Buying a Business? Be careful about employee entitlements

The Fair Work Act took effect on 1 July 2009. In coming weeks we will be providing a summary of the core areas of the changes and how they affect your business.

This week we wanted to concentrate on one important matter for anyone selling or contemplating buying a business and, that is, who has the responsibility of employee entitlements on the sale of a business? A common misunderstanding is that if there is no agreement with the purchaser for the transfer of employees and their entitlements then, employees can merely be terminated and that is the end of it.

What purchasers often find is that that is not the end of it and in fact, employees continue to retain accrued entitlements, the same conditions of employment and, other things such as continuity of service which go to calculate long service and other leave entitlements.

The Fair Work Act has broad deeming provisions which define whether in the first instance there has been a “transmission of business” and, if so, then the accrued entitlements of employees will carry across to the purchaser of a business. We must emphasize to anyone contemplating the purchase of a business that they need to obtain advice from us as to whether or not there has or will be a transmission of business which takes affect upon the sale.

If there is a transmission of business then we need to identify with you precisely what entitlements the employees will enjoy and in particular what other entitlements will be accrued.

Please contact Tom Ellicott, the Leader of the Business and Commercial Law Practice Group to discuss this issue further if you have any questions.