The Fair Work Act 2009  sets out the circumstances in which there will be considered to be a “transfer of business”.

The following requirements must be established before there is a transfer of business:

• An employee’s employment with the old employer is terminated;
• The employee is employed by the new employee within three (3) months of termination of employment;
• The employee’s duties performed in the employment with the new employee is the same or substantially the same as the work the employee performed for the old employer;
• There exists at least one of the following connections between the old employer and the new employer:
  • The new employer owns or has use of some or all of the old employer’s assets that relate to the work performed by the employee;
  • The work from the old employer has been outsourced to the new employer;
  • Work previously outsourced is insourced; or
  • The old employer and new employer are associated entities within the meaning of section 50AAA of the Corporations Act 2001.

Once these requirements have been established, there has been a transfer of business for the purposes of the Fair Work Act 2009.

When a new employer employs employees who are transferring from the selling entity, the terms of employment of the transferring employee must be clearly documented.

In this regard, the Fair Work Act 2009 provides that certain workplace instruments which covered the transferring employee when employed by the old employer, will continue to cover transferring employees in their new employment with the new employer. The Fair Work Act 2009  provides that the following “workplace instruments” will continue to cover the transferring employees on transfer of business:

• An enterprise agreement approved by the Fair Work Commission, a collective agreement, a preserved individual or collective state agreement, an Australia Workplace agreement, an Individual Transitional Employment Agreement, a certified agreement made before 27 March 2006 and an old industrial relations agreement;
• A workplace determination;
• An award;
• A notional agreement preserving a state award (NAPSA);
• A named employer award (a modern award that commenced on 1 January 2010 that expressly covers one or more named employer);
• Preserved redundancy provisions (in certain circumstances if the transfer occurred before 31 December 2009);
• Individual flexibility arrangements;
• Guarantee of annual earnings.

Each of the above workplace instruments (as applicable) will continue to apply to any transferring employee in a “transfer of business” until such time as the relevant workplace instrument is cancelled or until a new workplace instrument commences which can cover the transferring employee. The practical effect of these transfer of business provisions is that, in circumstances where the new employer already had employees prior to the transfer of business or engages new employees after the transfer of business, the new employer may have employees covered by different industrial instruments, and thereby working subject to different terms and conditions of employment.

As a general rule, an employee transferring to a new employer as a result of a transfer of business, will have their period of employment with the old employer counted as service with the new employer.

This “continuity of service” will impact on certain National Employment Standards entitlements such as annual leave or redundancy pay, as well as the time at which an employee is eligible for parental leave or has the right to request flexible work arrangements.  However, in the event that the old and new employers are not associated entities, there is the ability for the old employer to pay out accrued annual leave and for the new employer to elect not to recognise a transferring employee’s period of service for the purposes of redundancy, long service leave and calculating service for the purposes of unfair dismissal.  This position should be clearly communicated to the transferring employee prior to the commencement of employment with the new employer. If that is the case, the old employer would have an obligation to pay the transferring employee their accrued entitlements to annual leave and long service leave (if any) prior to transfer of the business being effected.

In addition, in the event that a transferring employee has received payment for relevant accrued entitlements from an old employer at the time of transfer of business, then any service with the old employer is not counted in their employment with the new employer for the purposes of calculating those entitlements paid.