Workplace laws that govern the employment relationship in Australia provide rights to employers too. Employers (including supervisors and managers) must take steps to understand their rights and obligations in order to manage their work place in a confident manner. This can often be daunting. Many small businesses have grown quickly focusing on the financial growth often without much thought to their employment arrangements.  Fresh HR Insights work with business owners to help you get everything sorted in terms of workplace arrangements and help you reduce reactive firefighting that can often arise from individual and employee-related challenges.  We work on a personalized approach and do not lock our clients into expensive and lengthy contracts – we are not a call center either – you get the EXPERT when you call. 

Below are our services that we currently have available – click on each image for further information on each on. 

FB IG HR Advice Line - HR Support
Our Services Page Policies and Procedures - HR Support
Comprehensive Employee Handbook - HR Support
Our Services Page Employment Arrangements - HR Support

What you need to know in the workplace 

Guidance on particular matters

This information is only of a general nature, should not be applied to individual situations without seeking further specialized advice, is focused on particular issues, and is not intended to be an exhaustive representation of the different legal issues.

Help I am SELLING a Business - What you need to know when it comes to the employees

Help I am SELLING a business - HR Support

Help I am SELLING a business

 What you need to know when it comes to the employee’s

 When selling a business, you will probably negotiate hard on things like the price, the plant and equipment being sold, and the settlement and handover period. What you may not have thought about is what will happen to the employees of the business, and what this might cost you down the track.

This can be a serious mistake, impacting not only your hip pocket, but the effective transition of the business into new hands. If you are SELLING a business, it is important to consider what impact this transfer will have on current employees. The Fair Work Act 2009 (Cth) determines the obligations and responsibilities the seller or buyer has for current employees.

Does the Purchaser have to take on the existing employees when they Purchase the business?

If you are selling a business with employees, you will need to work out whether the purchaser wants to take them on. This will also depend if you are selling as an ‘asset sale’ or a ‘share sale’.  Whether they need to take on the existing employees will depend on the type of sale. You will work this out with your Business broker and/or lawyer who will be assisting you in the purchase documents and process.

If you SELL the business by way of an asset sale, you and the purchaser can negotiate to leave some employees behind. However, you as the seller will then be liable for redundancy payouts of any of the employees that do not transfer to the purchaser.

Asset Sale — New Company, Same Business

Sometimes, purchasers choose to buy the assets of an existing business, for example, the client and supplier lists, trademarks, and business name. In this case, the purchaser does not take over the existing company. Rather they transfer the assets to their own company. The employees do not transfer automatically over to the purchaser in this situation. The purchaser will not need to rehire them. Instead, they will need to make the employees a new offer of employment if they want to keep them on. If the purchaser chooses not to offer employment to the existing employees, their employment is terminated as a redundancy. In this case, the business selling is liable to pay their redundancy payments. If you sell a business that has existing employees, the purchaser will have to take them on if they purchase via a share sale. They will then be responsible for any of their entitlements, such as accrued leave.

Share Sale — Change of Company Ownership

If you agreed to sell the entity in which the business operates (for example, an existing company), the buyer will automatically receive the employees as well. This is a share sale. While the ownership of shares in the company changes, the company stays the same.  The buyer will then be responsible for employee entitlements, such as leave and wages. The purchaser may be able to negotiate the costs of these entitlements into the purchase price. When buying a company the purchaser will look into whether the employees are being paid the correct wage under an award or enterprise agreement. A company is responsible for ensuring employees are paid correctly and so this is a potential liability for the purchaser so as the seller you need to ensure. When someone is looking to buy a business, they are likely to complete a due diligence process where both their financial and legal team will seek to review information relating to the employees of the business.

To be on the front foot it is suggested that you have.

  • Contracts/ agreements are in place that set down the true employment relationship of the employee (Casual, Perm or Fixed-term)
  • Ensure that they are employed under the correct Modern Award and that you are paying the correct rate for the true employment relationship – you may wish to complete a BOOT (Better overall test) for annualized or increased wage employees to show with certainty they are being paid correctly.

In addition to ensuring the payments are correct, it is also a great idea to have all your other policies and procedures in place. This was a potential purchaser can see they can walk straight in when it comes to the staff and they are not open to any future liabilities or fair Work cases.

  • Have position descriptions in place – even simple ones so that the purchaser can see how everyone functions in the business
  • Ensure that all staff records are up to date and any long service leave requirements are documented
  • Where you have longer-term, casuals check the true relationship to ensure that they have not morphed into a permanent employment relationship and therefore may have a claim to payments for employee entitlements (WorkPac Pty Ltd v Rossato 2020)
If Employee’s Transfer with the business as Seller and soon to be former business owner, you must provide:
  • up to date employee records to the new owner
  • notify the purchaser of any contractual, leave, financial and legal obligations you have with your employees
  • work out with the purchaser what obligations you will be responsible for and what obligations will be transferred to the new owner
  • provide your employees with notice of ending employment with you and let them know that they may need to sign a new contract with the new owner that will be effective from the date of the new ownership. (the Purchaser will also let the employees know)

Transfer of Employees – what you need to know

Generally, where there is a transfer of employment, service with the old employer counts as service with the new employer.

However, there are exceptions to this general principle.

  • When a new employer is not an associated entity of the old employer, they may decide not to recognize a transferring employee’s previous accumulated service for annual leave or redundancy pay under the National Employment Standards (NES) that now apply.
  • Given this, the old employer may be under an obligation to pay the affected employees their accrued entitlements (such as annual leave or redundancy). You will work this out with your lawyer who will be assisting you in the purchase documents and process.

 Can the buyer choose not to recognize prior Service of an Employee?

Provided the two parties are no-associated entities, the buyer in an FW Act transfer of business situation may choose not to acknowledge the continuity of service for the purpose of annual leave and redundancy pay entitlements under the FW Act.

 Not Transferring Employees

During a business purchase and depending on the terms of the contract, the purchaser can elect not to take on some or all of the employees. If the purchaser does not take on certain employees, the seller may need to make their roles redundant. However, redundancy payments are not always be required. For instance,

  • where there are less than 15 employees (subject to limited exceptions).
  • and if the employee is casual or has been engaged for less than 12 continuous months

Important: If this is the case, the purchaser must advise the transferring employee in writing that their prior service will not be recognized before they commence employment with them. The seller of the business must then pay the employee for those entitlements upon termination of the employee’s employment with the seller.

For help when it comes to buying a new Business give us a call for a no obligation chat. You can book this is with our FREE 30-minute general consult HERE

 

Help I am PURCHASING a business - What you need to know when it comes to the employee’s

Help I am purchasing a business - HR Support

Help I am PURCHASING a business

What you need to know when it comes to the employee’s

If you are PURCHASING a business, it is important to consider what impact this transfer will have on the current employees. The Fair Work Act 2009 (Cth) determines the obligations and responsibilities the seller or buyer has for current employees. Forgetting to address the issue of employees and employee entitlements when purchasing a business can cost you precious money. How you choose to deal with employees can have an impact on your legal and financial responsibilities as an employer.

 Do I have to take on the existing employees when I buy a business?

If you are buying a business with employees, you will need to work out whether you want to take them on. Whether you need to take on existing employees when buying a business will depend on the type of sale. You will work this out with your Business broker and/or lawyer who will be assisting you in the purchase documents and process.

If you buy the business by way of an asset sale, you can negotiate to leave some employees behind. However, the seller will then be liable for redundancy payouts, which may increase the business purchase price.

Asset Sale — New Company, Same Business

Sometimes, purchasers choose to buy the assets of an existing business, for example, the client and supplier lists, trademarks and business name. In this case, you do not take over the existing company. Rather you can then transfer the assets to your own company. When buying a business as an asset sale you have three options with existing staff:

  • Not offer employment.
  • Offer employment without acknowledging their previous service to the business (their accrued leave for example).
  • Offer employment and acknowledge their previous service.

The employees do not transfer automatically over to you in this situation. You do not need to rehire them. Instead, you will need to make the employees a new offer of employment if you want to keep them on. If you choose not to offer employment to the existing employees, their employment is terminated as a redundancy. In this case, the business seller is liable to pay their redundancy payments. However, if you offer the employees new employment, but they reject this offer, they will not be eligible for redundancy payments, provided that:

  • the new job would have similar terms and conditions to the old job; and
  • there would have been a transfer of employment if the employee had taken the Job

If you buy a business that has existing employees, you will have to take them on if you purchase via a share sale. You will then be responsible for any of their entitlements, such as accrued leave.

Share Sale — Change of Company Ownership

If you agreed to buy the entity in which the business operates (for example, an existing company), you will automatically receive the employees as well. This is a share sale. While the ownership of shares in the company changes, the company stays the same. You as the buyer will then be responsible for employee entitlements, such as leave and wages. You may be able to negotiate the costs of these entitlements into the purchase price.

When buying a company, it is also important to look into whether the employees are being paid the correct wage under an award or enterprise agreement. The company is responsible for ensuring employees are paid correctly and so this is a potential liability for the purchaser.

As a purchaser, you may wish to check that.

  • Contracts/ agreements are in place that set down the true employment relationship of the employee (Casual, Perm or Fixed term)
  • Ensure that employees are employed under the correct Modern Award and paid the correct rate for the true employment relationship. A purchaser may wish to ask for or complete a BOOT (Better overall test) for annualized or increased wage employees to show with certainty they are being paid correctly.
  • Check also any previous or current compensation claims made by employees as you do not want to get caught out employing someone who may not be physically capable of carrying out their role and you may face legal action if you then terminate their employment because of this.

If Employee’s Transfer with the business the former business must provide you with:

  • up to date employee records
  • notify you of any contractual, leave, financial and legal obligations you have with your employees (including Ling service)
  • work out with you what obligations you’ll be responsible for and what obligations will be transferred to you as the new owner
  • provide your employees with notice of ending employment and let them know that they’ll need to sign a new contract with you as the new owner that will be effective from the date of the new ownership.

The purchaser must then keep the employee records as if they had been made by the purchaser at the time at which they were made by the vendor (as the old employer), which means that they must be stored for at least 7 years.

The new employers (YOU) must give every new employee a copy of the Fair Work Information Statement before, or as soon as possible after, they start their new job.

Transfer of Employees – what you need to know

Generally, where there is a transfer of employment, service with the old employer counts as service with the new employer.

However, there are exceptions to this general principle.

  • When a new employer is not an associated entity of the old employer, they may decide not to recognise a transferring employee’s previous accumulated service for annual leave or redundancy pay under the National Employment Standards (NES) that now apply.
  • Given this, the old employer may be under an obligation to pay the affected employees their accrued entitlements (such as annual leave or redundancy). You will work this out with your lawyer who will be assisting you in the purchase documents and process.
  • If the employee has already received entitlements based on service from the old employer, that service is not counted again in determining entitlements with the new employer. For example, if payment in lieu of notice of termination is given by the old employer, the period of notice for any subsequent termination by the second employer is not calculated based on service with the old employer.

Voluntary Transfer of Employees

A buyer who decides to transfer employees from the original to the new business the original business needs to provide notice to these employees. You need to do this before you finalize the sale of business contract. Once the existing employees agree to the transfer, you should include a clear list of employee entitlements in the sale of business agreement. This ensures that the purchase price takes these entitlements into account.

If taking on employees who will be undertaking the same or near same duties, then you need to recognize their prior service. For example, in terms of accrued personal leave, annual leave and long service leave. You can include these leave entitlements in the sale price adjustments before settlement.

 Can you as the purchaser choose not to recognise prior Service of an Employee?

Provided the two parties are no-associated entities, the buyer in a FW Act transfer of business situation may choose not to acknowledge continuity of service for the purpose of annual leave and redundancy pay entitlements under the FW Act.

Not Transferring Employees

During a business purchase and depending on the terms of the contract, you can elect not to take on some or all of the employees. This can reduce the business expenses for the time being.

If you do not take on certain employees, the seller may need to make their roles redundant. However, redundancy payments are not always be required. For instance,

  • where there are less than 15 employees (subject to limited exceptions).
  • and if the employee is casual or has been engaged for less than 12 continuous months

 Important: If this is the case, the buyer must advise the transferring employee in writing that their prior service will not be recognized before they commence employment with them. The seller of the business must then pay the employee for those entitlements upon termination of the employee’s employment with the seller.

Also, Important: if you are an associated entity with the vendor and are buying the business, you cannot buy without acknowledging existing staff service.

Post-Purchase

Avoid imposing your management and business beliefs too heavily on the employees but instead look for ways to bring them together with the existing systems. The most important thing you need to remember during and after purchase of a business is that it comes first. The old adage of the ‘staff making the company’ leaves you in a position where you may take risks to keep people happy while sacrificing the health of the business. It is truer that your customers and the service they receive from you is the company. With this in mind, you can make decisions about staff with a clear head. If you do need to let people go, do it honestly and quickly. People will respond better to the truth if it is delivered quickly during the transition process of the business.

For help when it comes to buying a new Business give us a call for a no obligation chat. You can book this is with our FREE 30-minute general consult HERE

 

Share This