Part 6-3A of the Fair Work Act 2009 (the FW Act) contains provisions for transfer of business between a State public sector employer “the old State employer” and a national system employer “the new employer”. For a transfer of business to occur, there must be a transfer of employment of one or more employees of the old State employer to the new employer. These employees are known as “transferring employees”.
Certain terms and conditions of a transferring employee’s employment with the old State employer, are required to be transferred to their employment with the new employer. In this process, a new industrial instrument is created, known as a “copied State instrument”. The copied State instrument is considered a federal industrial instrument and is enforceable under the FW Act.
When is there a transfer of business?
A transfer of business between a State public sector employer and a national system employer occurs when the following criteria are met:
- employment of a State public sector employee is terminated with the old State employer
- the employee becomes employed by the new employer within three months of the termination
- the work being performed for the new employer is the same or substantially the same as that with the old State employer
- there is a connection between the old State employer and the new employer.
A connection exists if an arrangement between the old State employer and the new employer (or an associated entity of either) where:
- the new employer (or an associated entity thereof) gains ownership of assets of the old State employer (or an associated entity thereof), or
- the new employer (or an associated entity thereof) has beneficial use of assets of the old State employer (or an associated entity thereof)
and those assets relate to, or are connected with, the transferring work.
A connection also exists if:
- the old State employer (or an associated entity thereof) outsources work to the new employer (or an associated entity thereof); or
- the new employer is an associated entity of the old State employer.
Industrial instruments and transfer of business
Where a transfer of business occurs, the FW Act provides for certain employment terms and conditions to carry over to the new employer. If a State award or employment agreement applied to a transferring employee immediately prior to the transfer of business, these instruments form a new federal industrial instrument that carries over to the new employer.
These instruments are broadly termed ‘copied State instruments’, and may be either a copied State award or a copied State employment agreement. The copied State instrument is federal industrial instrument that is enforceable under the FW Act, and penalties of up to $63,000 for a company and $12,600 for an individual apply if the instrument is not complied with.
Copied state award
If a State award was in operation and covered the transferring employee whilst they were working for the old State employer, the terms of the State award will form a copied State award. The copied State award will apply to the transferring employee immediately upon commencement with the new employer.
A copied State award ceases to operate in the following circumstances:
- at the end of the 5-year default period, which commences from the day the transferring employee’s employment is terminated with the old State employer; or
- at the end of a period determined by an order of the Fair Work Commission (FWC).
Copied state employment agreement
If a State employment agreement was in operation and covered the transferring employee whilst they were working for the old State employer, the terms of the State employment agreement will form a copied State employment agreement. This employment agreement will apply to the transferring employee immediately upon commencement with the new employer. The employment agreement will either become a copied State collective employment agreement, or a copied State individual employment agreement, based on the form of the original agreement. A copied State employment agreement will cease to operate when it is terminated, which may happen before or after the nominal expiry date.
If both a copied State award and a copied State employment agreement are created for one transferring employee, the State’s interaction rules which were in place immediately prior to the transfer will continue to apply regarding the interaction between the two instruments.
When a copied state instrument does not have coverage
A copied state instrument will not cover a person if:
- a provision of the Act; or
- an order made by the FWC; or
- an order of a court;
provide for or have the effect that the instrument does not cover the person. For example, if after the transferring employee commences employment with the new employer, an enterprise agreement starts to cover the employee, the copied State instrument will cease to cover the employee.
Interaction with national employment standards
If a term of a copied State instrument is less beneficial than an entitlement under the National Employment Standards (NES), the NES entitlement will prevail.
Interaction between copied state awards and modern awards
If a copied State award covers a transferring employee, a modern award cannot cover the transferring employee. Once a copied State award ceases to cover a transferring employee, a modern award will commence coverage of the transferring employee.
Where a copied State award ceases to operate and a modern award begins to have coverage over a transferring employee, this cannot result in a reduction to the employee’s take home pay. The FWC may make a ‘take-home pay order’ requiring the new employer to pay an amount to the employee which the FWC deems appropriate in the circumstances.
Interaction between copied state agreements and modern awards
If both a copied State collective employment agreement and a modern award apply to a transferring employee, the copied State collective agreement will prevail over the modern award for any inconsistent terms.
If a copied State individual employment agreement applies to a transferring employee, a modern award may still have coverage, but cannot apply to the employee.
Where the rates of pay under the applicable individual or collective agreement are less than the modern award, the modern award pay rate will prevail.
Interaction between copied state instruments and enterprise agreements
If a copied State instrument covers a transferring employee, and an enterprise agreement exists that has coverage over the new employer, this enterprise agreement will not have coverage over the transferring employee. However, if an enterprise agreement starts to cover a transferring employee after they have commenced employment with the new employer, the enterprise agreement will replace the copied State instrument, and will commence coverage of the transferring employee.
A copied State instrument can be replaced by an enterprise agreement regardless of whether the copied State instrument has reached its nominal expiry date.
Varying or terminating a copied state instrument
A person who is covered by a copied State instrument may apply to the FWC to have the instrument varied. The FWC may vary a copied state instrument under particular circumstances as described in the FW Act.
A copied State instrument can be terminated under certain provisions of the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009. Once a copied State instrument has been terminated and ceases to operate, it cannot recommence operation.
The FWC can make an order that a copied State instrument does not cover a transferring employee, and instead that an enterprise agreement or named employer award that covers the new employer will also cover the transferring employee.
Recognising service and entitlements for transferring employees
The period of service a transferring employee served with an old State employer will count towards their service with their new employer for the purposes of the FW Act and calculation of entitlements under the NES. If there is a period of time between termination and re-employment with the new employer, this period of time does not break the service of the transferring employee but does not count towards their continuous service either.
Annual and personal/carer’s Leave
Any annual and personal/carer’s leave that accrued with the old State employer must be carried over to employment with the new employer. The NES provisions regarding the taking of paid annual and personal/carer’s leave, payment for taking the leave and cashing out of the leave, will apply as minimum standards to the accrued leave. If the old State employer had paid the transferring employee an amount in respect of some or all of the accrued leave, this will reduce the amount of accrued leave carried over to the new employer accordingly.
Other NES entitlements
If a transferring employee has received the benefit of an entitlement which is calculated based on their period of service, then that period of service with the old State employer will not be counted again when calculating entitlements under the NES. For the purposes of long service leave, the transferring employee is not required to serve an initial qualifying period again to become entitled to the leave.
Redundancy
If the terms and conditions of employment that applied whilst the employee was employed by the old State employer did not include any entitlement to redundancy pay, then for the purposes of calculating the NES entitlement to redundancy pay, the transferring employee’s service with the old State employer will not count as service with the new employer.
If, however, a State industrial body had the ability to make an order which would have given the transferring employee an entitlement to redundancy pay, then it is taken that their terms and conditions of employment with the old State employer did entitle them to redundancy pay.
This means that service with the old state employer will count towards an employee’s service with the new employer for the purposes of calculating redundancy pay.
Further, if a State industrial body had the ability to make an order giving the transferring employee an entitlement to redundancy pay, the provisions of s121(1)(b) of the FW Act will not apply, meaning there may be an entitlement to redundancy pay for a transferring employee who was served less than 12 months with a small business employer.
For further information on transfer of business from state public sector to national system employer, please contact CCI’s Employee Relations Advice Centre on (08) 9365 7660 or email [email protected].
