When selling a business, non-national system employers (i.e. sole traders, partnerships and certain trusts and some incorporated entities that are not trading) need to be aware of the impact this has on their employees’ employment contracts.
The sale of a business results in the termination of any employment contracts.
The old employer is required to legally terminate the contract of employment of each employee or face the prospect of actions brought by employees for unfair dismissal.
Significant change and the Termination, Change and Redundancy General Order
The Western Australian Termination Change and Redundancy General Order 2005 (the Order) has specific entitlements for severance payments that apply to many employees in Western Australia.
Employees exempted
The redundancy provisions of the Order do not apply to certain employees including:
- employees summarily dismissed as a consequence of serious misconduct
- apprentices
- trainees
- casual employees.
This means that the employees listed above are not entitled to consultation before termination or redundancy pay.
The redundancy provisions of the Order also do not apply to the following employees, except that those employees must be consulted before the terminations:
- employees with less than one year’s service
- probationary employees
- employees engaged for a specific period of time or for a specified task or tasks.
Redundancy pay
According to the Order, where an employee is terminated as a result of their job being made redundant, the employer is required to make the following redundancy payments:
Employee’s period Redundancy
of continuous service pay period
(in weeks)
Less than 1-year Nil
1 year and less than 2 years ............................... 4
2 years and less than 3 years ............................. 6
3 years and less than 4 years.............................. 7
4 years and less than 5 years.............................. 8
5 years and less than 6 years............................ 10
6 years and less than 7 years............................ 11
7 years and less than 8 years............................ 13
8 years and less than 9 years............................ 14
9 years and less than 10 years.......................... 16
10 years and over ............................................. 12
Application of the Order
The Order applies to non-national system employers and employees who are award-free or who are covered by State awards.
State awards may make provision for redundancy. However, redundancy provisions in State awards will only apply if they are more generous than the entitlements contained in the Order.
Small businesses
It is important to note that small businesses employing less than 15 employees are exempt from the requirement to make redundancy payments under the Order. Notwithstanding this, some State awards may contain more beneficial entitlements whereby small businesses bound by the award are required to pay redundancy pay where they would otherwise be exempt under the Order. In these circumstances, employees will be entitled to redundancy pay.
It is also important to check any more beneficial provisions in agreement and contracts that may also provide an entitlement to redundancy pay where an employee would otherwise be excluded.
Consultation
The Order contains notification and consultation requirements for employers. Specifically, employers must notify employees who may be affected by changes that are proposed to be introduced. These changes are generally related to production, program or other operational changes, structural, technological or organizational changes, where those changes are likely to have significant effects on staff.
‘Significant effects’ includes:
- termination of employment
- major changes in composition, operation or size of the workforce
- major changes in skills required
- the elimination or diminution of job opportunity
- a promotional opportunity
- job tenure
- the alteration of hours of work
- the need for retraining
- transfer to other work locations where not included in the contract etc.
Following notification, employers should then consult affected employees (and their union representative where nominated by the employee) as soon as practical after the decision has been made. The consultation involves a discussion on the likely effects of the proposed changes on employees and ways to minimise the impact of the proposed changes. These particulars should also be provided to the employee (and their union representative where nominated) in writing for the purposes of the consultation. However confidential information need not be disclosed if this would be adverse to the employer’s interests.
The termination of contracts of employment due to the sale of a business is deemed a change that will have a significant effect on employees. Employers are therefore obliged to consult with staff on any such decision.
The business owner should ensure that all terminations are carried out fairly and reasonably so that the risk of unfair dismissal, discrimination and general protections claims is minimised. This requires an objective assessment of employee skills, competence and capability. Selecting employees for redundancy should be based on merit and previous work performance, not discriminatory grounds.
The Order requires that once a decision has been made that some or all employees are to be selected for redundancy and no suitable alternatives are available, employees must be informed of this decision. This should first be by discussion and then confirmation in writing which outlines the reason for the decision and the effective termination date. The employee should also be provided with the appropriate notice or compensation in lieu and any severance pay entitlements.
Exemption to redundancy pay
Where some or all of the employees are not going to be employed by the purchaser, the previous employer may be liable for redundancy payments as outlined above. Where the purchaser of the business agrees to take on all or some of the employees, the previous employer may be exempt from severance payments under the Order if the employee accepts alternative employment with the purchaser and the new employer recognises the period of continuous service with the previous employer.
Notice
Under the Fair Work Act 2009 (Cth) an employer must give the employee at least the following notice (or compensation in lieu of notice):
Employee’s period *Notice
of continuous service period
(in weeks)
Not more than 1 year.................................................... 1
More than 1 year but less than 3.................................. 2
More than 3 years but less than 5 ............................... 3
More than 5 years ........................................................ 4
*The notice period is increased by one week if the employee is more than 45 years old and has completed at least two years continuous service.
An employer is not required to give notice or compensation in lieu of notice if the employee is re-employed by the purchaser and the purchaser recognises the employee’s entire period of service with the previous employer.
Some awards, agreements or employment contracts contain greater notice periods than that prescribed in the Fair Work Act 2009 (Cth). Employees are entitled to the most beneficial notice provision.
Employee leave entitlements
For non-national system employers, provisions in state awards and agreements continue to apply.
Leave accruals
Most state awards and agreements do not specify that the new business owner be regarded as the employer for the purposes of continuity of employment and transferring of leave accruals. In this circumstance, service of the employee is terminated upon transmission of the business and an employee’s annual leave would be paid out by the previous employer.
Sick leave
Sick leave entitlements do not transfer with the change of ownership unless there is express provision in the awards or agreements covering employees. Most state awards contain provisions for the transfer of sick leave credits if an employee’s service is deemed to be continuous in accordance with long service leave provisions. In the event that no provision relating to transfer of sick leave credits on transmission exists, there is no obligation for the new employer to take on any unused sick leave entitlement for transmitting employees.
Parental leave
Parental leave entitlements will always transfer with change of ownership as Parental Leave entitlements are derived from the National Employment Standards which extends to cover State System Employers in this respect.
Obligations of a new employer upon the purchase of a business
A new employer is not obliged to take on any of the employees of the previous employer.
When deciding whether to employ any or all of the previous owner’s employees, it is important to consider factors such as the value of maintaining existing skills, knowledge and customer relationships, along with potential problems arising from existing employee relations issues.
Long service leave
The Long Service Leave Act 1958 (WA), which applies throughout Western Australia, recognises continuous service for the purpose of calculating long service leave, where a business is transmitted from one employer to another.
Western Australian long service leave provisions will continue to apply to all employees in Western Australia, regardless of whether they are in the federal or state industrial relations system.
Transfer of instruments
For non-national system employers, the transfer of a business from one employer to another does not usually affect state award coverage. However, state industrial agreements and employer/employee agreements do not transfer to the new owner upon a transmission of business.
For more information, contact the Employee Relations Advice Centre on (08) 9365 7660 or email [email protected]
