may not result in the employees having a new employer. Many such transactions occur with the purchaser acquiring shares in the employer (or perhaps even mere control over the employer that way) but without the effect of there being a change of employer.
On the other where the transaction involves the transfer of assets and liabilities from one entity to another, the identity of the employee may well change.
Transaction results in change of employer
More often than not the purchaser will insist upon the vendor terminating the employment of all or part of the workforce particularly where the purchaser is intent on making structural or cultural change to the workforce.
There is precious little that the employees can do about this, unless of course they are capable of influencing the vendor’s decision. It is conceivable I suppose that the workforce could force the vendor’s hand and somehow persuade the vendor to insist that as part of the transaction the workforce be kept on in whole or in part and on the same or altered conditions. However, this is quite possibly likely to carry a commercial cost, with the vendor forced to take a lesser price for the sale, which I assume is why I have never seen this development in my former practice as a lawyer, who advised on many such transactions.
Most of the assets and liabilities of a business are capable of being transferred from the vendor to the purchaser as part of the transaction, for example debtors, plant and equipment and intellectual property. The transfer of some assets must be registered with regulators, for example real estate, licences, vehicles and such. However the transfer of many assets, most stock for example, do not require such formality and are capable of being transferred by possession.
However, what about employees?
A contract of employment is regarded by Australian law as a contract of personal services which cannot be assigned from one party to another but there is a certain amount of judicial controversy about whether such a contract can be assigned with the consent of the parties to it. Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd (1902) 2 KB 660. At the very least the consent of an employee transferring from one employer to another in the sale of a business is required, and presumably that consent will only be capable of being granted with full knowledge of what it means for the employee and is unlikely to be implied without evidence of the full implications of the assignment being made available to the affected employee. After all slavery was abolished long ago. Consequently the employees of a business which is sold to another are entitled to exercise a genuine choice about whether to accept a transfer of employer or not; in which event their positions are presumably redundant to the vendor and they are entitled to be treated accordingly.
But what of the practical implications for those employees? To be continued.