Changes in the structure or ownership of a business is a common thing in modern society, however this does not automatically mean that when a business is sold, that everybody, from employees to employers, always know what they are entitled to or is required by them.
A share or equity sale occurs when an employer purchases a business structure (such as a company or trust) and the business stays the same. In this situation the employer will also take on the employees and will be responsible for their existing entitlements. It is important for the buyers to ensure that the employees entitlements are being calculated and paid correctly as they will inherit any associated liabilities.
An asset sale occurs when the buyer opts to purchase the assets of a business, such as client lists, business name and trademarks, and these assets are transferred to the buyer’s existing business structure as opposed to taking over the seller’s entity.
After a business has been sold by way of asset purchase, the new employer must recognise an employee’s service with the prior employer in reference to entitlements such as:
- Sick & carer’s leave
- Requests for flexible work arrangements
- Parental leave
However there are also a variety of entitlements which the new employer is not obligated to recognise and includes the following:
- A new employer who is not associated with the previous employer can choose not to recognise an employee’s redundancy entitlements, and in this case the previous employer will be required to pay the entitlements upon the employees termination.
- An employee will not be entitled to receive redundancy entitlements if they reject the new offer of employment, which was on similar terms to the previous contract.
If the employers are not associated entities then the new employer is not obligated to recognise an employee’s annual leave, and in this case the old employer will be required to pay out the employee’s annual leave upon the transfer. Often annual leave obligations are negotiated as part of the sale contract.
Long Service Leave
A new employer may choose not to recognise an employee’s prior service in terms of long service leave if the following occur:
- If at 31st December 2009 the employee was not entitled to a long service leave agreement under a registered agreement.
- There was a new agreement made from 1st January 2010 that replaces the old agreement.
- The new agreement says that the employees prior service under the old agreement does not count towards their long service leave entitlements.
A new employer is not obligated to recognise prior service in relation to unfair dismissal if the following apply:
- The employee is a transferring employee
- The employers are not associated entities
- The new employer provides the employee with a written notice prior to employment commencing that prior service would not be recognised
Notice of Termination
When a business is transferred, an old employer is required to give notice of termination to employees or alternatively provide payment in lieu. This is because when a business transfers the employee’s position is terminated with the old employer.
If however, an employee is terminated by the new employer after the transfer has taken place, then the employer must also give notice of termination and the termination pay amount will be calculated based solely on the service after the sale or transfer has taken place.
As an employee it is important to know that your prior service and entitlements should generally be recognised by the new business owner. If not, you should question this with the new employer and you can contact FairWork for further information and advice.
Author: Molly Ingham