Buying or Selling a Business -What are Your Obligations to Existing Employees?
When buying or selling a business, it is important to consider existing employees, if they will continue working in the Business and what entitlements they may have.
The Fair Work Act 2009 (Cth) and Clause 18 of the REIQ Business Contract, set out the obligations, dealings and entitlements of employees in a transfer of business.
This article sets out key considerations for Buyers, Sellers and Employees in a business sale transaction.
What Happens to Employees in a Sale of Business?
In a Business Transfer, the Buyer determines if they will offer a new contract of employment to existing employees or if the employee will be made redundant.
Importantly, Clause 18 of the REIQ Business Contract requires the Buyer to notify the Seller in writing five Business Days prior to settlement, the names of the employees they propose to Employ.
The buyer must then offer these employees a contract of employment at least two Business Days prior to settlement.
If an Employee will be Terminated
In the instance that the Buyer does not wish to offer an existing employee a contract of employment, then the Seller is required to terminate the employment of the employee and ensure the following steps are taken:
- Provide the Employee with sufficient notice as specified in the relevant award and the Fair Work Act 2009 (Cth) / Provide payment sufficient to the Notice Period;
- Pay the Employee a redundancy payment if required under the Fair Work Act 2009 (Cth).
- Pay the Employee any accrued entitlements.
It is important to also note that in the instance that settlement of the business transaction occurs before the notice period ends, the Seller is required to pay the rest of the notice period.
If the Employee is Offered an Employment Contract
In the instance that the Buyer would like to offer an existing employee ongoing employment, then the Buyer must offer the Employee an Employment Contract. The terms of the contract can be offered on the basis of the existing terms of employment, or the terms of employment can be negotiated.
As outlined above, the Seller is required to offer the Employee a contract of employment at least two Business Days prior to settlement.
At this point, it is important for both parties to consider how the employee’s entitlements will be dealt with.
What Happens to the Entitlements of Transferring Employees?
In most instances and under the standard terms of the REIQ Business Contract, the transferring employees’ entitlements will be calculated before Settlement and the Seller will be responsible for 70% of the staff accrued entitlements.
Generally, this will be dealt with by way of an adjustment of the purchase price and in exchange the Employees accrued entitlements will be transferred and then recognised by the Buyer.
Clause 18.9 of the REIQ Business Contract outlines that the Buyer must treat each transferring Employee as if the Transferring Employee had been continuously employed by the Buyer from the time of commencement of the employment with the Seller.
In the instance that the Buyer does not wish to recognise transferring employees accrued entitlements, the Seller will be responsible for the Employees entitlements upon settlement and there will be no adjustment in the purchase price.
Review of Employees Pay
Buyers should also review the wages of each employee to ensure that they are being paid correctly with reference to the relevant award and the Fair Work Act 2009 (Cth). Whilst, Buyers may not be responsible for historical employment issues, they should be vigilant to ensure they are complying with relevant awards and legislation from the time the business is transferred.
Obtaining Advice
In any circumstance where you are buying or selling a business, it is important to consider existing employees and what obligations you may have, as this can have a financial impact on all parties involved.
If you require advice or assistance with the purchase or sale of a business or employee entitlements, please contact the experienced team at Miller Sockhill Lawyers on 07 5444 4750 today.
The content of this article is current at the date of publishing and is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Grace Barnes, Lawyer
April 3rd, 2024