Transfer of business

The Fair Work Act 2009 contains provisions governing the situations where a business is transferred from one business to another. The results may be that an award or enterprise agreement follows the business transfer and becomes binding on the new employer.

The definition of transfer of business is broad and includes situations where an employee moves from one ‘associated entity’ to another to perform substantially the same work, even where there is no transfer of assets. An associated entity is a broader concept than a ‘related entity’.

It is essential that when an employer is involved in the sale or purchase of a business they ensure the agreement dealing with the sale covers the issue of employee entitlements and what will happen to the employees’ contracts of employment on transfer of business.

What is a transfer of business?

For the purposes of the Fair Work Act, a ‘transfer of business’ has occurred if:

  • Employees of the old employer become employed by the new employer within three months after their employment with the old employer has terminated
  • The work that the employee performs for the new employer is the same, or substantially the same, as the work they carried out for the old employer
  • There is a connection between the old employer and the new employer. There are four possible connections:
    1. There is a transfer of ownership or beneficial use of assets
    2. Outsourcing of the transferring work (this can include outsourcing from the old employer or an associated entity of the old employer to the new employer, or an associated entity of the new employer). There does not need to be a transfer of assets for the outsourcing connection to apply
    3. Insourcing (or the ceasing of outsourcing)
    4. The old employer and the new employer are associated entities for the purposes of the Corporations Act 2001 (Cwlth) (e.g. common Directors). 

Transferred work & EBAs

Employees are afforded certain protections when a transfer of business occurs.

Enterprise agreements & awards

The transferring employees will be covered by the old employer’s enterprise agreements or a named employer award (i.e. a modern award that is expressed to cover one or more named employers). The old employer’s enterprise agreements or named employer awards apply even if the new employer is already covered by an enterprise agreement or award.

Where a transferring employee had an individual flexibility arrangement with the employer that had effect as if it were a term of the agreement or award, that individual flexibility arrangement also continues to apply on the transfer of business.

After the transfer of business has taken place, new employees of the employer who are directed to perform work that was previously performed by the employees of the old employer will also be covered by the old employer’s enterprise agreements if the new employer has no enterprise agreement or named award capable of applying to those employees.

The old employer’s agreements or awards continue to apply until they are terminated or replaced.

National Employment Standards entitlements

The new employer is required to recognise an employee’s service with the old employer when calculating certain National Employment Standards entitlements (for example, personal/carers leave, parental leave and the right to request flexible work arrangements).

If the new employer and the old employer are not associated entities, the new employer can choose whether to recognise an employee’s prior service and their associated annual leave and redundancy pay. If the new employer does not agree to recognise service, the old employer must pay out these entitlements.

The new employer must inform transferring employees of any change to entitlements, including the requirement to serve a new minimum employment period for unfair dismissal. If the employer fails to inform the transferring employees in writing, previous service is recognised for the purposes of the minimum employment period and the employees will not be required to serve out a new minimum employment period.

Where an employee is transferred to an employer that is an associated entity of the previous employer, the employee’s service with the previous employer will be deemed to be continuous for the purposes of the service-related National Employment Standards entitlements and the unfair dismissal minimum employment period.

Role of Fair Work Commission

The Fair Work Commission (FWC) will have a role in determining the application of enterprise agreements and named employer awards where there is a transfer of business.

A transferring employee, unions covered by enterprise agreements, unions entitled to represent the interest of employees covered by an award or the new employer may apply to FWC to order that the old employer’s agreement or award not cover the new employer and the transferring employees.

Similarly, applications may be made by employees if the new employer does not recognise that enterprise agreements have transferred.

Need more information?

If your questions are not answered by the information provided on our website, you can phone us or email us for specific advice and guidance.